Securing a first-time buyer mortgage in the UK

What are the government schemes available for first-time buyer?

The UK government offers several schemes to assist first-time buyers. However, you should check for the most recent information as these schemes are subject to change. Here are some of the key schemes:

1. Help to Buy: Equity Loan: This scheme is for first-time buyers who want to buy a new-build home. With a Help to Buy: Equity Loan, the government lends you up to 20% of the cost of a newly built home (or 40% in London), so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. The loan is interest-free for the first five years.
2. 95% Mortgage Guarantee Scheme: Introduced in 2021, this scheme encourages lenders to offer 95% mortgages, meaning first-time buyers and home movers only need to provide a 5% deposit. The government provides a guarantee to the lender, reducing their risk. This scheme applies to both new-build and older properties.
3. Shared Ownership: Shared Ownership schemes allow you to buy a share of a home (between 25% and 75%) and pay rent on the remaining share. You can buy more shares when you can afford to – a process known as ‘staircasing’.
4. Lifetime ISA (LISA): A Lifetime ISA is a savings account where the government adds a 25% bonus to the money you save, up to a maximum bonus of £1,000 per year. The money can be used towards purchasing your first home or for retirement.
5. First Homes: Under the First Homes scheme, newly built homes are sold to local first-time buyers at a discount of at least 30%. The discount is passed on to future buyers when you sell, ensuring the homes are always sold below market value.

Each of these schemes has specific criteria and conditions. For example, there may be limits on your income, the value of the property you want to buy, or other factors. Some schemes are only available in certain parts of the UK. Always do your research or seek advice to find the best scheme for your circumstances.

How does credit score impact a first-time buyer’s mortgage?

Your credit score is an important factor that mortgage lenders consider when you apply for a mortgage as a first-time buyer. It provides them with an idea of how reliable you’ve been with repaying debts in the past, which in turn gives them an indication of how likely you are to repay your mortgage. Here’s how it impacts your mortgage:

• Mortgage Approval: A good credit score increases your chances of being approved for a mortgage. If you have a low credit score due to missed payments, frequent late payments, defaults, or bankruptcy, lenders may see you as a high-risk borrower and may be less likely to approve your mortgage application.
• Interest Rates: Your credit score can also influence the interest rate you’re offered on your mortgage. Generally, a higher credit score could get you a lower interest rate, which means you’ll pay less over the life of the loan.
• Borrowing Amount: A good credit score could potentially impact the amount you’re able to borrow, with lenders more willing to lend larger amounts to borrowers who have demonstrated reliable repayment behaviour.
• Access to Products: Some mortgage products are only available to those with good credit scores.

To improve your credit score, consider paying off any outstanding debts, making sure you’re on the electoral register, and avoiding any late payments. Also, check your credit report for any errors that may be impacting your score negatively.

Can I get a mortgage with a low deposit?

Yes, it is possible to get a mortgage with a low deposit in the UK. As a first-time buyer, the minimum deposit you’ll typically need for a mortgage is usually around 5% of the property’s value. However, these mortgages are generally considered higher risk for the lender, so they often come with higher interest rates.

Here are some options for securing a mortgage with a low deposit:

• 95% Mortgages: These mortgages allow you to borrow up to 95% of the property’s value, meaning you’ll only need a 5% deposit. However, keep in mind that these types of mortgages will have higher interest rates due to the increased risk to the lender.
• Government Schemes: Several government schemes can help buyers with small deposits. The Help to Buy: Equity Loan scheme, for example, requires a 5% deposit, and the government provides an equity loan of up to 20% of the property value (or 40% in London), allowing you to get a mortgage for the remaining 75%. There’s also the 95% Mortgage Guarantee Scheme, which encourages lenders to offer 95% mortgages backed by a government guarantee.
• Shared Ownership: With a Shared Ownership scheme, you only need a mortgage for the share of the property you’re buying, which could be as little as 25%. The remaining share is owned by a housing association to whom you pay rent.

It’s important to note that while a low deposit can help you get on the property ladder sooner, there are potential drawbacks. These include higher interest rates, larger monthly payments, and the risk of falling into negative equity if house prices drop. Always do your research or seek professional advice to understand the best option for your circumstances.

Can I use a guarantor?

Yes, you can use a guarantor for your mortgage. This is often an option for individuals who might not otherwise be approved for a mortgage on their own due to low income, a small deposit, or a poor credit history.

A guarantor is typically a close family member (like a parent or grandparent) who agrees to be responsible for the mortgage payments if you’re unable to make them. This means the guarantor must have a strong credit history and sufficient income or assets to cover your mortgage payments if necessary.

There are different types of guarantor mortgages:

• Guarantor Mortgage: The guarantor is responsible for covering the mortgage payments if the borrower cannot.
• Joint Borrower Sole Proprietor Mortgage: The guarantor’s income is taken into account when deciding how much to lend (increasing borrowing capacity), but only the first-time buyer’s name is on the property title.
• Family Offset Mortgage: A family member places savings into an account linked to the borrower’s mortgage. This amount is then deducted from the mortgage, reducing the overall loan amount on which interest is charged.
• Family Deposit Mortgage: A family member puts some of their own home’s equity or their savings as a deposit for the borrower’s mortgage.

However, acting as a guarantor is a significant commitment as it poses financial risks for the guarantor. Both the borrower and the guarantor should seek independent legal and financial advice before entering such an arrangement.

It’s also important to note that not all lenders offer guarantor mortgages, so you might have a smaller choice of mortgage deals. Mortgage brokers or advisers can help you navigate this process and find the best deal for your situation.

How long does it take to get approved for a mortgage?

The timeline for getting approved for a mortgage can vary greatly depending on several factors, including the lender’s process, the complexity of the buyer’s financial situation, and the efficiency of all parties involved. Here’s a general timeline:

• Mortgage in Principle (Decision in Principle): This is a certificate or statement from a lender saying they would, in principle, lend a certain amount to prospective borrowers based on some basic information. This can usually be obtained within a few hours to a few days, depending on the lender.
• Full Mortgage Application: After you’ve had an offer accepted on a property and you submit a full mortgage application, it typically takes around 18-40 days for the lender to assess your circumstances, carry out a valuation on the property, and then make a formal mortgage offer.
• Completion: Once your mortgage offer is in place, the timeline to completion will depend on various factors, including the conveyancing process. On average, it might take around 8-12 weeks from the date of the offer to the day you get the keys, but this can be quicker or slower.

Remember, these are only average times and every situation is unique. The process can be sped up by having all necessary documents ready, responding quickly to requests from your lender or solicitor, and maintaining good communication with all parties involved. It’s also important to note that delays can occur, for instance, if the lender finds issues during the valuation or if there are difficulties in the property chain.

What are the typical interest rates?

It’s difficult to give a precise figure for the typical interest rates on first-time buyer mortgages because they can vary considerably based on several factors. These factors include:

• The Size of Your Deposit: As a general rule, the larger your deposit (or equity, in the case of remortgages), the lower the interest rate you can secure. This is because a larger deposit reduces the lender’s risk.
• Your Credit Score: A higher credit score generally allows you to access better interest rates, as it shows lenders that you’re less of a risk.
• The Length of the Mortgage Term: Mortgages with shorter terms often have lower interest rates than those with longer terms.
• The Type of Mortgage: For instance, fixed-rate mortgages often have higher interest rates than variable-rate mortgages initially, but they offer the security of knowing exactly what your payments will be for a certain period.
• Economic Factors: Broader economic conditions, including the Bank of England base rate, inflation, and the state of the housing market, can all affect mortgage interest rates.

Mortgage interest rates in the UK often range from around 1.5% to 4%, but they could be higher or lower depending on the factors mentioned above.

It’s important to note that while getting a low-interest rate can reduce the amount you pay back over the life of the loan, it’s also crucial to consider other factors, such as fees and the flexibility of the mortgage product.

Can I get a first-time buyer mortgage if I am self-employed?

Yes, if you’re self-employed, you can still get a first-time buyer mortgage, but the process may be a bit more complex. Lenders just need to be confident that you can afford to meet your mortgage repayments, so you’ll need to provide more evidence of your income than someone who is traditionally employed.

Here are a few things to consider if you’re self-employed and looking to get a mortgage:

• Income Proof: Lenders typically want to see at least two years’ worth of accounts or tax returns. They may calculate your average income over these years or consider the most recent year.
• Stable Income: If your income varies significantly from year to year, this could make lenders nervous. However, if you can demonstrate that your income is stable or growing, this will help your case.
• Accountant’s Help: It may help to have your accounts prepared by a certified or chartered accountant. This could make lenders more confident in the reliability of your records.
• Credit Score: Just like any other applicant, having a good credit score will help your chances of securing a mortgage. Be sure to check your credit report and correct any errors.
• Savings: Having a larger deposit can also improve your chances of securing a mortgage. The more you can put down, the less risk the lender takes on.
• Mortgage Broker: Consider using a mortgage broker, as they have expertise in finding lenders who are more receptive to self-employed applicants. They will also know which lenders offer the best deals based on your individual circumstances.

How to compare different mortgages

Comparing different first-time buyer mortgages can seem like a daunting task, but by focusing on a few key areas, you can make an informed decision. Here’s what you should look at:

• Interest Rate: This is the rate at which interest will accrue on your mortgage. A lower interest rate will result in lower monthly payments and less money paid over the life of the loan.
• Type of Interest Rate: Mortgages can have fixed, variable, or tracker rates. Fixed rates mean your interest rate will stay the same for a certain period (usually 2-5 years), which can be good for budgeting. Variable and tracker rates can go up or down in line with the Bank of England base rate or the lender’s standard variable rate.
• Fees: These can include arrangement fees, booking fees, valuation fees, and more. Some fees can be added to your mortgage, but this will increase the amount you owe and the interest you pay. Be sure to factor in these costs when comparing mortgages.
• Loan-to-Value (LTV): This is the ratio between the amount of the mortgage and the value of the property. Mortgages with lower LTV ratios generally have lower interest rates.
• Term Length: This is how long you have to pay off your mortgage. A longer-term means lower monthly payments but more interest paid over the life of the loan.
• Flexibility: Some mortgages allow overpayments, underpayments, or payment holidays. These features can give you some flexibility, especially if your income is variable.
• Penalties: Some mortgages come with early repayment charges or exit fees. These are fees you have to pay if you want to pay off your mortgage early or switch to a different deal.
• Incentives: Some lenders offer incentives to attract first-time buyers, such as cashback, free legal fees or free valuations. These can help offset some of the costs of buying a home.

Consider using a mortgage comparison tool or speaking with a mortgage advisor to help you compare different mortgages. Also, remember that the mortgage with the lowest interest rate might not always be the best deal once you’ve factored in fees and other costs. Always look at the total cost over the term of the deal.

How much can I borrow?

The amount you can borrow with a first-time buyer mortgage largely depends on your income, your outgoings, your credit score, and the lender’s criteria.

In general, mortgage lenders in the UK will lend up to 4.5 times your annual income. However, some lenders may offer up to 5 times your income and, in certain circumstances, possibly even more. This will typically be based on your gross income (before tax), and if you’re applying jointly with another person, it will be based on your combined income.

It’s important to note that lenders also look at your ‘affordability’, which includes not only your income but also your regular spending and any debts you have. This is to ensure that you will be able to afford the monthly repayments even if interest rates rise or your circumstances change.

Are there any specific insurance requirements?

When you take out a mortgage, there are a couple of types of insurance that you’ll typically need to consider. These are designed to protect both you and your lender in the event that you’re unable to make your repayments:

• Buildings Insurance: This is usually a condition of your mortgage. Buildings insurance covers the structure of your home and its fixtures and fittings in case of damage from events like fire, storm, floods, subsidence, and more. If you’re buying a flat, buildings insurance may be included in your service charge.
• Life Insurance: This isn’t usually a requirement, but it’s often recommended. Life insurance could pay out a cash sum if you die during the length of the policy, which could be used to help pay off your mortgage.

In addition to these, there are other types of insurance you might want to consider:

• Contents Insurance: This covers the belongings in your home. It’s not a requirement for a mortgage, but it’s a good idea to protect your personal belongings.
• Mortgage Payment Protection Insurance (MPPI): This covers your mortgage payments for a limited period (typically 12-24 months) if you’re unable to work due to an accident, sickness, or unemployment.
• Critical Illness Cover: This pays out a lump sum if you’re diagnosed with one of the specified medical conditions listed in the policy.
• Income Protection: This replaces part of your income if you can’t work for a long time because of illness or disability. It pays out until you can start working again, or until you retire, dies or at the end of the policy term – whichever is sooner.

These types of insurance can provide valuable peace of mind, but they may not all be necessary or suitable for everyone. It’s worth speaking to an independent financial advisor to understand what types and levels of cover are appropriate for your specific circumstances. Always ensure you understand what’s covered and what’s not covered by any insurance policy before you take it out.

What fees should I expect?

When applying for a mortgage, there are several fees and costs that you should be prepared for. Here are some of the key ones:

• Mortgage Arrangement Fee: This is the fee for the product itself and could be anything from a few hundred to a few thousand pounds. Sometimes, this fee can be added to your mortgage, but that means you’ll be paying interest on it.
• Booking Fee: This is sometimes charged when you apply for a mortgage. It’s a non-refundable fee, typically around £100-£200, and is usually not refundable if the mortgage doesn’t go ahead.
• Valuation Fee: The lender will conduct a valuation to ensure the property is worth roughly what you’re planning to pay for it. The cost varies depending on the property price and the type of valuation you choose.
• Surveyor’s Fee: It’s recommended to get a more comprehensive survey than the basic lender’s valuation, especially for older properties. This will cost more but can identify potential problems that could cost you a lot in the future.
• Legal Fees: These cover the conveyancing work done by a solicitor or conveyancer, including legal paperwork and local searches. You may also have to pay a ‘telegraphic transfer fee’ for transferring the money from the lender to the seller.
• Stamp Duty Land Tax (SDLT): This is a government tax on buying properties over a certain value. First-time buyers in England and Northern Ireland paid no Stamp Duty on properties up to £425,000 and reduced Stamp Duty on properties costing up to £625,000. (The rules are different in Scotland and Wales.)
• Broker Fees: If you use a mortgage broker, they may charge a fee for their advice. Some brokers are fee-free because they take a commission from the lender.
• Other Costs: Don’t forget about the costs of moving, furnishing your new home, and setting up utilities and services.

Remember that different lenders have different fees, so be sure to understand exactly what fees apply before you proceed with a mortgage. Also, consider these fees when comparing mortgage deals, as a lower interest rate could be outweighed by higher fees.

What are the common mistakes to avoid when applying for a mortgage?

Applying for a first-time buyer mortgage can be complex, and it’s easy to make mistakes. Here are some common ones to avoid:

1. Not Checking Credit Score: Before applying for a mortgage, check your credit score with the three main credit reference agencies in the UK: Experian, Equifax, and TransUnion. Ensure there are no errors and take steps to improve it if necessary.
2. Not Saving Enough for Deposit and Fees: Don’t underestimate the amount of money you’ll need for the deposit and various fees associated with buying a home and securing a mortgage. Try to save more than you think you’ll need to cover unexpected expenses.
3. Forgetting About the Extra Costs: Remember that owning a home comes with costs beyond the mortgage payments, including insurance, taxes, maintenance, and utilities. Make sure you budget for these.
4. Not Getting an Agreement in Principle: Before you start house hunting, get an Agreement in Principle from a lender, which gives an idea of how much you might be able to borrow. This will help you search within your price range and show sellers you’re serious buyer.
5. Not Shopping Around: Different lenders offer different mortgage deals. Don’t just go with your current bank without checking what other lenders have to offer. Use comparison sites or a mortgage broker to find the best deal for your circumstances.
6. Choosing the Wrong Type of Mortgage: Consider if a fixed-rate or a variable-rate mortgage is right for you. With a fixed-rate mortgage, your interest rate (and thus your monthly payments) stay the same for a set number of years, while with a variable-rate mortgage, your rate can go up or down.
7. Not Understanding the Mortgage Terms: Make sure you understand all the terms and conditions of the mortgage, including the interest rate, the term, what happens after any initial deal period, and any penalties for overpayments or early repayment.
8. Borrowing the Maximum Amount: Just because a lender is willing to lend you a certain amount doesn’t mean you should borrow that much. You need to be comfortable with the monthly payments and confident you can still afford them if interest rates rise.
9. Changing Jobs Just Before Applying: Lenders like stability, so changing jobs just before you apply for a mortgage could count against you.
10. Applying for Other Credit Before Completion: Until you’ve completed the purchase, avoid taking out any new credit, as this could affect your mortgage application.

Can I get a joint mortgage?

Yes, you can get a joint mortgage. This is where two or more people take out a mortgage together. This can be an advantage as all parties’ incomes will be taken into account when determining how much you can borrow, potentially allowing you to afford a more expensive property.

Joint mortgages are common among couples but can also be used by friends, siblings, or business partners. Here are a few key things to consider when applying for a joint mortgage:

• Types of Joint Ownership: In the UK, there are two ways you can jointly own a property: as “joint tenants” or as “tenants in common”. As joint tenants, each person owns the whole property, and if one person dies, their share automatically passes to the other owner(s). As tenants in common, each person owns a specific share of the property, which they can sell or give away in their will.
• Liability: All parties are equally responsible for making the mortgage repayments. If one person can’t or won’t pay, the others will have to make up the shortfall.
• Credit Scores: All parties’ credit scores will be taken into account when applying for a joint mortgage. If one person has a poor credit history, it could affect the mortgage offer.
• Exit Strategy: It’s essential to agree in advance on what will happen if one person wants to sell the property or can no longer afford their share of the repayments.
• Affordability Checks: Lenders will check the affordability based on everyone’s income and outgoings.

How can I increase my chances of getting a mortgage?

When you’re applying for a mortgage, there are several steps you can take to increase your chances of being approved:

• Improve Your Credit Score: A higher credit score can increase your chances of being approved for a mortgage and getting a lower interest rate. You can improve your credit score by paying your bills on time, reducing your debt, and correcting any errors on your credit report.
• Save for a Larger Deposit: The larger your deposit, the lower your Loan Value (LTV) ratio, which can make you a less risky borrower in the eyes of lenders.
• Stability in Employment: Lenders look for stability in your employment history. If you’re planning on changing jobs, it might be better to wait until after you’ve secured your mortgage.
• Reduce Your Debt: If you have a high level of debt, this could make lenders wary of your ability to meet your mortgage payments. Paying down your debt can help improve your chances of approval.
• Consider a Guarantor: If you’re struggling to get approved for a mortgage due to a low income or poor credit history, you could consider a guarantor mortgage. This is where someone else, usually a family member, agrees to cover the mortgage payments if you can’t.
• Prepare Your Documentation: Make sure you have all the necessary documentation ready for your mortgage application. This usually includes proof of income (such as payslips and tax returns), proof of identity and address, and details of your expenses and debts.
• Stay Within Your Means: When deciding how much to borrow, consider not only how much you’re able to borrow but also how much you’re comfortable repaying each month.
• Speak to a Mortgage Broker: A mortgage broker can help you understand your options, find a mortgage that suits your circumstances, and guide you through the application process.
• Get an Agreement in Principle: This is a statement from a lender saying that they’ll lend a certain amount to you before you’ve finalised the purchase of your home. Having this can make you a more attractive buyer.

By taking these steps, you can put yourself in a stronger position when applying for a first-time buyer mortgage.

What is the role of a mortgage broker?

A mortgage broker, sometimes known as a mortgage advisor, is a professional who can offer advice and guidance to help you find the most suitable mortgage for your needs. For a first-time buyer, this guidance can be invaluable as you navigate the complex mortgage market. Here are a few roles a mortgage broker can play:

• Offering Expert Advice: A mortgage broker will take into account your personal and financial circumstances to advise on the type of mortgage that would be most suitable for you. They can explain the different types of mortgages, terms, interest rates, and features.
• Access to a Wide Range of Mortgages: Mortgage brokers often have access to a wider range of mortgages than you can find on your own. Some lenders work exclusively with brokers, so you may have access to products that aren’t available directly to the public.
• Finding the Best Deal: A broker can compare different mortgage offers and help you understand the total cost, including interest rates and fees, to help you find the best deal.
• Assisting with Paperwork: The mortgage application process can be complicated. A broker can help you fill out the necessary paperwork, ensure you have all the required documentation, and handle the application process on your behalf.
• Speeding Up the Process: Because they understand the process and have relationships with various lenders, brokers can often get a mortgage approved more quickly than if you applied directly to a lender.
• Liaison with Other Professionals: A mortgage broker can liaise with other professionals involved in the home-buying process, such as real estate agents, solicitors, and valuers.
• Supporting You Through the Process: From initial consultation to completion, a good mortgage broker will be there to answer your questions, explain any jargon, and keep you updated on the progress of your application.

Remember, while a mortgage broker can provide valuable assistance, it’s still important for you to understand the terms and conditions of any mortgage you choose to take out. Also, make sure to ask your broker how they are paid. Some brokers are paid a commission by the lender, while others charge a fee to the client. Some brokers use a combination of both methods.

What are the different types of mortgages available?

There are several types of mortgages deals and types available to first-time buyers in the UK, each with its own features and benefits. Understanding these can help you choose the best option for your situation:

• Fixed-Rate Mortgages: With a fixed-rate mortgage, the interest rate is set for a specific period (usually between 2 to 5 years, although longer terms are also available). This can be beneficial for budgeting, as your monthly repayments will remain the same for the fixed term.
• Variable-Rate Mortgages: Variable-rate mortgages have interest rates that can go up or down, usually in line with the Bank of England base rate or the lender’s own standard variable rate (SVR).
• Tracker Mortgages: These are a type of variable-rate mortgage where the interest rate tracks another interest rate (usually the Bank of England base rate) at a set margin above or below it.
• Discount Mortgages: This is another type of variable-rate mortgage where the interest rate is set at a discount below the lender’s standard variable rate for a certain period.
• Capped-Rate Mortgages: These are similar to variable-rate mortgages, but the interest rate won’t go above a certain level (the ‘cap’).
• Offset Mortgages: With an offset mortgage, you can offset your savings against your mortgage balance, reducing the amount of interest you pay.

Each type of mortgage has its own advantages and disadvantages, so it’s important to consider your own financial situation, your future plans, and your attitude towards risk when deciding which type is best for you. A mortgage broker or adviser can help you understand your options and choose the right mortgage for your needs.