Mortgages for First-Time Buyers

Jamie Elvin talks us through mortgages for First-Time Buyers.

There’s no denying it: purchasing your first home and getting a mortgage can be a bewildering and challenging experience. Where should you begin your search? How much deposit is required? And what exactly is stamp duty?

But worry not. We’re here to assist you. At Strive Mortgages, our advisers understand the overwhelming nature of securing your first mortgage. Therefore, we are dedicated to providing as much transparency as possible in the property finance market. We will guide you through every step of the process, ensuring that you feel confident and empowered throughout. From start to finish, we’ll handle all the necessary tasks while you focus on finding your dream first home and gathering your deposit.

To discuss your specific requirements for a first-time buyer mortgage, reach out to our team of experts today. Let’s kickstart the process and get things moving in the right direction.

What is a first-time buyer?

Whilst the answer to this might seem glaringly obvious, the definition of a first-time buyer for mortgage purposes differs from that for stamp-duty purposes. When it comes to stamp duty, a first-time buyer is typically defined as someone who has never owned any type of property anywhere in the world.

This means that even if you have previously owned a property but have sold or transferred it, you may not be eligible for first-time buyer stamp duty relief. However, for mortgage purposes, the definition of a first-time buyer can vary between lenders. Some lenders may consider you a first-time buyer if you have not owned a property for at least three years, while others may have different criteria.

Being classified as a first-time buyer can have certain advantages. For example, some lenders may offer first-time buyer products with lower interest rates or reduced fees.

What are the initial first steps for a first-time buyer?

As a first-time buyer, here are the first steps you can take when applying for a mortgage:

1. Check your credit score: Your credit score is one of the most important factors that lenders use to determine whether to approve your mortgage application. You can check your credit score with credit reference agencies like Experian, Equifax or TransUnion.
2. Determine how much you can afford: It’s important to know how much you can afford to borrow before applying for a mortgage. This will help you narrow down your property search to homes within your budget. You can use mortgage calculators available online to help you estimate how much you can afford to borrow.
3. Shop around for the best mortgage deals: It’s important to compare mortgages from different lenders to find the best deal. You can do this yourself or use a mortgage broker who can provide advice and access to a wide range of lenders.
4. Get a mortgage pre-approval: A pre-approval will give you an indication of how much you can borrow and will make you a more attractive buyer to sellers. Pre-approvals are typically valid for a limited time, usually around three months.
5. Gather the necessary documents: When applying for a mortgage, you will need to provide a range of documents, including proof of income, bank statements, and identification. Be sure to gather these documents in advance to speed up the mortgage application process.

What is an Agreement in Principle?

An Agreement in Principle is confirmation from a lender as to how much they’re prepared to lend you subject to a full assessment. It will usually involve a credit check and a look at your income and outgoings.

It’s really important to secure an Agreement in Principle at the earliest possible stage. It will give you confidence when you offer on a property, knowing that you can actually afford it. It also helps with your negotiation – it’s evidence to an agent that you’re a serious buyer.

It doesn’t tie you to a particular product or to that lender, and they’re typically valid for between 60 and 90 days. That can easily be extended. So it’s definitely worth securing one before you start viewing properties.

How much can a First-Time Buyer borrow?

As a first-time buyer, the amount of finance available to you will depend on a few factors, including your income, current savings, financial situation and what outgoings you already have. As a general rule of thumb, between four to five times your income is a typical loan amount, but some lenders will consider as high as six times for certain professions. You may also get significantly lower multiples for any number of reasons.

If you are buying with a partner, family member or friend, then this increases the amount you can borrow between you.

What deposit is needed?

This will vary massively, depending on the client and their status. The absolute minimum deposit is 5% of the purchase price, and you will need to meet income and affordability requirements.

Larger deposits than 5% may be required in many instances, such as on certain property types if you’ve got credit issues or you don’t have permanent residency in the UK.

How do I know what my credit score is and how do I improve it?

There are various credit reference agencies that you can check with – the three main ones are Experian, Equifax and Transunion. When you’re getting a copy of your credit report, most will typically charge a fee, and some will charge an ongoing fee to use their service in future. Some providers let you access all three credit reference agencies in a single report.

The best way to improve your credit score is to ensure all your credit commitments are up to date and paid on time. Late or unpaid utility bills and phone bills can be a bit of a banana skin for your mortgage prospects.

Another big thing is being on the electoral register. Even if you don’t vote, it’s worth registering, as it allows companies to verify that you are who you say you are. It does have a big impact on your credit score.

Download a copy of your credit report

What is a First-Time Buyer ISA? Are they still available?

You can’t open these any more, but if you do have one, you can put up to £200 a month tax-free into the account. It’s a good scheme because the government then tops up your savings by 25% up to a maximum of £3,000 when you buy your first home.

It’s worth noting that this only applies to properties valued at up to £250,000, which in the south of England doesn’t go a long way. It can only be used on your first home.

What is a Joint Borrower Sole Proprietor (JBSP) mortgage?

A joint borrower sole proprietor mortgage is effectively a guarantor mortgage. Again, it’s a great scheme, perhaps if you have a deposit but you’re struggling with affordability, plus you have a willing friend or family member who’s happy to help. This mortgage allows you to buy with someone else and use their income for affordability, but they don’t actually become owners of the property: they are not named on the title deeds.

What is Shared Ownership?

For many people, saving for a deposit can be really tricky. Shared ownership helps with that. Instead of buying a whole property, you buy a share in it or a percentage of it. You take a mortgage on your share, put a deposit down and then pay rent on the remainder.

It’s sometimes known as part-buy, part-rent, and you can typically own 25% to 75% of the property value. You need a minimum 5% deposit on your share. You also have the option to do something called staircasing to buy a larger percentage of the property later. It’s a really good scheme if you meet the criteria.

What’s the First Homes Scheme?

The First Homes scheme effectively replaced the Help to Buy shared equity scheme, which was available on new builds that stopped in October 2022. The First Homes scheme is also for new build properties, where you can buy for 30% to 50% less than market value.

It’s available for First-Time Buyers and key workers and essentially gives you a massive discount on the property. When you come to sell the property, the discount will be factored in at that point. It’s a useful scheme to help people get onto the property ladder.

What fees are involved when buying your first home?

The costs involved for a first-time buyer in the UK can vary depending on several factors, such as the location, type of property, and the price of the property. Here are some of the common costs associated with buying a home in the UK:

• Deposit: The deposit is typically a percentage of the property’s purchase price and is usually at least 5% of the total amount. However, the higher the deposit, the better the interest rates on your mortgage will be.
• Mortgage fees: Mortgage fees vary depending on the lender and the type of mortgage you choose. These fees can include arrangement fees, valuation fees, and legal fees.
• Stamp Duty: This is a tax paid by the buyer on the purchase of a property in the UK. The rate varies depending on the value of the property, with first-time buyers not having to pay stamp duty on properties up to £400,000.
• Conveyancing fees: These fees are paid to a solicitor or conveyancer who handles the legal work involved in the purchase of the property.
• Survey fees: You may also need to pay for a survey to check the condition of the property. The cost of the survey will depend on the type of survey you require.
• Removal costs: You may also need to pay for the removal of your belongings to your new home.

Stamp Duty Calculator

How can a mortgage broker like Strive Mortgages help a First-Time Buyer?

A mortgage broker can be extremely helpful when you’re buying your first home. Here are some ways a mortgage broker can assist you:

• Access to multiple lenders: A mortgage broker can provide you access to a range of lenders and their mortgage products, which can save you time and effort in shopping around yourself.
• Understanding the market: A mortgage broker can help you understand the current market conditions and identify the best mortgage product for your specific needs and financial situation.
• Pre-approval: A mortgage broker can help you obtain pre-approval for a mortgage, which can be beneficial when you’re making an offer on a property. Pre-approval gives you a better idea of how much you can afford to spend on a home, and it can make your offer more attractive to sellers.
• Negotiation: A mortgage broker can negotiate on your behalf with lenders to secure the best mortgage rates and terms for you.
• Paperwork and documentation: A mortgage broker can help you with the paperwork and documentation required to apply for a mortgage, which can be quite extensive and time-consuming.

For more information on mortgages for first-time buyers, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.

Your home may be repossessed if you do not keep up with your mortgage repayments.