First Time Buyer
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First Time Buyer Mortgage
Carly Ashburner talks to us about mortgages for First Time Buyers.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
You’ll need to provide your ID, and proof of income in the form of recent pay slips – or, if you’re self-employed, tax calculations and tax year overviews. You need recent bank statements to evidence your outgoings, a credit report to show your credit history, and a deposit which could be savings or a gift. You’ll also need some money for your moving expenses.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
How much you can borrow depends on your earnings and affordability. If you are in permanent employment and have a good credit history, some lenders will lend as much as six times your income.
What’s the minimum deposit required for a First Time Buyer?
If you have a good credit history, and a 12 month track record of renting and paying utility bills, you can actually apply for a 100% mortgage with no deposit.
If that doesn’t apply to you, there are lenders who offer mortgages with as little as a £5,000 deposit, and several lenders who will offer mortgages with a 5% deposit. [All information given is correct at the time of recording in October, 2024].
What are the types of interest rates available on a mortgage for a First Time Buyer?
Being a First Time Buyer will not restrict the type of interest rates available to you. The main ones are fixed or variable, although I usually advise First Time Buyers to opt for a fixed rate.
With a fixed rate, you have the peace of mind of knowing that your mortgage payments will remain the same within the fixed period. This helps with budgeting – as First Time Buyers have a lot of new expenses and bills, including perhaps decorating and furnishing their new home.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
Fixed rates are great for budgeting as you have the security of knowing your monthly payments will be the same. If interest rates rise you’re protected, as you’re fixed in.
The downside is that if interest rates lower, you won’t benefit from a reduction in mortgage payments until after the fixed period has ended.
A variable rate would increase and decrease in line with the Bank of England rate, so your payment could vary each month. If interest rates reduce, you will have a lower monthly payment. However, if they rise, your monthly payment will be higher.
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What government schemes are available to help First Time Buyers?
There’s Help to Buy, which allows First Time Buyers to purchase with a deposit as little as 5%. You’ve also got the Lifetime ISA, which you can use to save for a deposit. With this, you can pay £4,000 a year into the ISA and the government will add a 25% bonus to your savings. You can get more information about those on the government website.
[All information given is correct at the time of recording in October, 2024].
What documents do I need to get pre-approved for a mortgage as a First Time Buyer?
You will need income documents – pay slips or tax calculations and tax year overviews. A credit report is useful to determine your credit history, and we need proof of ID.
What are the steps to follow when applying for a mortgage as a First Time Buyer?
I would advise you to approach a mortgage broker to assist you through the process. We will be able to determine how much you can afford, check your credit score and obtain a mortgage Decision in Principle.
You can then go and view properties knowing how much you can afford to borrow and what deposit will be needed. Once you’ve had an offer accepted on a property, your mortgage broker can then guide you through the application process.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
A common mistake is to shop for a house before you’ve got the mortgage. In that situation, you don’t know how much you can afford. You could be wasting your time or end up disappointed if a property is out of your reach.
Also, avoid applying for credit and making purchases on credit. Lenders do look closely at your credit score and current debt to income ratio. This could affect the loan size you can achieve.
It’s also possible for lenders to rescind their mortgage offer. So until the keys are actually in your hand, don’t enter into any new credit agreements.
What happens if I miss a mortgage payment as a First Time Buyer?
As a mortgage advisor, I would urge you to prioritise your mortgage payments. If you miss a payment, you could incur a late fee. Your credit score would be impacted and you could find it harder to apply for a mortgage in the future.
Can I qualify for a mortgage as a First Time Buyer with bad credit?
Yes, certainly – there are lenders we can approach if you do have bad credit. You would typically pay a higher interest rate and need a larger deposit as you are considered a higher risk.
Can I get a Buy to Let mortgage as a First Time Buyer?
Yes. Some lenders prefer you to already own your own home, but it is still possible. The loan size for Buy to Let is dependent on the rental income, not your earnings, although most lenders will have a minimum income requirement.
How can a broker help me with my First Time Buyer mortgage application?
I always recommend that you speak to an experienced mortgage broker who can guide you through the process. We smooth the application by avoiding you having to repeat the same information to multiple lenders.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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