Guide to first-time buyer mortgages
Buying your first home is an exciting, yet daunting time, and if you’re just starting out on the journey to homeownership, there is a huge learning curve ahead. Our guide aims to simplify the process of finding and applying for first-time buyer mortgages.
Step 1 – saving for a deposit
These days, it’s essential to have a decent deposit in the bank before you start looking for your first home, and if you’re like most people, you’ll probably need to start saving a good few years before you intend to buy. Most lenders ask for at least 5-10% of the total cost of the property you eventually purchase. If you can manage it, save more than this in order to unlock the best mortgage deals.
You’ll also need to save enough to cover the other costs of buying a home, such as:
- Valuation fees
- Mortgage arrangement
- Stamp duty
- Conveyancing
- Survey
- Furnishing and decoration
Step 2 – deciding on a budget
It’s important to be realistic about what you can afford. Use an online mortgage calculator and enter the maximum monthly payment you can afford. This will help you determine the property price bracket you should be looking at. Don’t overstretch yourself – and bear your other living costs in mind when calculating your budget.
When you come to apply for a mortgage, the lender will check that you can afford the monthly payments, even if your circumstances change. If they think you would struggle, you may be turned down for the mortgage, so it’s best to set a realistic, affordable budget from the outset.
Step 3 – finding the right first-time buyer mortgage
There are thousands of different mortgage options available on the market, but most will fall into the following broad categories.
- Fixed rate
A fixed rate mortgage is ideal if you want the peace of mind of knowing your mortgage payments will be the same every month. Fixed rate mortgage deals run for a set amount of time, usually between 2 and 5 years.
One downside of a fixed rate deal is that in a falling market, you may find yourself locked into paying relatively high interest rates when other lower deals are available.
- Capped rate
Capped rate mortgages, which are not that common, offer a variable rate, but the interest is capped, and won’t exceed a certain amount. In theory they offer the best of both worlds, as you’d benefit from lower interest rates if they were available, but your monthly payments won’t go higher than a certain level. To pay for the cap, mortgage rates are typically higher than their variable rate equivalent.
- Discounted
This kind of mortgage offers a variable rate, so your interest payments can go up or down, but you’ll benefit from a discount on the lender’s standard interest rate. This discount usually applies for a set period, after which your repayments could rise substantially. - Tracker
Tracker mortgages are another type of variable rate mortgage, which ‘tracks’ the Bank of England base rate. Your repayments will increase if the base rate rises, and decrease if it drops. This can lead to savings but can make managing your money difficult.
Step 4 – applying for finance
Whatever the type of first-time buyer mortgages you decide to apply for, the main thing your lender is looking for, is evidence that you can afford the monthly payments.
As part of the application process, you will need to inform the lender of all your monthly outgoings, including household bills, debts, childcare, travel costs etc. You will also need to prove your income, by providing payslips, bank statements and business accounts if you are self-employed.
Applying for first-time buyer mortgages can be a stressful time, but you can make the whole process easier by doing your research and being as prepared as possible.
The information contained in this article is intended as a guide only and is not a substitute for taking appropriate advice from an independent specialist mortgage broker to enable you to decide on the most suitable mortgage product.
