First-time buyer mortgage guide

First-time buyer mortgage guide

First-time buyers are faced with a whole host of challenges and fears when buying a home for the first time.

And one of the biggest is securing that all-important mortgage.

Borrowing a huge sum of money is, in itself, a daunting prospect. But there are things you can do to ensure you’re prepared and well-positioned to breeze through the mortgage application process and move that step closer to owning a home.

Here, we’ll explain the process of getting a mortgage for the first time, explore some of the options open to you and pass on some great tips, too…

How much of a mortgage can I get?

As a first-time buyer, you’ll be assessed by mortgage lenders in the same way any other buyer would.

How much you can borrow will depend on:

• Your income

• Your spending and debt levels

• Your credit history

• The amount you have as a deposit

• Your employment history

• The value and condition of the property you want to buy

All lenders have their own criteria, though, so this isn’t an exhaustive list and while you may be rejected for a mortgage with one lender, that doesn’t mean you will be for another.

How much deposit do I need to buy a house?

As a first-time buyer, your deposit is key to how much you can borrow as a mortgage. Most lenders will need you to pay at least 10% of your property’s purchase price as a deposit and the bigger your deposit, the better.

A bigger deposit reduces the loan to value ratio of your purchase, and this means you can often access more attractive mortgage interest rates.

The average deposit put down by first-time buyers in the UK in 2020 was £57,278 – almost £10,000 more than in 2019.

Find out more about the deposit options you have as a first-time buyer here.

The Help to Buy equity loan scheme

The current Help to Buy equity loan scheme, which is open until March 2023, means you can buy a new-build property with as little as a 5% deposit.

The scheme pays you an equity loan that covers 20% of your purchase price alongside your 5% deposit (40% in London), with the other 75% (55% in London) coming via a repayment mortgage. Help to Buy equity loans are interest free for five years, but the amount of the loan can go up or down over time depending on your property’s value.

Find out more about Help to Buy here.

How to get a Help to Buy mortgage

If you decide to proceed with one of the Help to Buy schemes on offer, you’ll need a Help to Buy mortgage.

Not all lenders offer Help to Buy mortgages and the interest rates on offer can vary compared with standard residential mortgages.

Speak to a mortgage broker to find out what Help to Buy mortgage options are available to you.

Once you have found a lender and a mortgage product that suits you, the process for securing the mortgage is as it would be for a standard mortgage – but with your Help to Buy application on top.

How to apply for a first-time mortgage

The best place to start when looking to secure a mortgage for the first time is an agreement in principle.

An agreement in principle tells you what a lender might be prepared to loan you, subject to a full application being successful. The best thing about an agreement in principle is it can be obtained in as little as an hour online, based on information you supply on your income, employment, debt and spending.

Having an agreement in principle doesn’t mean you’re guaranteed a mortgage – you’ll need to complete the full application process to determine that.

However, it can put you in a strong position, showing sellers and estate agents that you’ve started the mortgage application process and you’re a serious buyer.

After your agreement in principle

Once you’ve found a property and had an offer accepted, you’ll need to complete your mortgage application.

Your lender will assess your ability to pay back the mortgage based on your income, debt, spending, employment history and your credit file, as well as the amount you have for a deposit. Your assessment will determine how much your lender is willing to loan you and could also affect the maximum loan-to-value they’re prepared to lend against.

For example, if you’re buying a property for £160,000 and your lender is only willing to loan you 85% of the purchase price, you’d need a 15% deposit – or £24,000.

Mortgage tips for first-time buyers

Securing your first mortgage can be daunting, but we’ve put together these tips to help make things easier…

1. Spend time working out your budget

This is hugely important.

You wouldn't buy a car without knowing down to the penny how much you can afford to spend and property should be no different.

The best place to start is an online mortgage calculator, which will give you a clear guide on your borrowing potential.

All you need is your income and the calculator will let you know how much you could potentially borrow.

But remember, the mortgage application process is far more thorough and lenders will go through your finances with the finest toothed comb.

2. Make sure your financial situation is in order

You've worked out your income and been through the online calculator process and established what you might be able to borrow.

That's a great start. But if you have debt, your ability to borrow will be greatly affected.

If you are paying off a car loan or credit cards then your mortgage lender will take all of these payments into consideration before lending to you.

And this could really have an impact on your borrowing ability - in the worst cases, debt can mean no mortgage at all.

If you have debts, speak to an independent financial advisor, who will be able to suggest the best way forward.

Lenders will also scan over your credit history. So, it can be a good idea to check this out yourself before applying for a mortgage.

Bad credit can be a sucker punch for mortgage seekers, but a poor credit report is not always down to huge debts as most people assume.

Make sure you are registered on the electoral roll where you live and if you have any credit or store card accounts open but you no longer use them, close them down!

If you are clearing debts or have a poor credit record, sometimes the best option is to postpone the property purchase and focus on getting your finances in better shape. That way, you can revisit buying a property for the first time later on with a clean bill of financial health.

3. Boost your deposit

One of the biggest problems for the Millennial generation, forced into rental accommodation due to house price growth outpacing wages, is saving a large enough deposit to buy. But it is a fact that a larger deposit means more choice on mortgages and often a lower rate of interest.

Lenders use a Loan to Value (LTV) calculation to assess how your borrowing figure sits against a property's purchase price.

And the lower your LTV, the less 'risk' in the eyes of the mortgage lender, meaning they are far more likely to lend to you.

A larger deposit will mean a lower LTV and, therefore, lower monthly mortgage repayments.

So it's in all first-time buyers' interests to raise as big a deposit as possible.

4. Avoid properties that scare lenders

We've already established that lenders will perform a forensic examination of your finances.

The other thing they take a great deal of interest in is the property you are buying.

From a lender's point of view, they want to know that, should you get into difficulty paying your mortgage, the value of the property you want to buy will cover the amount they are lending you.

Essentially, they want to be sure they'll get their money back.

With that in mind, lenders tend to get twitchy when buyers purchase 'odd' or 'unusual' homes.

By that we mean flats or apartments above commercial premises or old buildings constructed with non-standard building materials.

So, try to stick to traditional properties that are likely to at least hold their value when searching for your first home.

5. Organise your documents

The home-buying process involves paperwork. A lot of paperwork.

And a lot of it will need to come from you as the buyer.

When property sales are held up, which is never good, it's often down to a buyer or seller not being able to track down an elusive document.

So, before you apply for your mortgage make sure you have the following to hand:

• 6-12 months of payslips

• Last two P60s

• 6-12 months of bank statements

• Proof of identification (passport or driving licence)

• Proof of address (utility bill not older than three months)

Parkers can put you in touch with a mortgage advisor to help you to get a mortgage application accepted, get in touch with your local office for more information.

Further reading…

If you’re thinking of getting on the property ladder for the first time, take a look at our dos and don’ts for first-time buyers.

We’ve also put together a guide featuring everything you need to know as a first-time home buyer, while our guide on saving a deposit can help you get your finances in good shape.