First Time Buyer Mortgages

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Article created by Christian Duncan, Director – Mortgage and Protection Adviser
Last updated 9th August 2023

Table of Contents

 

Who is a First-Time Home Buyer in the UK?

 

A first-time home buyer, as defined by the UK government, is someone who has never owned a residential property in the UK or abroad. This means that if you’ve ever owned a property that you lived in or had the rights to, you are not classified as a first-time buyer under UK property law.  That being said, for mortgage purposes there are lenders that will classify you as a first time buyer if you have a three year gap in home ownership.

 

How Much Deposit Does a First Time Buyer Need in the UK?

The deposit is an integral part of purchasing a property. In the UK, first-time buyers usually need a minimum of 5% of the purchase price. Therefore, if the house costs £200,000, a first-time buyer would need a deposit of approximately £10,000.

However, it is wise to aim for a larger deposit as it can secure better mortgage rates and reduce monthly payments.

 

How much can you can lend?

As a first time buyer you are in the fortunate position in that some lenders will look at your situation favourably and increase your income multiples.  Typically, the average person would usually be looking to lend between 4 and 4.5x their annual income.  On occasion, we have been able to secure 5.5 – 6x income for first time buyers.  Understanding your circumstances, income and committed expenditure fully will help a mortgage adviser calculate this accurately.   

 

Steps to Getting a Mortgage as a First-Time Buyer

 

Obtaining a mortgage is a significant step in the home buying process. Here’s a step-by-step guide to securing a mortgage in the UK:

Step 1: Mortgage Affordability Assessment

Before lending you money, mortgage providers will evaluate your financial circumstances. They will consider your income, outgoings, and how the interest rate rises may affect your ability to pay back.

Step 2: Decision in Principle

Also known as mortgage in principle – it’s essentially a written statement from a lender indicating that based on the information you have provided, they are willing to lend a certain amount of money for a property purchase.  

Step 3: Property Search

With your budget in mind, you can now start looking for properties. Websites like Zoopla or Rightmove can help you with that.

Step 4: Full Application for Mortgage

Once an offer has been accepted, you can apply for a mortgage.

Step 5: Mortgage Offer

If your application is successful, you will receive a mortgage offer stating the terms of your mortgage.

 

The Benefits of being a First Time Buyer

 

In the UK, first-time buyers receive several benefits, such as relief on stamp duty land tax, which can significantly reduce buying costs. They are also favoured when developers and housing associations have homes available under the shared ownership scheme.

First-time home buyers also have unique mortgage deals available to them.  These can often equate to reduced rates, cashback or even free conveyancing (legals / solicitors).  

 

First Time Buyers with Bad Credit 

 

If you’re a first-time home buyer, anxious about getting a mortgage due to bad credit? You’re not alone. Many others are in the same predicament. The good news? A bad credit score is not necessarily a blockade on your path to homeownership in the UK. 

Understanding Credit Scores

Before delving into solutions, understanding credit scores’ role in mortgage applications is vital. Lenders use credit scores to determine how reliable you might be in repaying your mortgage. A bad credit score might give lenders concern making it tougher to get a mortgage. However, this is where we can help .  There are lenders that wont base their lending decision on credit score.  Instead they will look over your credit profile an base their decision on a case by case basis.  These lenders take more of a common sense approach to their commercial lending decision.  

Subprime Mortgages

Some Subprime mortgage lenders cater primarily to individuals with poor credit scores.  These mortgage types understandably come with higher interest rates to overcome risk to the lender.  

Family-Assist Mortgages

In these mortgage types, a family member assists with your deposit or acts as your guarantor. This arrangement might help first-time buyers with bad credit secure a reasonable mortgage deal.

Improving Your Chances of Approval Repair Your Credit Score

Before applying for a mortgage, it pays to spend some time repairing your credit score. This isn’t a quick process and obtaining advice from a mortgage adviser can pay dividends in getting an action plan together to make steps towards improving your credit score.  

Save for a Larger Deposit

If you have a larger deposit, it reduces the risk to mortgage lenders and could open more mortgage options to you even if your credit history is less than perfect.

Seek Professional Advice

First-time buyers with bad credit, don’t despair! Numerous pathways to homeownership in the UK still exist.  Engaging a mortgage adviser can offer personalised advice based on your financial situation. They can place you with lenders more likely to accept your application and assist you through the application process.

What costs should you budget for as a First Time Buyer?

Buying your first property can be really exciting so its understandable when a first time buyer overseas some of the costs associated.  Below we have listed some of the costs you should considering when committing to being a first time buyer.
 
  • Solicitor Costs.
  • Mortgage Broker Fees.
  • Valuation Fees.
  • Survey Costs if required.
  • Building Insurance.
  • Life Insurance, Critical Illness Cover and Income Protection if required. 
  • Stamp Duty (SDLT, Stamp duty land tax, Transaction Tax in Scotland or Land Transaction Tax in Wales.)

A Recap: What to Remember as a First Time Homebuyer in the UK

 

Becoming a first-time homeowner doesn’t have to be daunting. Remember to clearly understand your financial capability, secure a sizeable deposit, and fully comprehend the mortgage process.

Seize the numerous benefits available to first-time buyers, and always stay informed about the changing regulations and housing market trends.

Remember “going in prepared and staying on top of the process puts you in a better position in the competitive UK housing market.”

This article aims to provide general information and does not constitute professional advice.  If you would like advice tailored to your circumstance then book an appointment with us 

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