How to get a mortgage as a first-time buyer

Buying your first home is exciting. However, the mortgage process can at first can feel complicated. There are lots of new, strange words to try to understand. In fact, getting a mortgage as a first-time buyer is a completely new experience.

Sometimes it can seem highly confusing and overwhelming for many. First-time buyers are those who have never owned a residential property in the UK or abroad.

And who are buying their first home, it actually means first-time homeowners. If you inherit or receive a home as a gift. As a result, you could miss out on certain special home buying schemes and benefits. Some lenders may not consider you a first-time buyer.

If you previously owned a property, and it's been a few years since you did.  Some lenders may not consider you for their first-time buyer products.

Therefore, always check with the mortgage providers or a mortgage advisor or broker. It is improbable that you will qualify for special government schemes for first-time buyers. But there is no harm in double-checking.

Understanding the requirements for a mortgage as a first-time buyer can help you avoid wasted time and missed opportunities.

Mortgages are loans that lenders provide to people to buy a home or land. Mortgage lenders are typically banks or building societies. The two types of mortgages are interest-only and repayment mortgages. Whichever you decide on, you will make monthly repayments.

Understanding your mortgage as a first-time buyer

The length of the mortgage is the mortgage term. And it is the time in which you have to repay your loan and interest.

Mortgage terms vary and can be anything from 2 up to 40 years. In the UK, the average mortgage term for first-time buyers is now 32 years.

Rising from a previous average of 25 years. Consequently, your monthly payments will be lower with the more time you have to pay off the loan.

However, you will pay more interest in the long run.

Types of mortgage as a first-time buyer

Two types of mortgages are available to repay your mortgage loan. Repayment and interest-only, you make monthly repayments to your lender.

With repayment mortgages, your payments pay off the mortgage and the interest. Interest-only means your payments only pay off the interest.

With interest-only, at the end of the term. In the end, you still have to repay the loan as a lump sum.

Interest rates on a mortgage as a first-time buyer

There are different interest rates to choose from. The interest rate is what your lender charges for the money you borrow.

Typically, the lender adds it to your borrowed amount. 

A fixed-rate mortgage means the interest rate stays the same for an agreed time. This is usually 2-5 years, allowing for easier budgeting.

You will pay the same amount each month, but if interest rates fall. You will not benefit until you move on to a new deal.

A variable rate mortgage means the interest rate will vary when interest rates go up or down. It depends on the Bank of England’s base rate. 

A tracker mortgage is also classed as a variable rate. And it moves in line with the Bank of England’s base rate.

Deals usually offer a slightly lower interest rate than the Bank of England’s base rate. And again, this will vary if interest rates go up or down.

First-time buyer mortgages may be available from some lenders. They sometimes offer valuable incentives such as lower deposit requirements and cashback.

The loan to value (LTV) ratio

The LTV is the amount you borrow through your mortgage loan compared with the property's value.

So, if your deposit is 10%, and you require a mortgage loan for the remainder of the purchase price, your LTV is 90%. The larger your deposit, the lower your LTV ratio.

Lenders offer lower interest rates for smaller loans as there is less risk. The best rates are usually available with a 40% deposit and 60% LTV.

Mortgage deposits and credit score

First-time buyers should expect to pay a deposit of at least 5% or 10% of the property value. You will need to borrow less with a larger deposit.

You may also have a wider choice of mortgage deals with lower interest rates. Mortgage calculators help check your potential borrowing limit.

Lenders will check and consider your credit score and history. A good score improves your chances of approval.

It will also increase your options, and choice of the best mortgage interest rates.

First-time buyer schemes

Various schemes are available to assist first-time buyers to get onto the housing ladder. First homes schemes offering generous discounts of 30% or more.

Shared ownership schemes allow you to purchase a percentage of the property. You then pay rent on the remainder.

Another is a Lifetime ISA (LISA). Whereas you get a 25% government bonus on annual savings of £4,000.

You should consult an independent mortgage advisor or broker about available options. Including specialist first-time buyer mortgages and new-build buying schemes.

Government and shared ownership schemes can significantly ease the process of getting a mortgage as a first-time buyer.

Get a mortgage agreement in principle (AIP)

Lender's estimates of how much they might lend you, are mortgage agreements in principle. Lenders will assess your income, outgoings and debts.

They then determine how much they will lend you. It doesn’t guarantee a mortgage offer. But it shows you are a serious buyer and helps when making offers.

With an AIP in place, you can proceed with property viewings. Then you make an offer through an estate agent when you find the right one.

Apply for a mortgage and get a survey done

Once you receive your mortgage offer, you need to apply for a mortgage. A mortgage advisor/broker can help you find the best deal.

You must be prepared to supply proof of deposit, bank statements, payslips. Or if you are self-employed, tax returns will be necessary. These documents are essential for securing a mortgage as a first-time buyer.

You will need a property survey, and three main types are available. A basic valuation which checks the property’s value.

A home buyers survey, which checks thoroughly for major issues. A full structural survey, which is a detailed check of the entire property.

Check with your lender about which survey you need before proceeding.

Final steps as a first-time buyer

Upon receipt of your official formal mortgage offer. Carefully checking all details and terms before accepting is essential. You may need professional help with this.

By this stage, you should have a solicitor who will handle the deposits, contracts, and legal paperwork required. On completion day.

There is a transfer of the mortgage funds, and you will get the keys to your new home.

With mortgaged properties, lenders use your home as security against the loan. Any failure in keeping up with your repayments.

Means your lender could sometimes take steps to take back and repossess your home. You must speak to your lender to find a solution if you have difficulty with repayments. Repossession is usually only a last resort if all else fails.

Get expert advice

Buying your first property can feel daunting, but things do get easier once you have a better understanding of the basics. It's important to take your time, ask the right questions, and sought advice when needed. With the right support, you'll have your first home in no time.

Let Regulated Advice match you with a mortgage advisor for expert advice.