We know that when it comes to securing a mortgage, there are so many factors to consider (especially for a first-time buyer with zero experience) that the whole process can feel rather daunting.
The decisions you make during this time will affect you financially for years to come, so getting it right is essential! We believe that this should be an exciting experience, although it can easily turn into stress and some tears if you’re not properly prepared.
Our Customers rate us 4.6 out of 5
Don’t worry, we have you covered.
In this guide, we share our advice and top recommendations for first-time buyers seeking a mortgage, including who is eligible to apply, the different types of mortgages that are available, and the paperwork you need to provide to mortgage lenders to be approved for your first mortgage.
What is a Mortgage?
Starting with the basics, not everyone knows what an actual mortgage is and how it affects the process of buying a house? A mortgage is a type of loan which helps you to secure the ownership of a residential property. Typically, monthly mortgage repayments are made so that you can gradually pay off the rest of the loan during the time you live in the property.
This is how most people acquire their homes, as most people don’t have the funds to buy a property outright with the cash upfront!
What Types of Mortgages Are Available?
When it comes to mortgages, there isn’t a one-size-fits-all solution for everyone.
There are many different types of product that a mortgage advisor can help you with, including:
- Fixed rate mortgages (where the interest rate is fixed for a set period of time)
- Variable rate mortgages (where there is no fixed rate and monthly payments are adjusted based on benchmarks such as the base rate set by the Bank of England)
- Repayment mortgages (paying off the full capital amount over time)
- Interest-only mortgages (paying only the interest, though you’ll be expected to pay the capital at the end of the term)
- Offset and current account mortgages (linked to a savings account to reduce the interest paid)
Naturally, there are pros and cons to each type. One arrangement may suit your personal circumstances better than another. If you are struggling to figure out which mortgage is the best type for you, speak to a specialist mortgage expert for tailored mortgage advice.
Should you Choose a Fixed or Variable Rate Mortgage?
A common feature of mortgages is fixed or variable rates. A fixed rate is where your monthly repayment stays at the same cost for a set period of time (often 2, 3 or 5 years, but this can be longer), whereas a variable rate depends on the cost of interest rates at the time.
While the variable rate may seem like the cheaper option at the time, this is subject to change, fluctuating as interest rates increase and decrease.
While you may end up paying more for a fixed-rate mortgage, you have the certainty that the cost will always be the same, giving you peace of mind and allowing you to budget for that exact amount every month.
Do You Need A Deposit For First Time Buyer Mortgages?
Deposits are a necessary part of the mortgage process and getting a mortgage Agreement in Principle (AIP) from a lender under a soft credit check. Not only does a mortgage deposit prove when you apply for a mortgage that you are reliable and financially responsible, but it reduces the lender’s risk (as you’ll be fronting a portion of the costs).
Being able to provide a deposit of at least 10% of the value of the property will give you a wider range of mortgages to choose from.
The benefits of a deposit that is 10% of the property value or greater include:
- Lower monthly mortgage payments
- Lower interest rates
- A cheaper mortgage loan overall
It is possible to secure a mortgage without a significant deposit, especially if you have a good credit history. However, if you are offered a low-deposit deal, you may end up paying for it at a later date with mortgage deals with less-than-ideal interest rates and monthly repayments.
In short, the larger the deposit you can offer towards a property, the better. That’s why it helps to save up as much as you can before you begin to apply for mortgages.
Are There any Additional Costs?
As a first-time buyer, you may be unaware of the additional costs of getting a mortgage beyond the standard mortgage calculation, but you must factor this in.
The surprise of a large unexpected sum can be a disaster, especially at a time when you are trying to save as much money as you can for up-and-coming mortgage payments and regular household bills. These charges are unavoidable and it’s important that you budget for them and take them into account when using a mortgage calculator.
Here are some main charges that first time buyers need to be aware of:
Mortgage fees
This is a charge from the mortgage lender, for using their services and taking out a mortgage with them. This can cost up to £1000.
Valuation fee
This charge is determined when the mortgage lender inspects your property to evaluate how much it is realistically worth. The average cost for this is around £200-£300.
Solicitor fees
This charge covers all of the legal work that is necessary to buy the property. This includes services such as conveyancing and surveys, and is estimated to cost around £500-£2,000.
Stamp duty
As a first-time buyer, this cost depends entirely on the value of the property you’re buying. If you are a first-time buyer in England, the need to pay stamp duty will not apply to you, unless you pay more than £300,000 on your main residential property.
Buildings insurance
Mortgage lenders will require you to have buildings insurance in place to cover the cost of unexpected events such as fire or flooding.
Our Customers rate us 4.6 out of 5
As a First Time Buyer What Information Do You Have To Provide For A Mortgage Lender?
Before you are accepted for a mortgage, you need to provide information to your potential lender to prove that you have the financial stability to make regular monthly payments over the full mortgage term. This process is quite thorough and involves the lender requesting information about your employment status, profession, savings and outgoings in order to assess mortgage affordability.
As an employee, you’ll need to provide roughly 3 months’ of bank statements to prove that you have a regular income. If you’re self-employed, you’ll need to evidence your business accounts, preferably showing two-three years of activity, as well as your tax returns.
This means that it’s substantially easier to prove that you’re a safe bet if you’re an employee rather than someone who is self-employed, but this doesn’t mean that it’s impossible to get a mortgage as a freelancer. It’s worth noting that if you are going for a joint mortgage and your partner is classed as an employee, this will prove a stable income and will dramatically increase your chances of having your mortgage application accepted.
You can read more about the house buying process in our guides.
Specialist Mortgage Advice For First Time Buyers
At When the Bank Says No, we believe that securing first time buyer mortgage deals shouldn’t be a scary process.
Our mortgage broker experts work hard to keep you informed and guide you through the process of first time mortgage applications, providing a dedicated service to find you the most suitable mortgage deals available for your circumstances.
For more information or advice, don’t hesitate to get in touch with one of our friendly team of experts today.