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September 24, 2022

First time buyer mortgage.

By Emma Jones

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There are so many factors to consider (especially for a first-time buyer with zero experience) that the mortgage whole process can feel rather daunting.

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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 tears if you’re not properly prepared.

Don’t worry, we have you covered.

In this article, we share our advice and top recommendations for first-time buyers seeking a mortgage, including who is eligible to apply for a mortgage, the different types of mortgages that are available, and the evidence you need to provide to lenders to be approved.

What is a Mortgage?

We hear this word thrown around a lot, but do you know what a 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. Repayment arrangements are made so that you can gradually pay off the rest of the loan while 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!

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 mortgage, including:

  • Fixed and variable rate
  • Repayment and interest-only
  • Offset and current account mortgages

Naturally, there are pros and cons to each type. One arrangement may suit your financial situation 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 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 A Mortgage?

Deposits are a necessary part of being accepted for a mortgage.

Not only does it prove 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 asking price will give you a wider range of mortgages to choose from.

The benefits of a deposit that is 10% or greater include:

  • Lower monthly repayments
  • Lower interest rates
  • A cheaper mortgage 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 less-than-ideal interest rates.

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 the mortgage process, but you must factor this in.

The surprise of a large 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. Here are the 4 main charges you need to be aware of:

Mortgage fee

This is a charge from the lender, for using their services and taking out a mortgage. 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 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. This is estimated to cost around £500-£2000.

Stamp duty

As a first-time buyer, this cost depends entirely on how much you are buying your property for. If you are a first-time buyer in England, stamp duty will not apply to you, unless you pay more than £300,000 on your main residential property.

What Information Do You Have to Show to a 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 mortgage repayments.

This process is quite thorough and involves the lender requesting information about your employment status, profession and savings.

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 your partner is an employee, this will prove as 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 and Services from When the Banks Says No

At When the Banks Says No, we believe that securing a mortgage shouldn’t be a scary process.

Our experts work hard to keep you informed and guide you through the process of mortgage applications, providing a dedicated service to find you the best mortgage solution available.

For more information or advice, don’t hesitate to get in touch with one of our friendly team of experts today.

 

Emma Jones

Emma began her career in Lloyds Banking Group, first in the unsecured loans department at HSBC and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the the banks let their customers down by denying loans and mortgages.

Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money.

Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.

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