Purchasing a property for the very first time can be a somewhat thrilling and yet overwhelming experience at the same yet for many individuals. With a complex mortgage market and high property costs, securing the best mortgage product can be difficult. Nevertheless, all “first time buyers” will encounter various mortgage choices, tips, and even government schemes that will aid you in getting on the property ladder. In this post, you will learn about all the options for first-time buyer mortgage UK in clear and simple terms.
Mortgage: A Brief Summary
A mortgage is a sort of loan taken from a lender or a bank to purchase a residential property. You get to pay back this particular loan back every month, typically over anything from 25 years to 35 years, along with the interest incurred. If you do not make the repayments on time, the lender will “repossess” or take back the property.
How Much Can I Borrow on a First Time Buyer Mortgage?
The amount to wish to borrow will depend heavily on the following criteria:
- Your Income: Many providers of first-time buyer mortgages typically provide between 4 times to 4.5 times your annual income. For instance, if your annual income is £50,000, you will be eligible to borrow around £225,000 for your mortgage.
- Your Outgoings: In order to determine your affordability, the lenders will need to determine your overall monthly expenses and outgoings, which include lifestyle spending, debts and even bills.
- Your Credit Score: An excellent credit score and history will certainly enhance your chances of obtaining a mortgage. First time Buyers are still able to secure mortgages with a weaker credit score and history, but just beware you won’t be eligible for the best rates and terms.
- Your Deposit: The more funds you can place as a first-time buyer deposit UK, the better mortgage options and terms you’ll receive.
Mortgage Options Available for All First-Time Buyers
There is a considerable range of mortgage options and products available in the UK market at one-time, so selecting the right one will depend largely on your personal circumstances and financial position.
Below we summarise some of the popular mortgages for first-timers:
Fixed Rate Mortgage
For Fixed Rate mortgages, the interest rate stays fixed for a certain period – typically 2, 3 or 5 years, although longer periods such as 10 years are also possible. Fixed rate mortgages enable you to make stable monthly payments over the mid – long term, making your personal finances much easier to manage. However, whilst fixed rates have benefits, on the negative side, if interest rates drop, you won’t unfortunately benefit from lower payments.
Variable Rate Mortgage
For Variable Rate mortgages, the interest rates will increase or decrease depending on changes with the Bank of England (BoE) base rate and how your lender wishes to adjust your mortgage interest rate in accordance with this rate.
There are several other types of mortgages which fall within the category of variable rate mortgages – such as “tracker mortgages”, “standard variable rate mortgages” and “discounted mortgages”. All of these mortgages carry a higher element of risk as the monthly payments can increase as well as potentially decrease at any point in time. If your preference is for a variable rate mortgage, then we recommend you use our First Mortgage Payment Calculator UK to check with the interest rate for the mortgage amount you’re seeking borrow will be in order to determine exactly what your monthly costs will be.
Interest Only Mortgage
For Interest Only mortgages, you only pay the interest element each month and then repay the entire loan amount once the mortgage term ends. The monthly payments for interest only mortgages will always be much lower, but you must have a long-term plan in place to repay the entire loan amount at the end of loan term. Acceptable loan repayment mechanisms are things such as investments or savings.
Guarantor Mortgage
For Guarantor Mortgages, a family member agrees to guarantee the mortgage in the background in the event that you can’t make the monthly mortgage payments. As you might expect, Guarantor Mortgages are a very useful product for those who have a first-time buyer deposit UK or those persons on a low income. Note however, the guarantor’s savings or home will be used as the security for the loan, so this is a very significant commitment they are making.
Government Schemes to Help First-Time Buyers London
To make home-buying more straightforward, the UK government has a series of schemes to assist first-time buyers. We summarise below what these main schemes are for your reference as these offer some great options to really help First-time-buyers London get on the property ladder in a variety of different ways:
- First Homes Scheme: Aimed at local first-time buyers and key workers. Offers discounts of 30% to 50% on new-build homes. When you sell the home, you must offer the same discount to the next buyer.
- Shared Ownership: You buy a percentage of the home and pay rent on the remaining share. Later on, you can buy a bigger share of the home until you own 100%. Shared Ownership really helps first-time-buyers who don’t have a large deposit and also can’t afford a full mortgage initially.
- Right to Buy (for Council Tenants): If you rent a council home, you may be able to buy it at a heavily discounted price. The discount amount available varies depending on how long you’ve lived there.
How to Apply for a First Time Buyer Mortgage
Although you’re free to use the monthly mortgage calculator UK before borrowing any mortgage funds, you might also find it useful to know the full steps and process involved once you’re ready to apply for the mortgage. Take a look at the following steps to help you:
- Check Your Credit Score: Lenders use your credit score to determine risk and to help them decide if they wish to lend to you. Use free services like Experian or ClearScore to check your credit score. Improve your score by paying bills on time and reducing and debts such as credit card balances etc.
- Save for a Deposit: A bigger deposit gets you better mortgage deals. Most lenders require at least 5% deposit of the property’s purchase price.
- Get a Mortgage Agreement in Principle (AIP): This is a written statement from a lender saying how much they will likely lend to you (in principle!). It is not a final Mortgage Offer but it certainly helps when house hunting as Estate Agents and Vendors will take you more seriously and it will help you negotiate a potential discount off the purchase price.
- Find a Property and Make an Offer: Once you’ve found a home, make a formal offer through the Estate Agent. If the vendor accepts, you can then proceed further with the mortgage application.
- Apply for a Mortgage: You must provide documents such as payslips, bank statements and proof of IDs. A UK Mortgage Broker can certainly assist you in finding the right deal and submitting the full application and paperwork for you.
- Mortgage Acceptance and Legal Method: The lender will need to value the property. A solicitor will do all the appropriate checks and manage all the legal process. Once ready, you will then exchange contracts and pay your deposit via your Solicitor.
- Completion and Moving In: You pay the remaining money, get the keys and move in – you’re now a Homeowner!
Conclusion
Purchasing a home for the first time in London might seem a bit difficult. However, when you have the right mortgage and monetary planning, things become much easier. You can use the monthly mortgage calculator UK, check out the various mortgage options, obtain expert advice, and then proceed. UK Mortgage Broker will search the whole market for you to ensure you secure the best mortgage and will hold-your-hand throughout every step of the process.
No matter what sort of mortgage you’re seeking, UK Mortgage Broker will make sure you get the right one for you.
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Get in touch with us today and let our expert mortgage advisors guide you every step of the way. Contact us now to secure the best first-time buyer mortgage in London!