First-time buyer mortgages
Looking for the best first-time buyer mortgage rates available to you?
Or simply wondering which types of products are the best mortgages for first-time buyers?
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Buying your first home is a huge accomplishment, but not a task to be taken lightly. There are lots of important decisions to be made - and they go way beyond location, location, location.
Your mortgage is almost as important as your home, as you’ll be paying it off for a good chunk of your life. Especially nowadays, with rates high and property value considerably outweighing income for the majority of buyers.
What is a first time buyer?
To be considered a first-time buyer for UK mortgage purposes, none of the applicants can have owned a home anywhere in the world before, even if they didn’t buy it themselves.
This means that if you’ve been bought a home, or left one in a will, you don’t qualify as a first-time buyer.
Oddly enough, it doesn’t make too much difference to the mortgage you’ll get, as most products are available to all buyers. Where it will count, especially in England and Northern Ireland, is with your stamp duty charges.
Getting your first mortgage
At Mojo we’ll help you answer all the tough questions when it comes to choosing the right mortgage. We’ll get to know you and recommend the lender we think best suits your long-term goals. We’ll even complete the application for you.
How much do I need for a deposit as a first-time buyer?
Usually at least 5% of the property value, but it’s better to provide more if you can.
The amount of deposit you provide determines the loan to value (or LTV) of your loan. The LTV is the percentage of a property’s value that you borrow - and this is important as the LTV impacts the interest rates a lender can offer.
You'll usually need at least 5% as most lenders offer mortgage loans at a maximum of 95% LTV, although there are a few no-deposit mortgage options available in certain circumstances.
Mortgage rates for first-time buyers
Interest rates are generally higher, the higher the LTV (loan to value) of your loan, as higher LTV loans are more risky for the lender. This means that you’ll see rates advertised, but those at 60% LTV are likely to be the cheapest. Unfortunately, very few first-time buyers can scrape together a 40% deposit.
The best thing to do is save as much as you can, and speak to us about how to stretch your deposit further. Sometimes an increase of just 1% can take you into a new LTV bracket and get you a better deal.
How to get the best first time buyer mortgage rates
It’s perfectly possible to check through all the lenders yourself to see which deals are suitable - but it can take a while - especially as they all have different criteria.
The easiest way to find the best mortgage deal available to you is to enlist the help of mortgage experts, like ourselves. Mojo Mortgages is an award-winning free mortgage adviser and we can help you to find the perfect mortgage for your needs by:
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Searching the whole market on your behalf, including exclusive rates that aren’t available to the public, to find a good match
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Advising you about the crucial details of mortgage terms that many people overlook or struggle to understand
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Providing help with your application if needed, from completing it for you, through to suggesting improvements to your circumstances and supporting documentation
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Help you weigh up difficult to calculate decisions, like whether a fee-free mortgage is worth paying a slightly higher interest rate for or not
How much could I borrow as a first time buyer?
Most mortgage providers will lend you between four and five times your annual income, but it's important to understand that income and affordability are not the same thing. Lenders will deduct your regular outgoings from your income before calculating the multiple of your income that you can borrow.
That said, all lenders have different criteria, which means some will include additional payments, such as overtime, whereas others won’t. All lenders also look at your credit score, but again, each has their own version of a creditworthy buyer, so it’s important to find a lender with criteria that matches your circumstances.
We can help you to find one to suit your preference, whether that’s to borrow as much as possible, or to get the most competitive rate available to you.
How do mortgage repayments work?
Most first-time buyer mortgages are capital repayment, which means you make a monthly payment that covers some of the loan and some of the interest charged on it.
There are also interest-only mortgages, where you don’t pay any of the capital until the end of the mortgage - usually 25-35 years later. However, these are typically only offered to higher income earners with a large deposit.
Generally the more you borrow, the higher your repayments will be, but your interest rate will also impact this. Most lenders allow a certain value in overpayments per year, which can help you repay your mortgage more quickly, saving you money on interest, no matter what rate you’re entitled to.
Other costs involved with taking out a mortgage
Some of the other costs that can apply to buying a home are:
Arrangement fees are not charged on all mortgages, but range from around £500 to £2,000+, depending on the property and mortgage value. You can sometimes add this cost to the loan, but keep in mind you’ll pay interest this way
Valuation fees start from around £150, depending on the value of the property you’re buying. It’s what the lender charges to ensure the home you’re buying is worth what’s being asked for it
Legal fees for conveyancing services carried out be a solicitor to formalise the property deeds and check contract accuracy - these also vary due to property and mortgage value
However, not all lenders charge all of these fees - in fact, deals often waive legal and valuation fees as an incentive for first-time buyers.
How to use a mortgage calculator effectively
Our mortgage calculator is a great starting point when you’re looking at what sort of property you’re able to afford. It will show what lenders might be able to offer you based on your income and deposit.
But a mortgage agreement in principle is the way to go if you want a more accurate loan figure.
Is there any help available for first time buyers?
Yes - there are specialist mortgages and home ownership schemes that are suitable for first-time buyers. You can see some below.
Mortgage types lenders aim at first-time buyers
While first-time buyers have access to similar mortgage options as other buyers, those borrowers lucky enough to have relatives willing and able to help them onto the property ladder have a few additional options available to them from some lenders:
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Gifted deposit - not all lenders allow this, but most will, so long as whoever is giving you the gift confirms its gift-status in writing
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Guarantor mortgages - where a parent or family member agrees to cover the loan costs if you’re not able to - this is usually when you’re unable to meet affordability for repayments on the loan size you need
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Family assisted mortgage - a more up-to-date version of guarantor mortgages, this lets relatives (often parents) to use their savings in lieu of a deposit - it’s then repaid to them when you’ve paid off enough to satisfy the lender’s deposit criteria
Home ownership schemes that apply to first-time buyers
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Shared Ownership scheme - available nationwide and allows you to buy a percentage of a property and rent the remainder
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Deposit Unlock scheme - regional variations exist across the UK. Allows applicants to buy a new build home with 5% deposit - rather than the standard 15%.
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Regional schemes such as the First Homes scheme in England, LIFT Scheme in Scotland and Homebuye in Wales are also available to first-time buyers. Read more about UK home ownership schemes
First-time buyer mortgage FAQs
The best place to begin is to find out how much you could afford to borrow. This depends on how much you earn, your outgoings and how much you have for your deposit.
Having an idea of how much you could borrow will help you find an affordable property.
A mortgage tool like our Mortgage Matcher should be your first step.
Most mortgage providers will lend you between four and five times your annual income, but it’s not entirely about what you earn, but rather, what you can afford.
Lenders have different ideas about what affordable means, but they all look at your income, outgoings, debts, bills and what you have left at the end of each month after everything’s paid for.
As well as your deposit and monthly repayments, there are other costs that come with getting a mortgage. Here are some of the fees you can expect to pay*:
Arrangement fee: This can cost you as much as £2,000 or more and covers the cost of arranging the mortgage. Some mortgages come with no arrangement fees. You can sometimes add arrangement fees to your mortgage, but it means borrowing more and paying more interest.
Booking fee: This can set you back by up to around £250 and even if your mortgage never goes ahead, you’ll still pay it. Sometimes this is folded into the arrangement fee and sometimes it only applies on mortgages above a certain amount.
Valuation fee: This fee starts from around £150, depending on the value of the property, and covers the cost of checking the property is worth the amount you’re applying to borrow.
Let’s say you borrow £250,000 over 30 years. Each month you’ll pay a bit off the loan plus some interest (unless you have an interest-only mortgage – more on that later).
The amount you borrow, the length of time you choose to pay it back over and the mortgage’s rate of interest will determine how much your mortgage costs each month.
Generally, the more you borrow and the higher the mortgage rate, the more expensive your monthly mortgage bill will be.
Our Mortgage Matcher will give you an idea of how much your mortgage repayments could be and recommend the best first time buyer mortgage deal for you.
As a first time buyer, your deposit can be the biggest obstacle between you and getting on the property ladder.
A mortgage lender is going to want a deposit worth at least 5% of the property you want to buy. So, if the property is worth £300,000, you’ll need a deposit of at least £15,000.
If you’re new to mortgages, you might see the term ‘Loan to Value’ or LTV a lot. It’s basically how much you borrow as a percentage of a property’s value. If you have a 5% deposit, your LTV is 95%. 95% is the highest LTV you’re likely to get a mortgage on.
It's also interesting to note that the average age of first-time buyers in the UK is around 33 years and 8 months, but this can vary by region. For instance, first-time buyers in London tend to be older, averaging 36 years and 8 months. The average deposit can also differ significantly, with figures ranging from £29,740 in the North East to £108,848 in London.
Yes - there are specialist mortgages and government schemes designed specifically to help first time buyers get started.
You can buy a property with a friend or family member, splitting the deposit and monthly repayments (a joint mortgage), or you can buy a share of a property rather than the entire thing, while a landlord or the government owns the rest (shared ownership).
Then there are guarantor mortgages, where a parent or family member is named on the mortgage with you and pledges to cover the repayments if you can’t.
The government’s Help to Buy scheme helps you access more affordable mortgages even if you have only a 5% deposit. Under Help to Buy, the government pumps up your deposit with a loan of 20% (40% in London) that you don’t have to pay interest on for 5 years.
If your parents or grandparents are able to gift you a deposit to help you get on the ladder, you’ll have to go through a few legal formalities in order to get your mortgage approved.
Firstly, each lender has its own rules about who you’re allowed to receive a gifted deposit from. Distant friends and relatives might be a problem, for example.
Lenders tend to ask for some kind of confirmation (like a bank statement) of where the gifted money is coming from. Solicitors will also want to know where the money has come from – whether it’s savings, investments, property or whatever.
Finally, there’s a declaration letter to sign that says the money is genuinely a gift (not a loan) and that the person giving it won’t have any claim to the property you buy.
If the gifted deposit is a loan that you’re expected to pay back, it could go against you. There’s an assumed risk that if you don’t pay back the loan, the person who gave you the cash could have a claim to the property – which could get complicated.
You can either go to a lender or enlist the help of a mortgage expert to help you.
If you go straight to a lender, you’re only going to be recommended one of its own mortgage deals. At Mojo, on the other hand, we'll look at deals from various lenders, different types of mortgages, and take fees into account to recommend which we feel is the best deal for you.
While others charge for this service (an average of around £500*), Mojo provides personalised mortgage recommendations and your mortgage in principle for free.
It’s best to get the mortgage process started before you start seriously looking for a place to buy. Do it the other way around and you could fall in love with a place and miss out on it while you get your mortgage sorted.
So, go through our Mortgage Matcher first and you’ll get:
An idea of how much you can borrow
A personal mortgage recommendation
A mortgage in principle certificate
Once you know how much you’re likely to be able to borrow, you can narrow your search and rule out anything too pricey. When you’ve found a place and you’re ready, the mortgage in principle certificate will show the sellers you’re a serious buyer.
Once you’ve made an offer to buy a property and it’s accepted, you can apply for your mortgage proper.
We’ll first tell you everything you need to know about the mortgage we’ve recommended and ask if you’re happy to be credit checked so that we can get you a formal ‘agreement in principle’ from the lender. This says, based on the information they have, the lender is prepared to give you a mortgage to buy your first home.
We then submit your application with all your supporting documents (proof of income and so on) to the lender. They’ll do additional checks to make sure you can afford the mortgage, and that the property is worth what you’re asking to borrow for it (valuation). The lender will then make a final decision on your application.
If you’re approved, the lender will make you a mortgage offer which tends to last for three to six months. If you’ve not yet done so, you can then instruct your solicitors to do their thing so that you can exchange contracts with the seller of the property and move towards completion – which is when you get your keys and you can move in.