First Time Buyers
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First Time Buyers
Discussing the mortgage process for First Time Buyers with Jon Cole.What is a First Time Buyer mortgage?
A First Time Buyer mortgage is designed for a buyer getting their first foothold on the property ladder, purchasing their first property.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
Generally you will need three years of address history in the UK. Lenders also make sure you have some income, whether you’re employed or self-employed. They would also have a look at your credit file to make sure it’s all good, or at least acceptable.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
It could be any amount, based on how much you earn. Each lender is completely different in terms of how much they lend, and with some government schemes there can be caps on that.
It’s all about making sure that the lender’s happy with your affordability – that’s what informs how much they lend. Obviously, when they do lend that amount you need to be able to pay it back both now and in the future.
What’s the minimum deposit required for a First Time Buyer?
There are some fantastic schemes out there which allow you not to have a deposit at all, provided you meet certain criteria. More generally, though, the minimum deposit is 5% and that’s been true throughout the years I’ve been doing mortgages.
The average deposit I see for a First Time Buyer is normally 5% or 10%, but at 15% you can open up a lot more lenders and products.
What are the types of interest rates available?
Different interest rates are available for First Time Buyers and they will depend on the deposit you put down and any scheme you’re using. Rates are similar to those for home mover mortgages, but some lenders will offer a little bit more of a discount for a First Time Buyer – but probably not as much as you would probably like.
Rates at the moment, as in November 2023, start at around the late 4% mark, but they do change all the time.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
When I speak to clients about the different types of fixed or variable rate, what they choose is solely down to their preferences. Most people will look at a fixed rate because it means they know exactly what their payments are each month. It’s a guaranteed amount for two, three, five, seven or 10 years – whatever you opt for.
There are also lots of people that look at variable rate deals – they tend to be people who are more open to risk. They might look at a product and think that the Bank of England might reduce interest rates at some point, so they want something a little bit more flexible.
An example of that is somebody who is looking to buy a property and sell it again in the near future. With a variable rate mortgage, you don’t usually have to pay a penalty to come out of it.
What government schemes are available to help our First Time Buyers?
The most common one I see are the 95% mortgages, which came out under something called the Mortgage Guarantee Scheme. It was brought in during Covid to keep the market going. It basically allows you to put a 5% deposit down to buy a property, and that amount can be made up of savings or a gift from a family member.
It’s a massive help for people that have the deposit and can cover the costs of purchasing, such as solicitors and surveys.
Another popular scheme is Shared Ownership, which is a really good way of getting on to the ladder. There’s a rental element to it and the split can be dependent on where you buy.
As an example, you might have a 50-50 split where you rent 50% of the property and you have a mortgage on the other 50%. That obviously means that you need to put a smaller deposit down. Some lenders don’t require a deposit at all on Shared Ownership, which can be really helpful.
A scheme that replaced the Help to Buy scheme is called the First Home scheme, for First Time Buyers looking to buy a new build home. You can also buy from someone else who originally bought as part of the scheme. There are some criteria on that, but nothing too intrusive.
It helps people trying to get into the market, because there’s a discount on the property of 30% to 50% on market value.
What documents do I need to get preapproved for a mortgage as a First Time Buyer?
The main documents you generally need are identification, proof of address and your last three to six payslips. You will also need three months’ bank statements.
If you’re self-employed, they might want to see your accounts or what they call your SA302, which is a self-assessment tax sheet from HMRC for the past couple of years.
One thing I always ask for is your credit report. That gives me a really good, accurate reading of your credit status and also it allows me to put correct figures into our Fact Find regarding how much you can afford to pay.
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Come on in and be quite forward with what you’re after – just be very honest with your mortgage broker. It’s good to make sure that we know absolutely everything about you. That way we can’t be blindsided by a lender. An open book policy is very good when coming to see your mortgage broker.
What are the steps to follow when applying for a mortgage as a First Time Buyer?
The first one is saving for a deposit. While there are 100% mortgages out there, they do have certain criteria. It’s best to build a deposit of at least 5% – but the more money you can put into a property, the better.
The second step is finding the right mortgage. We would help you apply for a Decision in Principle, which provides confirmation from a mortgage lender that you could in principle – subject to property valuation – borrow a certain amount.
You then need to find a property, looking at affordable options in your chosen area. It’s always good to do a lot of research on that, including catchment areas and transport links. Register with local estate agents and they will contact you about relevant properties.
Always go and look at the property in person – I always ask clients to send me links to properties they like. When you find a good one it’s time to make that offer. Don’t worry too much if that first offer is not accepted – we’ll have a look at your options. A property is only worth what you’re prepared to pay.
Once an offer is agreed you need a solicitor to manage transferring ownership of the property and do the legal work. That includes carrying out searches, drawing up and checking contracts and dealing with the Land Registry.
I’ll talk to you about the different surveys you can have, to make sure that we find any issues with the property so you don’t have any unexpected costs in the future. The next step will be finalising the mortgage and arranging protection.
You should always set up personal protection plans as part of the mortgage, including protecting the property itself. Next comes the exchange of contracts, and we will help with that legal process all the way through – that’s what takes most of the time within the transaction. The final step is completion and getting the keys to your new home.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
Make sure you don’t overpay for a property. You can feel pressured into buying, especially if the marketplace is competitive. Make sure that the property ticks all the boxes for you, or most of them. Always have two or three looks at the property before you put an offer on it – and maybe bring others with you, such as your mum and dad.
If you have credit cards, loans etc, make sure your payments are made on time. Look at your spending in your bank account and make sure your conduct looks good – i.e. not going over your overdraft and spending within your means.
What happens if I miss a mortgage payment as a First Time Buyer?
If you’re a First Time Buyer, you’re in your property and you do miss a payment, contact the lender immediately. They will be able to help you put a plan in place so it won’t happen again, or help you if you’re finding it difficult.
Mortgages are very flexible and lenders realise we’ve been in tough times over the last few years with Covid, etc. Some lenders may allow you to have payment holidays, which is really helpful.
Can I qualify for a mortgage as a First Time Buyer with bad credit?
Yes, absolutely – it comes back to what I was saying earlier about gathering as much information as possible. Your credit report will be handy because we can see if there is any bad credit and what the details are.
Then we choose the right lender based on the outcome of that. Generally, you can often still qualify for a mortgage with bad credit.
What other advice do you have for First Time Buyers?
It’s such an exciting time being a First Time Buyer. If you have mum or dad or somebody else gifting you some money for the deposit, I’d always recommend they come in with you for any mortgage appointment.
Although it’s a gift, they probably want to make sure that it’s going towards the right property and the right mortgage consultant. That’s something that we find helpful and we see that a lot.
Your home may be repossessed if you do not keep up with your mortgage repayments.