In our guide to First-Time Buyer Mortgages
- What is a first-time buyer mortgage
- How should I choose a mortgage broker as a first-time buyer?
- How can I compare first time buyer mortgages?
- How much deposit do I need for a first-time buyer mortgage?
- Fixed rate first-time buyer mortgages vs. variable rate first-time mortgages
- First time-buyer mortgages ERCs
What is a first-time buyer mortgage?
A first-time buyer (FTB) mortgage is a mortgage designed for people buying their first home. There are a significant number of FTB mortgages available on the market and although it is possible for you to arrange one directly through a bank, the offers available to you will vary significantly from lender to lender, so you may want to use a mortgage broker to help you shop around to find the best deal suited to your circumstances.
Typically, to be classified as a first-time buyer:
- you can not have owned a residential property in the UK or abroad, or
- if you own or have owned a commercial property without living space attached to it
You’re probably not a first-time buyer if:
- you are buying a property with someone who owns or has previously owned a home
- you have inherited a home, or if someone else has purchased you a home, e.g. family
If you are unsure you should always check your status as a first-time buyer with your mortgage broker.
How should I choose a mortgage broker as a First Time Buyer?
You may be recommended a mortgage broker by your estate agent or by friends and family. Typically speaking, you will find that a mortgage broker will charge you a fee for their service (often between £250 and £1000), as well as charging the lender a fee. However, it is now the case that online mortgage brokers can provide the same service and advice without charging any fee to their customer, their money is made by charging the lender.
How can I compare first time buyer mortgages?
We have partnered with Mojo Mortgages, so that you can compare the whole of the market and benefit from expert advice at no cost. If you know your eligibility, you can go straight through to Mojo to compare first time buyer mortgages now. If you are unsure how much you could borrow, you may like to read on about eligibility.
How much can I borrow with a first time buyer mortgage?
The amount you can borrow depends on a number of factors including:
- Are you buying alone or with someone else?
- How much is your annual income or joint annual incomes?
- What other expenditure do you have, e.g. outstanding debt repayments including student loans, credit cards etc.
- Your credit rating/history
To see how much you could roughly afford to borrow or to compare mortgage deals that you are eligible for, head over to Mojo’s Eligibility Checker.
How much deposit do I need for a first time buyer mortgage?
At the time of writing you may be able to buy your first property with a deposit of 5% of the property value, however it is more likely that you will need at least 10% as a first time buyer.
The deposit amount required varies between lenders and products but in general terms, the larger the deposit you have, the lower the interest rate available to you.
This figure is represented as Loan To Value (LTV) and with all other factors being the same, a lower interest rate means that your mortgage repayments will be lower each month.
How to work out your Loan To Value:
Amount you need to borrow (cost of property – deposit amount) divided by cost of property times by 100
For example, if the property you would like to purchase costs £300,000 and you have a deposit of £60,000, you would need to borrow £240,000 (£300,000 – £60,000 = £240,000)
£240,000 / £300,000 multiplied by 100 = 80% LTV
Fixed rate first time buyer mortgages vs. variable rate first time mortgages
A fixed rate first time buyer mortgage is a set amount of interest that is agreed for a period of time, typically between 2 and 15 years, but more commonly between 2 and 5 years. One of the benefits of a fixed rate is that you can budget effectively for that set time period. At the end of the fixed rate period you will typically be moved onto the lender’s Standard Variable Rate. One negative of a fixed rate mortgage comes in the form of an Early Repayment Charge (ERC), which you may be liable to pay if you sell your house before the end of the agreed fixed rate period. ERC’s can be substantial and there are fixed rate first-time buyer mortgages available with varying levels of ERCs and even with no ERCs, so make sure you ask for advice from your mortgage broker.
Contrastingly, variable rate mortgages have interest rates that vary according to the type of variable rate mortgage you take out. There are various types of variable rate mortgages available including:
Standard Variable Rate Mortgage: a lender’s basic rate of interest, set by the lender. You will typically move onto this rate at the end of your fixed rate period. No ERC.
Tracker Mortgage: rates of interest that follow an external rate of interest, which is often, the Bank of England’s interest rate. Your mortgage rate will usually be set at a percentage above or below the external rate. ERC may apply.
Discount Rate Mortgage: tracks the lender’s standard variable rate mortgage at a discount. ERC may apply.
First time buyer mortgage ERCs
Early Repayment Charges are something that we would urge you to have a good think about and discuss with your mortgage broker, particularly as a first-time buyer. Circumstances change, and for whatever reason including reasons out of your control, you may find that you have to sell your property earlier than you expected, resulting in a substantial early repayment charge.