First Time Buyers Mortgage Guide

Buying a property for the first time is a big step. Taking on a mortgage and dealing with all of the legal and administrative responsibilities that go with it can be daunting, while the burden of repaying a mortgage, maintaining a property and managing finances can feel overwhelming.

If you’re in the process of buying your first home and are finding the world of mortgages difficult to navigate, take a look at our easy to understand guide and get to grips with your property purchase fast.

Deposit

The most important thing that you’ll need when approaching a mortgage provider is a deposit. Though the amount you’ll need will vary depending on how much you want to borrow, in general, most lenders will offer a maximum of 90% of the value of the property, so you’ll need to have at least 10% of your target purchase price in cold, hard cash.

This means that, if you’re planning on buying a home for £200,000, you’ll need at least £20,000 in your savings. However, if you can save more than 10% lenders will be more likely to offer you a loan and you’ll get a better rate on your mortgage.

Affordability

Once you’ve saved up your deposit, you need to sit down and think about how much you can afford to pay back each month.

Mortgage terms vary considerably from just a few years to 25, 30 years or even longer. The longer your term is, the cheaper your monthly repayments will be. However, the more time you take to repay your mortgage, the more you’ll end up spending, as the interest will build up significantly over time.

Alternatively, you can opt for an interest only mortgage. This means that, instead of repaying the capital over time, you’ll just be repaying the interest that’s built up on the loan. At the end of the mortgage term you will then need savings, investments and other assets to pay off the total amount borrowed.

Mortgages available to first time buyers

There are a number of different types of mortgage available to first time buyers; the most common are fixed rate, variable rate and tracker.

If you take out a fixed rate mortgage, you’ll agree a fixed rate of interest with your lender that will stay the same for a set period of time. This type of mortgage is good for buyers who want to plan their finances and who want to know exactly how much they’ll be spending each month.

Repayments on variable rate mortgages can go up or down as they are dependent on interest rates set by your lender. Tracker mortgages can also go up and down, however they are linked to interest rates set by the Bank of England.

A lot of lenders will ask you to pay a fee to set your mortgage up. This varies from lender to lender with some providers offering better long term deals to borrowers who pay a higher fee.

What is a ‘mortgage in principle’?

Once you’ve given your mortgage provider all of your financial information, they’ll decide whether or not they are willing to lend to you and, if so, how much they will offer.

This is called a ‘mortgage in principle’ and is also known as a ‘mortgage promise’ or an ‘agreement in principle’. Once you have this, it will be easier to narrow down your potential purchases and make an offer if you find the perfect property.