Mortgages for First-Time Buyers: Everything You Need to Know

It can be a challenge for first-time home buyers to find the right mortgage. There are the complexities of finding the best mortgage deal, saving up for a deposit, and being accepted by a lender. There are, sometimes, also extra costs to consider.

Most first-time buyers have many questions that need to be answered before choosing the most suitable mortgage for their needs. After all, a mortgage represents a long-time investment and your home could be at risk if you fail to keep up with mortgage payments.

This guide gives you with everything you need to know about mortgages if you are a first-time buyer.

Help to buy schemes

First of all, the UK government has implemented various schemes to help first-time buyers. These schemes can make it easier for first-time buyers to arrange a mortgage. Here is a brief overview of the popular ‘help to buy’ schemes:

Help to buy equity loan

This can help first-time buyers buy a new-build home with a smaller deposit. The Government provides an interest-free loan of 20% and the rest of the loan is covered by a standard mortgage. However, home buyers interested in this type of mortgage should still seek financial advice before committing themselves.

Help to buy ISA

Home buyers can use the ’Help to buy ISA’ to reduce the overall cost of their mortgage. Under the scheme, the Government adds £50 for every £200 that a home buyer saves in their Help to Buy ISA. A bonus of up to £3,000 is available.

Find out how much you can borrow

If you are looking to buy your first home, it’s important to find out how much you can borrow. Banks and mortgage lender take various factors into account when deciding on how much to lend. These factors can include:

•    Your gross annual earnings
•    Information on your outgoings
•    Future interest rate rises
•    Your credit score

Deposit

The amount of money you can save for your deposit has a great impact on your choice of mortgages. Generally, first-time buyers require at least a deposit of 5% to qualify for most mortgages. However, mortgage lenders often offer lower interest rates to borrowers who can put down a larger deposit. Even saving up for at deposit of least 10% can help many first-time buyers get a better mortgage deal.

Mortgage rates

One of the most important factors to consider when looking for a great mortgage deal is the interest rate. There are 2 types of mortgage rates to choose from:

Fixed mortgage rate

Many lenders offer mortgage rates that are fixed for a certain number of years. This can help first-time buyers budget their outgoings because they know how much their repayments will be for the fixed interest rate term.

Variable rate mortgages

Variable rate mortgages change with the interest rates set down by the Bank of England or by the mortgage lender. Because interest rates can change, you should always seek financial advice on what kind of variable mortgage rate is most suitable for you.

Other fees

It’s important to remember that mortgage lenders may also charge arrangement fees and possibly booking fees. On top of this, you may have to pay surveyors fees, legal fees, and stamp duty if the property’s value is over £125,000. There may also be costs associated with moving, renovations, and decorating your new home.