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Getting a mortgage for the first time can be overwhelming – but you are not alone.

Most people don’t really know anything about mortgages, until they have to get one. Or at least, don’t know the mortgage market as well as you should, when choosing the right first time buyer mortgage.

The Mortgage Broker will not only explain everything about the first time buying mortgage process, but will be the you every step of the way. It is a complicated market, especially at this time, and it is very important that you have a mortgage advisor who can search the market, and ensure that your best interests are being looked after when finding the best mortgage deal.

First Time Buyers 2024

Is the mortgage process different for First Time Buyers?

In terms of the actual mortgage process it’s not dissimilar for First Time Buyers and home movers. First Time Buyers actually have an advantage in that they tend to have more flexibility. They’re either in rented accommodation or living with parents, so they’re in a stronger position for buying because there’s no chain involved.

It’s harder for those who are moving home, who have a property to sell and then one to purchase. But in terms of the actual mortgage process they’re pretty similar.

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What is an Agreement in Principle?

It’s a very important part of the process and, in fact, is one of the biggest hurdles. An Agreement in Principle is essentially where a mortgage lender agrees to offer you a certain sum of money as a mortgage.

For example, Halifax might issue an Agreement in Principle to Mr and Mrs Customer after assessing their initial income and outgoings and doing a credit search. Following those pre-checks they will be happy to issue the Agreement in Principle, subject to full underwriting and a satisfactory valuation from their surveyors.

 

Is there any help for our First Time Buyers currently?

The biggest change is the fact that we’ve now lost the Help to Buy scheme. That was backed by the government and helped people with 20% deposits outside of London and 40% deposits inside London.

There hasn’t really been a replacement. The closest thing is the First Home Scheme which is only being offered by a number of developers. They’re potentially offering 30% to 50% discounts on the purchase price of a property. But I personally haven’t come across any of these at all.

There are still question marks over whether Help to Buy is going to come back into force or if there will be a better replacement. Some developers are offering a Deposit Unlock scheme which is a similar premise to Help to Buy and only on new build properties.

 

Also, there is a 100% mortgage that recently came into play. It seems to have had a lot of initial success, and we certainly had a lot of enquiries when that was launched in May this year. There are a few hurdles involved with that, so always speak to a mortgage broker before going ahead with that kind of product.

For example, for that product you have to have rented your home within the last 12 months and show a track record of rent being paid. You also need a reference from the landlord.

There’s also Joint Borrower Sole Proprietor – this is a very popular scheme that a lot of lenders are now offering. It’s where a relative joins borrowers on the mortgage – often a child and a parent – and that boosts the child’s affordability. It gets them the borrowing they need to purchase the property. Another benefit is that because the parent or sponsor doesn’t go onto the title deeds, they don’t have to pay the additional stamp duty.

Guarantor mortgages are very similar, although not used as frequently as Joint Borrower Sole Proprietor. These work more from a deposit standpoint rather than helping with affordability. Again, they are quite complicated mortgage applications and always best to speak to a broker about

Finally there’s the Shared Ownership scheme which has been around for a good number of years and is still very popular. You purchase a share of a property and rent the remaining share. For example, on a house worth £100,000 you might buy a 50% share. You own 50% of the property and the other 50% is owned by the developer. Let’s say you put down a £10,000 deposit. You pay a mortgage on the £40,000 that’s left outstanding and pay rent on the other £50,000 to the local authority, housing association or developer depending on who you buy through.

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What is a First Time Buyer ISA and are these still available?

There are two kinds. The main one, the Help to Buy ISA is no longer available, but the more popular one now is the Lifetime ISA or LISA for short. The LISA is really good because it allows people to save up to £4,000 every year and the government will bump that up by 25% to £5,000 – which can be used towards a deposit on a property.

If you’re a young person living with mum and dad and you’re lucky enough not to pay any board or rent, you could save up to £20,000 in four years. That’s good going, given the current climate. So if you want to start on a deposit saving journey I would highly recommend that.

What is the average deposit for a First Time Buyer in the UK?

I see a lot of First Time Buyers and deposits really fluctuate. You’ve got people who have been saving for years and haven’t had any help from parents, and then you’ve got the other end of the scale where all of the deposit is being gifted by the Bank of Mum and Dad.

According to a report on Zoopla’s website from June this year, deposits ranged from £26,400 to £144,500 depending on location. The average deposit works out roughly 15% based on average UK house prices.

 

How much can I borrow as a First Time Buyer?

A great question and one that cannot be answered easily, I’m afraid. The amount you can borrow really depends on three key factors.

Number one is your income and how much you earn. Number two is credit commitments – any cars on personal finance agreements, credit cards or loans. The third is deposit size. All three of those really have a big impact on how much you can borrow.

Each mortgage lender will have their own algorithm as to how they assess affordability, and a good rule of thumb for those that aren’t quite ready to speak to an advisor just yet is that you can often borrow 4.5 times your annual salary. That will give you a really rough guide as to how much you can potentially borrow.

I cannot stress enough that if you want to get an exact figure, speak to a mortgage broker and go through an initial conversation with them. Usually after about 15 or 20 minutes, we’ll be able to tell you exactly how much you can borrow.

Do I need a credit check, how do I know what my credit score is and how do I improve it?

This is a somewhat overlooked part of the house-buying process, especially for first time buyers. With regards to needing a credit check, yes, every lender will do a soft search on your credit file to make sure there are no credit blips in the past. If you have a relatively good score, you are relatively low risk to the lender.

A few rogue mortgage lenders do a hard credit search on your report at the point of Agreement in Principle, then again at the point of submitting your mortgage application, and then potentially again at mortgage offer and completion.

That’s to make sure you haven’t then taken out any personal loans in the meantime. I’d recommend not taking out any loans, credit cards or anything during the house buying process.

A good way to find out your credit score is to go on a website called Checkmyfile. They will compose a report for you across Experian Equifax and Transunion – the main credit reference agencies. Most lenders use at least one of those when doing a credit check. It’s a really good tool to use.

If your credit score is low and you want to improve it, probably the most important step is registering to vote on the electoral roll. When you’ve got a registered address they can see that you are a real human being.

The second thing I would recommend is to take out a credit card, if you don’t have one already, but only using it for minimal spending – fueling the car up or maybe a weekly food shop – and then clearing that balance straight away. That really helps with credit score because it shows banks that when you borrow money, you repay it quickly.

Ultimately that’s what a mortgage is – you’re borrowing a large amount of money and the bank wants to know that you can pay it back. It takes a while to build up a good credit score. Mine’s not perfect. Very rarely do I come across someone with 999 out of 999. The average score in the UK is about 750. Anything around or above that, you’re doing really well.

What fees or costs are involved when buying a house?

There are a few. There’s no way to sugarcoat it – it’s an expensive thing to do. There are a number of fees to consider.

First I’ll touch on stamp duty. First-time buyers buying property worth up to £425,000 are exempt from paying any stamp duty. This was increased in 2022 from £300,000. If you’re lucky enough to be buying above that value, you can expect to pay about 5% stamp duty on anything above £425,000, up to £625,000. Confirm that with your solicitor beforehand and they will advise you exactly (if anything) how much will be due, because they will make that payment for you.

Secondly, you’ve got mortgage fees. A lot of mortgages come with product fees, on average of about £1,000. They can either be paid upfront or be added on to the loan. If you are adding it to the loan, you’ll be paying interest on it – just something to be aware of.

You’ve also got some solicitor fees as well. When you instruct a solicitor or conveyancer to help with the legal work to purchase a property, they will charge you for their services. These include searches, where they apply to local councils to see if there’s any roadworks or construction due in the area and what the drainage is like. That can also take quite a lot of time. It’s why buying a house takes a while.

You also have surveys. Most lenders will do a basic valuation which won’t cost you anything. Only a handful of lenders still charge people for this. Basically the bank sends someone to value the property to assess it as financial security for lending the money to buy the property.

You can also have your own survey done – you get a report to see what the property is like under the skin. You’ve got two types – a home buyers report which is a traffic-light system, giving a Red/Amber/Green as to the structure of the roof, the walls etc. Then you’ve got a full structural survey. That’s far more in-depth.

These vary in price. The homebuyer reports are cheaper at around £600, while a full structural survey is upwards of £1,000. It really depends on the size, structure and age of the property.

You’ve also got broker fees. Most brokers these days charge a broker fee, depending on the complexities of your case and our time and support all the way through to completion. Other than that, you’ve just got moving costs: van hire and things like that.

On my initial consultation calls with customers, when we talk about deposit I always make sure that there’s enough set aside to pay for the fees.

 

How can I improve my chances of getting a mortgage as a First Time Buyer?

The main points to focus on are credit score and registering on the electoral roll. If you haven’t got a good score, take out a credit card and try to boost your score as much as possible.

Something that we’re seeing a lot is people taking out large credit commitments, often with people on lower salaries who may still live at home. They’re spending £500 a month on a flashy car… but that is really going to impact how much you can borrow. So try to limit any credit commitments. I appreciate we all need cars – we all need to get to work. But maybe you don’t need that BMW. Get a smaller, cheaper hatchback to maximise your available income.

The higher income you’ve got, the more you can borrow. Also the deposit is important. The bigger deposit you’ve got, the smaller mortgage you need which makes it easier for you to to get the mortgage you want.

How can a mortgage broker help if you are a first time buyer?

In so many ways. We’ve covered a lot of them in the podcast today. I’ve come from an estate agency background as well, so I’ve been doing this for many years. First-time buyers will have so many questions – and rightfully so, because you’ve never done this before.

A mortgage broker will be able to answer your questions and help with anything you’re nervous or anxious about. If you’re not ready yet to buy yet, we can look at plans of action to get you ready. If you haven’t got enough deposit we’ll work out how much you need, how much you can save a month and then we can touch base in six months’ time.

We’ll always be in contact. A mortgage broker is invaluable when it comes to buying a property. We’ve covered pretty much everything here, so if you have any questions just speak to us to get an idea as to what the next steps may be.

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