First Time Buyers

Buying a property for the first time, is proving more difficult than ever. House prices and living costs, such as rent, have been increasing at rates faster than wages.

First time buyers guide:

Meaning saving for a deposit of at least 5% of the properties value (£200,000 X 5% = £10,000), has proved increasingly more difficult for first time buyers.

So, if you have the minimum deposit of 5% saved already, congratulations the hardest part is over, providing you meet the rest of the lenders criteria. But if you don’t, it’s not the end of the world, there are still plenty of options out there providing you have the income to support the amount you are looking to borrow. These are listed in greater detail below, under alternative to deposits.

What is the full house buying process?

1. Mortgage in Principle

Mortgage, Decision or Agreement in principle. Whatever you want to call it, they all mean the same thing. Essentially its where the lender will request details about you, your income and your outgoings and will then complete a credit check on you. Based on all these things the lender will then return the verdict on whether they are prepared to lend to you or not. And if they are, exactly how much they are willing to lend you. Your Mortgage Advisor will be able to recommend the cheapest lender available that’s best for your circumstances and then apply directly to them on your behalf.

2. Find a Solicitor and a Property

In your own time. You’ve probably already been scouring Rightmove by this point. But now you know exactly what you can afford, and your Mortgage Advisor can confirm to any estate agents that you have been accepted. Not every lender will provide a Decision in Principle certificate, but in our experience every estate agent will ask for one. This is where a Mortgage Advisor will prove invaluable as they will be able to confirm to any estate agents that they have assessed you, you have been accepted and that you are in a position to proceed.

3. Full Mortgage Application

To reach this point you will have had an offer accepted on the property you’ve already fallen in love with. At this point the lender will need to assess your documentation and complete a Mortgage Valuation on the property you wish to buy to check they agree with the price you have agreed to pay.

4 .Mortgage Offer

Now you can get excited. The Mortgage Offer is the lender formally confirming they will lend you the funds required to purchase your new home. At this stage your Mortgage Advisor will wrap up any final things required their end. And, have a copy of your Mortgage Offer sent to your Solicitor, who will then begin getting everything together for Completion

5. Completion

Congratulations, you’re a homeowner and you can now collect the keys to your new home.

Credit reports/Credit Checks

Every lender has their own way of Credit Scoring applicants. Some lenders are stricter than others and just because you don’t have any adverse/bad credit on your Credit Report. It doesn’t necessarily mean you will be accepted by every lender. Don’t take it to heart, some lenders are just much stricter than others, when it comes to who they will accept.

Always obtain a copy of your Credit Report before applying for a Mortgage. Credit Reports show a detailed 6 year history about you and your finances and Mortgage Lenders like complete accuracy when it comes to this. Non-disclosure, whether intentional or by accident is a Mortgage Lenders pet peeve so obtaining a Credit Report proves invaluable during the Application process. And it really helps your Mortgage Advisor show a true reflection to the lender about you and your finances.

There are three Credit Bureaus that Mortgage Lenders will check

  • Experian
  • Equifax
  • TransUnion 

Most lenders will check only one of these. Some will check two or all three. And strangely enough, your Credit Score and overall Report will look different to each one of these.

Only one Credit Reporter displays the data that each of the above Credit Bureaus hold on you. So, we recommend obtaining a copy of your Report with them:

  • www.checkmyfile.com – sign up and get a free 30-day trial – so obtain a copy of your report and then cancel it within this time

Affordability: How much can I borrow?

This is the number one question that first time buyers want to know and one of our Mortgage Advisors will be able to give you the exact figures. It’s dependent on a number of factors including the lender, the size of your deposit and of course your income and regular outgoings. But to give a rough idea, lenders will take the income of the applicant or joint applicants and allow them to borrow up to around 4 and a half times their income (dependent on their monthly outgoings).

For example, Mr has a basic employed salary of £20,000 per year and Miss earns £25,000 and have no regular monthly credit commitments or dependents. £45,000 per year times by 4.5 = £202,500. This is a rough average and of course all lenders are different. As mentioned above, regular monthly expenditure such as, but not limited to; Student loans, Car Finance, number of dependents could, depending on the amount, reduce the maximum you are able to borrow.

What does the lender consider when assessing how much you can borrow?

Your basic annual and sustainable income. Lender may also permit the following in their affordability calculations:

  • Self-employed with at least 1 years-worth of accounts
  • Bonus payments, commission and overtime
  • Special rates for Contractors including IT and CIS Contractors
  • Foster income
  • Maintenance income – private arrangement
  • Benefit income including, child benefit, working & child tax credits
  • Pension or investment income
  • Foreign currency income
  • Casual employment for example zero hours contracts

Outgoings that lenders will consider when assessing your affordability are, but not limited to:

  • Maintenance payments & Childcare
  • Number of dependents 
  • Credit and Store Card Balances
  • Loans and Finance agreements. For example, on a Vehicle
  • Student Loans
  • Council tax
  • Travel and living costs including utility bills

Any future changes to your income and expenditure which are likely to affect your ability to repay your Mortgage

Deposits

The absolute minimum deposit required by lenders is 5% of the properties market value. This is of course subject to you meeting the rest of the lenders Criteria. The higher the deposit you put down, the more lenders that are going to be available to you.

This is because, not all lenders are prepared to lend on a 5% deposit and also due to the lenders credit scoring being much tougher for applicants with this level of deposit. In addition, the larger the deposit you have the cheaper the rate you will be eligible for.

So, with the same Lender, you are much more likely to be accepted if you have a low credit score if you put down a 15% deposit when compared to a 5% deposit. This is all down to risk. The higher the deposit, the less risky to the lender.

If you have a low deposit it is worth considering ways for you to boost your Deposit.

Different options to boost your deposit

  • Help to buy ISA’s and Lifetime ISA’s: Government will add a 25% bonus to what you save up to set limits
  • Gifted deposit – you may have a relative who is prepared to gift you some funds to assist in getting you on the property ladder
  • Help to buy equity loans – available on new build properties, the government can provide you with an Equity loan of up to 20% of the property’s value (40% in London)

Assistance for first time buyers/Alternatives to deposits

Family loan in the form of a second charge or family trust arrangement – contrary to the above, this is where a family member provides you with a loan which will be secured against your property, in addition to your Mortgage. A few lenders will offer this option 

Guarantor/100% Mortgages – family members either use the equity in their home or put their savings into a bank account with the Mortgage lender. For example, for 10% of the value of the property you are purchasing. Providing you keep up with repayments on your Mortgage, the family members monies are returned after 3-5 years, dependent on the scheme.

An unsecured loan from a Bank or other authorised finance company – a couple of lenders will allow this.

Concessionary purchase – purchasing a property from someone below the market value. Difference between the market value and the amount they sell to you can be used as the deposit. This can usually only be between close family members.

Builders deposit – when purchasing a new build from a Builder/developer. The builder/developer may offer to pay up to 5% of the deposit for you.

Surveys

Mortgage Valuation – the most basic Valuation which the lender will complete. It’s important to stress that this is the lenders report for their purposes and it’s to assess whether they will be able to lend and if so, how much. This will cost between £0-£250. But with Specialist lenders, it could be quite a bit more.

Homebuyers report – this is if you decide you wish to obtain your own, more detailed report. This will highlight any potential defects of the property and provide advice for these. Cost of these will be between £300-£500.

Full Building Survey – this is the most detailed and comprehensive report which will provide a full structural overview of the property. This probably isn’t needed unless your property is older (over 50 years) or in a visibly poor condition. Cost of this will be in excess of £600

Joint Mortgage ownership types

There are two ways to own a jointly:

Joint tenants – this is the default option and both owners will have equal rights to the whole property.

Tenants in common – you both own a defined share in the property. For example, 70% to one and 30% to another

First time buyers with Bad/Adverse Credit

Whether you can obtain a mortgage with previous adverse credit will be down to 4 things. Your deposit size, when the adverse occurred and how much and how bad the adverse credit was.
If the adverse occurred and was settled over 3 years ago, there should be plenty of options available to you.

However, each individual circumstance is different, and each lender will have a different view. More recent adverse can still be accepted and depends on 4 things above as mentioned.

The best thing to do is to obtain a copy of your credit report and speak to one of our Mortgage Advisors, which specialise in this area.
For more general information please see the Bad Credit section on our website.

The best thing to do is to obtain a copy of your credit report and speak to one of our Mortgage Advisors, which specialise in this area.

For more general information please see the Bad Credit section on our website.

Different types of Mortgages

Repayment methods:

  • Capital and interest repayment Mortgage: this where you repay the loan as well as paying the interest charged by the lender.
  • Interest only mortgage: this is where you do not repay any of the Mortgage and instead just make monthly payments on the interest charged by the lender.

Different interest rate options:

  • Fixed – by far the most common and advisable for most. Ultimately means for a set period of time, usually 2-5 years, your Interest is guaranteed not to change. Thus meaning your monthly repayment will not change. 
  • Standard Variable Rate – this is the lenders interest rate that you will move onto following the end of your initial fixed rate, if you do not change to a new fixed rate either by moving lenders or completing a product transfer with your existing lender.
  • Discount – during a set period of around 2-5 years, the lender will provide you with an interest rate that’s discounted from their Standard Variable Rate. When the lenders standard variable rate changes, so will your interest rate
  • Tracker – during a set period of around 2-5 years, you will have an interest rate that will track, usually slightly above, the bank of England base rate. So, when the Bank of England base rate changes, so will the interest you pay on your Mortgage.
  • Offset – you deposit into an Offset savings account that is linked to your Mortgage. You’ll only pay interest on the balance of your Mortgage minus the savings that are in your Offset savings account
  • Cashback – it’s quite common these days for lenders to provide you with cashback for simply choosing to take out a Mortgage with them. On average this will be between £250-£500 and usually applies to Fixed Rate Mortgages (mentioned above)

Other FAQ’s

What is Loan to value?
The percentage size of your Mortgage in relation to your property value. For example, a Mortgage of £90,000 and a property valuation of £100,000 is 90% loan to value (LTV). The £10,000 that is missing from the above would be your deposit (10%).
What is a fixed rate Mortgage?
Lenders will allow you to fix the initial rate of your Mortgage for a set period of time. In general, the longer the initial fixed period is, the higher the interest rate will be. Once this initial fixed rate is up, you should either Remortgage to a new fixed rate with a new lender or change products with your exiting lender to a new fixed rate.
How much will my monthly repayments be?
Depends on quite a few things of course. But to give you an idea, for every £100,000 you borrow (approximate interest rate of 2.50% based on a deposit of 10%), over a 25 year term, your monthly repayment will increase by £449.
Can I overpay on my Mortgage?
Most lenders will let you overpay by up to 10% of the outstanding Mortgage Balance each year for free. If you decide you want to move during your fixed term, you may also be able to take your Mortgage with you, known as porting.
Can I get a Mortgage with no deposit?
Not really. Ideally you or a family member will need to provide a 5% deposit. But there are a few alternative options that might be available, mentioned above.
Can a first-time buyer purchase a Buy to Let?
Yes, some lenders are happy with this, usually subject to a minimum income of £25,000.
How long can my Mortgage term be?
You’re overall Mortgage term, the length of which is used to set your monthly repayments, can be as long as 35-40 years.
What type of Mortgage is best?
A Fixed rate capital and interest repayment Mortgage, most of the time is going to be the best option for a first-time buyer. This ensures repayment certainty and will guarantee your mortgage is repaid providing you keep up with repayments.

Potential costs

  • Lenders Arrangement/Product fees – a fee the lender will charge for arranging your Mortgage. In general, the higher the Arrangement fee the lower, the Interest rate. Most, if not all lenders, will also provide a low/no fee option and charge a slightly higher rate as a result. These fees tend to be between 0-£999.
  • Broker fees – this will depend on how complex your case is. For example, whether you have any adverse credit. To find out exactly what it could cost, get in touch with on of our Mortgage Brokers for a free non-obligatory quotation. Our Mortgage Brokers operate a fair fee policy and will tell you from the very start what, if any, their costs will be. On average though, you can expect to pay between 0-£495.
  • Solicitors fees – for a right to buy purchase, you can expect to pay anywhere between £800 and £1,500, so its important to shop around. Our Mortgage Advisors can again provide you with a quote.
  • Stamp Duty – if you are a first time buyer in England, it is unlikely you will pay stamp duty if your propery is valued less than £500,000. For non first time buyers, Stamp duty will be due on properties worth over £125,000.
  • Mortgage Valuation – the lender may charge a fee to complete a basic valuation of your property during the application process. This will be between 0-£250. But could be more if you need to use a specialist lender, if you have adverse credit for example. 
  • Survey fees – you may choose to carry out a more thorough assessment on your property. The most common, being a Homebuyers report, which will cost between £300-£500. Full Structural report, if needed, will cost in excess of £600, however these are rarely necessary

Documentation

The lender and your Mortgage Advisor will require the following documentation from you:

  • Driving License or Passport
  • Latest 3 Months Bank Statements on all accounts which show – your deposit, income and expenditure
  • Latest 3 Months Payslips
  • If self-employed – your latest 1 to 3 years-worth of tax returns or accounts 

In addition, the lender and your Mortgage Advisor may also require the following:

  • Latest years P60
  • Gifted deposit document – if applicable
  • Copy of your Credit Report

Simply have a question or need to get moving. Next steps?

Speak to one of our qualified, regulated and highly rated Mortgage Advisors. Simply complete our short enquiry form below and we will get one Mortgage Advisor that is local to you and which specialises in your case, to give you a call. They can answer any other questions you have, provide you with a free non-obligatory quote and/or talk you through the process in greater detail.

If you’re self-employed or have had bad credit in the past, don’t worry, we can help. As a specialist in these areas, we have access to all Specialist Mortgage Lenders. 

All our Mortgage Advisors hold the CeMap qualification (Certificate of Mortgage Advice & Practice) and are Regulated by the Financial Conduct Authority.

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