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Dale Knight

Where to start as a first time buyer

To many, the word ‘Mortgage’ seems quite scary and even if it helps you to buy your dream house the idea of having to get one fills a lot of people with unnecessary dread. None more so than first time buyers. Yes, getting any mortgage can be difficult, even for the most straight forward of cases whether it’s your second, third or even twentieth. However the first mortgage is always the most daunting. Not because mortgage lenders or property vendors are biased against first time buyers or anything silly like that but simply put, first time buyers often don’t have a clue what they are doing!

After conducting some research, we have managed to identify three main concerns and worries that first time buyers have, and we will attempt to help and guide you through each one step by step to hopefully put to bed some of the stresses new buyers have for good.

  • How much deposit does a first time buyer need?
  • What makes you as a first time buyer?
  • What help is available for first time buyers?

 

How much deposit does a first time buyer need?

One of the most frequently asked questions we come across both in our professional lives with clients and our personal lives with friends is ‘How much deposit does a first time buyer need?’. A lot of people incorrectly have it in their heads that all mortgage lenders want ridiculously large deposits, and you are expected to save a small fortune just for a lender to even acknowledge you. But of course this is not true at all.

Unfortunately, long gone are the days of 100% mortgages across the board however there are plenty of mortgage lenders who still offer 95% mortgages meaning that you could potentially only have to save a 5% deposit depending on your income. Normally mortgage lenders will be willing to lend you between 4 and 5 times your annual income- so if you earn £35,000 a year either on your own or a joint household income with a partner or family member, you could be entitled to as much as a £157,500 mortgage. Therefore, if you were looking to buy a £165,000 house you would need to save £8,250 for deposit with some lenders. A massive difference from the 20, 25 or 30% deposit that some people are claiming.

Shared Ownership

Another angle that a lot of new buyers are exploring is shared ownership. In each instance you essentially buy a share in a property e.g. 25% and you pay rent on the other 75% of the property that you don’t own with the option to purchase the rest of the property later down the line through re-mortgaging. With shared ownership you can also put down a minimum of 5% deposit based on the share you are buying. So, if you are looking at a property worth £200,000 and you buy a 25% share then your share is worth £50,000 meaning your deposit will only be £2,500 (5%). Currently there are a lot of mortgage lenders who have increased their minimum deposit as a safety net since the pandemic but thankfully they are starting to reduce back to pre-covid levels, and we predict that we’ll start to see a lot more mortgage lenders offering low deposit mortgages sooner than we think.

 

What makes you as a first time buyer?

So, what makes you qualify as a first time buyer? Surprisingly, it isn’t always as black and white as it sounds. Most mortgage lenders define a first-time buyer as someone who hasn’t ever bought or owned a property in their life, but some lenders such as Nationwide building society will class you as a first-time buyer if you haven’t owned a property in three years. Often lenders will offer more appealing products and interest rates to people classed as first time buyers as a way of helping people get on to the housing ladder. Currently, being a first-time buyer has its advantages.

What help is available for first time buyers?

Being a first time buyer can sometimes leave you feeling a bit helpless and with rising property prices it can often feel like the market is geared towards 2nd time buyers or multiple property landlords. The absolute best place to start is by speaking to a mortgage adviser. Most mortgage advisers’ initial help and guidance is free of charge, and they will be able to tell you where to start, what resources are available to help you purchase, and what exactly they can do to make sure your mortgage goes through smoothly. In terms of the specific schemes available to you, you really have a choice of four mortgage types; a standard mortgage, a shared ownership mortgage, a help to buy mortgage, or a guarantor mortgage.

A standard mortgage really is what it says on the tin- if you can save a 5, 10 or 15% deposit then you would get a 95, 90 or 85% mortgage. A shared ownership mortgage (as mentioned above) allows you to purchase a share of a property initially and gives you the option of buying the entire property later down the line meaning your deposit and mortgage are a lot smaller than a standard mortgage initially. Not all mortgage lenders offer shared ownership products. A Help-To-Buy mortgage is similar to shared ownership however there are a few differences. With help to buy, you must purchase a new build property. You would purchase the entire property however part of the funds for the purchase are provided by a local government help to buy agency. This contribution is between 20 and 40% depending on the area of the country.

To use Help-To-Buy you must be a first time buyer and you must provide at least 5% deposit yourself. The money from the help to buy agent is a loan so you will need to pay it back, but you can do this at any time over 25 years. For the first five years the loan is interest free but will incur interest every year after. Not all mortgage lenders offer help to buy products, but most do. You can find out more about this scheme on the government website and by speaking to a mortgage adviser.

The final scheme we are going to cover is guarantor mortgages. Essentially a guarantor mortgage allows you to get a mortgage in your name with help of a family member i.e. mother, father etc. With a straightforward guarantor mortgage, you and your family member would both go on the mortgage using both incomes for affordability. You would both be named on mortgage deeds. But the downside to this type of guarantor mortgage is that your mortgage term can only be up until the older applicant’s retirement age. This means that your mortgage term will be shorter, and your mortgage repayments will be more per month.

Another variation of shared ownership is a ‘Joint Borrower, Sole proprietor’ mortgage. This is where you and your family member would both go on the mortgage but only you would be named on the deeds. Again, you can discuss both with your mortgage adviser, and they will be able to advise you of all the ins and outs. Most mortgage lenders don’t offer guarantor mortgages, but several high street banks do as well as smaller building societies.

So, although it might seem that there isn’t a place for first time buyers, we think that now is probably a better time than ever to be a first time buyer. With mortgage lenders offering exclusive products and rates, with lenders and the government offering specific first-time buyer schemes designed to help you navigate around the restrictions of a standard mortgage and finally, with helpful and knowledgeable mortgage advisers offering their services to help you every step of the way. Now is an amazing time to be a first time buyer.  

Because we play by the book we want to tell you that…

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.

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