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Getting a First-Time Buyer Mortgage

Posted 17 September 2018 by Nick Parkhouse

Want a first-time buyer mortgage? Our guide explains Help to Buy and getting a first-time buyer mortgage...

If you’re a first-time buyer, the mortgage market can sometimes seem daunting. As well as hundreds of mortgages from dozens of lenders, you also have a range of government-backed initiatives to help you onto the property ladder.

To help you navigate the mortgage maze, we’ve put together a comprehensive guide to everything you need to know about getting a first-time buyer mortgage.

Keep reading for information on the various government schemes that are available, the main types of mortgage that you can choose from, and the key information you should know when looking for your first mortgage.

Government schemes for first-time buyers

Over recent years, the government has launched a range of initiatives designed to help first-time buyers onto the property ladder.

Help to Buy is perhaps the best known of these schemes. It isn’t just one scheme but comprises several different initiatives that are aimed to help you buy your own home. Help to Buy been an enormous success since it began with hundreds of thousands of buyers using it, especially first-time buyers.

All the government schemes have qualifying criteria such as maximum property values or minimum savings. And, for some government initiatives, buying a new build home is an essential part of the qualifying criteria.

Our complete guide to getting a Help to Buy mortgage explains everything you need to know about Help to Buy. Here's more information about some of the government schemes on offer. 

Help to Buy: Equity Loan

This scheme is designed to help you if you are buying a new build property. Under this scheme, the government gives a loan of 20% towards the cost of your new build home. You put down 5% of the property price, which coupled with the government’s 20% equity loan, means you will need a 75% mortgage.

The loan is interest free for five years after which you pay a low rate of interest. With a 25% deposit in place you also benefit from the better terms that come with a 75% mortgage. On the sale of the property you pay 20% of the sale price to the government.

Help to Buy ISA

For every £200 you save in a Help to Buy ISA, the government gives you £50 (25%). This means if you save £12,000 (the maximum amount), you will receive an additional £3,000 from the government, giving you a total of £15,000.

There is no catch to receiving this money as long as you save at least £1,600 (the minimum government bonus is £400).

Every individual can open a Help to Buy ISA and so if you’re planning on buying a home jointly, you could receive up to £6,000 in government help towards your purchase. Find out more about Help to Buy ISA and how it works.

Help to Buy Shared Ownership

This is a part-buy/part-rent scheme where you initially buy a percentage of the property (around 25 – 75%) and then pay an affordable rent on the remainder of the property until you want to buy the remaining shares.

When you feel you can't afford the full asking price, it’s nice to know there's a way you can just pay around 25% of the purchase price to begin with and pay the rest later when you can afford it. 

You could buy a home through Help to Buy: Shared Ownership in England if:

  • Your household earns £80,000 a year or less (£90,000 a year or less in London)
  • You are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.

Find out more about Help to Buy Shared Ownership

Types of mortgages

Whichever Help to Buy scheme you use, you will need to get your mortgage finance arranged. Most major lenders offer mortgages compatible with Help to Buy.

So, once you have considered the various government schemes that are available, you will then have to think about what type of mortgage you want.

The main types of mortgage that you can consider include:

  • Fixed rate – Your mortgage repayments will be fixed for a specified term. Whatever happens to interest rates, you know you will pay the same amount for a fixed period.
  • Tracker rate – Your mortgage rate is directly linked to the Bank of England base rate. When the base rate rises, your interest rate and repayments will rise. When the base rate falls, your interest rate and repayments will fall. Read more about tracker mortgages.
  • Variable rate – your interest rate and repayments are linked to your lender’s Standard Variable Rate (SVR). These rates typically follow the base rate, but your lender can raise or lower their SVR at any time, and they don’t have to pass on rate cuts or rises. Read more about variable rate mortgages.
  • Offset – any savings you have are ‘offset’ against your mortgage balance. It can help you to reduce your total interest costs and pay back your mortgage faster, but interest rates can be higher. Our guide tells you everything you need to know about offset mortgages

Many mortgage products such as fixed and tracker rates can come with substantial fees and charges. Find out why it’s important to take both the rates and fees into account when choosing a mortgage.

These days, most mortgages are arranged on a ‘capital and interest’ (or ‘repayment’) basis. This means that every payment you make is made up of some of the amount you borrowed plus some interest. If you make all your repayments, your mortgage will be paid off at the end of the term.

The alternative is an ‘interest only’ mortgage although these are not now generally available. Under an interest only mortgage your repayments only consist of the interest on the loan, meaning the amount you borrow never reduces. At the end of the mortgage term you must repay the capital through other sources, such as savings or an inheritance.

Things to bear in mind when you’re considering a first-time buyer mortgage

Your mortgage is likely to be the biggest financial commitment you ever make. So, it’s generally recommended that you seek the advice of a professional (such as an independent financial adviser or mortgage broker) before committing to a loan.

A mortgage broker can help you to find the most appropriate mortgage for your circumstances. They will also help you find a lender who will be happy to agree the mortgage you need based on your income and outgoings.

You should consider the following when applying for a mortgage:

  • Affordability – a lender will want to prove that you can afford the mortgage. Can you afford the monthly repayments, even if they rise?
  • Deposit – the bigger the deposit you can put down, the better your choice of interest rates. If you can put down a bigger deposit, you’ll generally benefit from lower interest rates. You will generally need at least a 5% deposit.
  • Commitment – are you tied in to your mortgage deal? Are there early repayment charges if you come out of the deal early? Will your lender allow you to overpay if you want to without you incurring a penalty?
  • Fees – What are the costs of setting up the mortgage?
  • Credit score – your lender will carry out a credit score which means they will access your credit information from a credit reference agency.

Useful links

Read more about mortgage fees and costs

Read our guide to getting a mortgage if you have a poor credit rating

Find out how to become ‘mortgage ready’ in our guide

Find out what mortgages are and how they work

Read more about fixed-rate mortgages

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