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First Time Buyers
Guide
Get prepared for your first mortgage application.
Simon Walton
Director | Mortage Advisor
Being A First Time Buyer
Listen, we get it; being a first-time buyer can be not only scary but very daunting. You will be bombarded with advice from friends, loved ones, “the pub experts,” and the list will go on. Remember, facts are facts, and experience is everything else. You will come across a lot of people’s bad experiences “back in the day,” but remember, getting a mortgage is based on personal circumstances, and people love to let you know what was done wrong by them but not why.
Now, depending on where you are in the process of buying a house. Looking for first time buyer mortgage advice is critical. It’s so important, no matter where you are in the buying process, as you then get the correct advice based around you and your circumstances. Working towards a goal that isn’t your own or from someone else’s experience won’t help your purchasing journey and could just end up being a massive waste of time and/or resources.
We don’t want this. So by speaking with a mortgage broker early on, explaining your goals, desires, time frames and so on, a mortgage broker can then outline precisely how much of a deposit to save, how much you need to be earning, and what size mortgage you can achieve by saving and earning, and then provide you with a timeline from your mortgage application to stepping your first steps in your new home.
How Much Deposit Do I Need?
The question we brokers love and also hate. Again, this is a personal preference, but we work it out by reverse engineering a deal. Some lenders are currently (August 2022) offering 95% mortgages, meaning only a 5% deposit is needed.
Example 1
So, if you would like to purchase your first home for £150,000, on a 95% mortgage deal, you will only need a deposit of 5%, which for this sized property, totals an amount of £7,500 saved up, providing you can pass an affordability check.
Example 2
So, now let’s look at this reverse; let’s say your affordability check shows that you can only borrow up to £127,500; this now means to purchase that same home, a deposit of £22,500 is required, which means your deposit % has increased from 5% to 15%.
As you can see from the examples above, the same house purchased can require different deposit amounts; as it all depends on personal circumstances. Please, understand this is just an example, and obtaining a mortgage depends on a few more factors, which is why getting correct and professional advice is key to your OWN journey.
Why should you use a mortgage broker?
Pros of getting advice on mortgages
- When it comes to using a mortgage broker, you will be guided through the next steps, the time scales, and assistance on whom to use for certain elements. For example, which solicitor is best for them, lenders, insurance to protect yourself, Etc.
- Access to exclusive deals to which you (the public) wouldn’t usually have access.
- Usually, mortgage advisors have access to 100+ lenders, so if one says no, there will be others to apply to.
- If you have any problems putting particular paperwork together or with specific evidence required, a mortgage broker can guide you through alternatives or solutions.
- Pre-checks to application. So rather than blindly applying repeatedly, a mortgage advisor will check with the lender first before applying, speeding up the process.
- Most brokers are regulated, meaning our FCA (Financial Conduct Authority) guidelines check us over; we must comply with the FCA rule book, put our clients first, and always strive for the best deals.
Cons of getting advice on mortgages
- Some brokers will put their agenda above yours; you can spot this if your asking questions about lenders, and they keep funnelling you to only one or two lenders.
- A broker can sometimes dismiss you very quickly, knocking your confidence in getting advice on mortgages. You can spot this by checking with another broker, don’t just go on what one broker says.
- Laziness. If you don’t fit the criteria of a perfect client, you will sometimes find a broker who will dismiss your case and leave you stranded if you don’t have an ideal credit score or don’t want to borrow enough money. Again ask questions and make sure the broker a good fit for you too.
How much can I borrow?
Finding out how much you can borrow is usually calculated by considering all essential factors, such as salary amounts, monthly outgoings and credit history/agreements, and, you guessed it, your deposit amount. Depending on your outgoings and credit history, lenders can typically lend 4 to 4.5 times your salary. Outgoing variables such as any dependents that you have, any credit agreements you may also have, usual monthly bills, insurance and other such obligations are calculated alongside your salary to determine how much you will be able to afford to repay per month.
But it’s good to note that other income that falls outside your primary salary can also be considered. Credit checks are also undertaken to see if you have suffered from bad debts, payment arrears, missed payments, payment agreements made to pay back debt, CCJ’s or even bankruptcy (past or present).
Lenders will also ‘stress test’ your finances according to their risk appetite. So they may want to assess whether you could keep up repayments if interest rates increased or your circumstances changed due to redundancy, illness or pregnancy. They want to be sure that even if hard times fall, the mortgage loan can still be paid back.
What Is a Agreement / Decision In Principle?
The document that holds power to rule all! Sorry, just a little Lord Of The Rings nostalgia there. But seriously, when it comes to looking at homes, an estate agent may want to see some funding proof, which an agreement in principle can provide you with. It’s not a legal requirement to have this document to view homes, but more a “want” from the estate agents to show your willingness to purchase the home you are interested in. This goes for both new and old home purchases.
To get an agreement in principle, a good broker will do some due diligence first, acquiring the required documentation from yourself, to ensure the agreement in principle is accurate and not just made up of random figures.
A lender takes basic information from yourself and performs a credit search before coming up with a figure that ‘in principle, it would be able to lend. A decision in principle does not guarantee your mortgage will be accepted, but it gives you an idea of what you can likely borrow; this is why a good broker will do their checks before getting an agreement in principle for yourself, so you can be confident that when you go from the agreement in principle to the application stage, you are in good stead to be accepted.
Fixed Rate Mortgage
This type of mortgage is where you will tie yourself into a deal for a fixed period whilst also fixing your interest rate for this period. You can then see what every monthly payment will be for that period. You can usually get a two-year, three-year, five-year, seven-year or even a ten-year fixed term. The term all depends on your goals and plans for the future. This can be a very common option for people, especially first-time buyers, as it allows you to budget for the future.
Standard Variable Mortgage
What is the standard variable rate? A standard variable rate (SVR) is the interest rate that will be charged once an initial deal period on a fixed or tracker rate mortgage ends. Your mortgage payments could change each month, going up or down depending on the rate set by the lender.
Tracker Mortgage
On a tracker mortgage, the interest rate is directly linked to the Bank of England base rate and moves in line with changes made to that rate. So if the Bank of England base rate changes, so does your rate, resulting in changes to your monthly mortgage payment.
Discounted Mortgage
The discount will be offered for an introductory period – usually between two and five years – after which you’ll be back on their more pricey standard variable rate mortgage. If you choose a discounted mortgage, you must be careful about what happens when the introductory period ends. It’s essential to understand if and when you can remortgage and anticipate how much your monthly repayments could increase so that you are clear on what you can afford in the future.
Capped Mortgage
A capped mortgage is when the interest rate can never go past a specific limit “the cap” during the deal, even if the standard variable rate goes higher than this.
Guarantor Mortgage
A guarantor mortgage is a type of product designed to help those who cannot secure a mortgage on their own by allowing someone who can take on responsibility for the deal. If you can’t afford a deposit, don’t have enough income, or have a poor credit record, a family member or friend can act as a guarantor who will agree to cover any missed repayments, should they occur.
How Much Does It All Cost?
When obtaining your first mortgage, it’s easy to forget what is included in the costs. See below some of the expenses you need to consider.
- Mortgage Adviser Fee (our fee ranges from £176 to £376)
- Mortgage Application Fee (if you choose a particular mortgage product)
- Conveyancing Fees
- Surveys & Valuation Fees
- Insurance
- Moving Costs
- Home Refurbishments
- Stamp Duty (if applicable)
Summary
In summary, seeking first time buyer mortgage advice should be the first thing you do; it will not only get you in the right direction, to begin with, but you will also obtain a road map to see the best route on receiving your first mortgage. Rember, as a first-time buyer, you are also in a great position; you have no house to sell and can move fast. Use your advantages, not your weaknesses. Seek advice.
If you require further help with your first-time buying journey, please check out our dedicated page for first-time buyers.
It’s also important to note, that your Home may be repossessed if you do not keep up repayments on your mortgage.