First Time Buyers

Which mortgage is best for first-time buyers?

There is no one size fits all answer to this question, as the best mortgage for first-time buyers will depend on your individual circumstances. However, there are a few things that all first-time buyers should consider when looking for a mortgage:

The amount you can afford to borrow - This will be based on your income, outgoings, and the deposit you have saved.

The type of first time buyer mortgage you want - A fixed-rate mortgage offers security and peace of mind as the interest rate won't change for the duration of the mortgage. This can be a good option if you want to be sure of your monthly repayments.

A variable rate mortgage, on the other hand, is more flexible as the interest rate can go up or down depending on the market conditions. This could be a good option if you think interest rates are likely to drop in the future.

Most residential mortgages are repayment mortgages, which means you'll need to repay the full amount borrowed plus interest over the mortgage term. However, there are also interest-only mortgages available, where you only need to repay the interest on the loan each month. The full amount borrowed will need to be repaid at the end of the mortgage term.

The length of the mortgage term - The shorter the term, the higher your monthly payments will be but you will pay off your debt quicker. The longer the term, the lower your monthly payments will be but you will be paying off your debt for longer.

Before looking at properties, you'll need to save for a deposit.

Generally, you need to try to save at least 5% to 20% of the cost of the home you would like.

For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500 (5%).

Saving more than 5% will give you access to a wider range of cheaper mortgages available on the market.

Saving for a deposit can be a challenge, but there are a few things you can do to make it easier:

Start saving as soon as possible - The sooner you start saving, the more time you will have to reach your goal.

Set up a budget - Work out how much money you have coming in each month and how much you need to spend on your essential outgoings. This will help you to work out how much you can afford to put towards savings each month.

Save regularly - Try to make regular payments into your savings account, even if it’s just a small amount. This will help you to build up your savings over time.

Make use of tax-efficient accounts - If you’re a UK taxpayer, you can make use of tax-efficient accounts such as ISAs and Lifetime ISAs to boost your savings.

Yes, it is possible to get a mortgage with a 5% deposit, however, you may find you're not offered the most competitive interest rates or terms if you only have a small deposit. The larger your deposit, the lower the Loan to Value (LTV) ratio of your mortgage will be, and the more attractive you will be to lenders.

Aside from your deposit and monthly mortgage payments, there are others costs when buying a home. These include:

Stamp Duty - Stamp duty is a tax that is payable on properties over a certain price. For first-time buyers, stamp duty is only payable on properties over £300,000.

Conveyancing Fees - Conveyancing fees are the legal fees associated with buying a property.

Survey Fee - A survey is an inspection of the property that is carried out by a professional. This is to assess the condition of the property and to identify any potential problems.

Valuation Fee - A valuation is an estimation of the value of the property. Lenders will require a valuation to be carried out before they will offer a mortgage.

Mortgage Arrangement Fee - Some lenders will charge a fee to arrange your mortgage.

Removal costs - The cost of hiring a removal company to move your belongings to your new home can vary depending on the value of belongings you have. It is worth getting quotes from a few different companies before deciding who to use.

Buildings insurance - Buildings insurance is a policy that covers the cost of repairing or rebuilding your home if it is damaged by fire, flood, or other disasters. Buildings insurance is typically required by lenders as a condition of your mortgage.

Contents insurance - Contents insurance is a policy that covers the cost of replacing your belongings if they are lost, stolen, or damaged. This is not typically required by lenders but is something you may want to consider.

Initial furnishing and decorating costs - Once you move into your new home, you will need to buy furniture and decorate it to your taste. This can be a significant cost depending on the size of your home and your personal style.

Now that you know how much you can borrow and the costs involved in buying a property, you can start looking for your first home!

As a first-time home buyer, the most important thing to bear in mind is whether you can really afford to take this step. It’s not just about being able to afford the monthly mortgage repayments – you need to think about all the other associated costs too (as listed above).

Mortgage lenders check that you can afford the repayments by looking at your income and outgoings. They will also 'stress test' your ability to afford the repayments in the future should interest rates rise or your circumstances change, such as if you start a family or lose your job.

It’s important to be honest with yourself and make sure you can really afford the mortgage

repayments, both now and in the future.

Stamp duty is a buildings transaction tax that is payable on properties over a certain price. For first-time buyers, stamp duty is only payable on properties over £300,000. For properties of between £300,000 and £500,000, first-time buyers will pay stamp duty at a rate of 5% on the value in excess of £300,000. For properties over £500,000, there is no Stamp Duty relief for first-time buyers.

For example, if you bought a property for £350,000 as a first-time buyer, your stamp duty bill would be: 5% of (£350,000 - £300,000) = £2,500

If you are buying with someone who is not a first-time buyer, then the threshold is £125,000 and stamp duty is payable on properties over that price at the standard rates.