First Time Buyer Mortgages

Buying a home should be exciting, not daunting. With me on your side you’ll be guided from start to finish

Here’s what a typical journey looks like:

Once you get in touch I’ll start to assess how you can achieve your objective, and if we can work well together. 

To do this I may need a bit more information from you, so let me know how you’d rather communicate; WhatsApp, email, or on the phone, and that’s how I’ll respond.

You may already have a home in mind, or you may want to find out what you can afford first. I recommend making contact as early as possible for you to get the best results when buying a home.

Assuming we want to work together I’ll invite you for a phone or video call, or I can come and see you. It’s up to you. I’ll ask some questions and learn what is most important to you so that I can tailor my advice to get you the best result.

Next I’ll ask you to provide some important documents required to get a mortgage. These will enable me to start putting everything together for you, and check which lenders you qualify with. You’ll receive a good indication of what you can borrow by getting an agreement in principal.

Once you have found a property and had an offer accepted you’ll be presented with a full recommendation. We’ll go through the details of the mortgage and how to protect yourself.

When you’re ready to go ahead I’ll submit your application and keep you up to date with any news the same day I get it. The lender will instruct a valuation of the property and we can appoint a conveyancer to start the legal work.
After you complete your purchase, I’ll keep in contact every so often to make sure you stay on the right deal for you and hopefully keep you off the higher rate at the end of any initial period.

Things to consider when arranging your first mortgage

The size of your mortgage will be determined by a few things:

  1. Your income & commitments
  2. The size of your deposit
  3. The purchase price of your home
 
 

1. Your income & commitments

To decide how much you can borrow lenders will look at your income and apply a multiple of it. This could be about 4.5 times your income. Then they’ll look at your credit file to see how much money you are committed to paying each month in things like car loans, student loans, credit card balances, maintenance payments and anything else you couldn’t stop paying even if you wanted to. Lenders then reduce the amount they’ll lend based on this.

Having a £50 per month gym membership shouldn’t reduce the amount you can borrow as you can cancel it, but paying back a loan at £50 per month will probably reduce what you can borrow as you can’t cancel that.

The amount you can borrow will also be reduced if you have children to care for, or pay maintenance for children.

2. The size of your deposit

The bigger your deposit the smaller mortgage you will need for the same purchase price. A bigger deposit, say 15% instead of 10% or 5%, will usually get you a lower interest rate as the bank sees you as less risky.

The lender might refuse to lend you £150k with a 10% deposit, but may accept you with a 15% deposit, as it seems less risky to them. So yes, a bigger deposit might allow you to borrow more.

3. The purchase price

The more you are paying for your home the more money you need to fund it. But ultimately this is limited by the value of the property and your income.

There are lots of different types of mortgages. Fixed rate mortgages and tracker mortgages are the most common. The majority of First Time Buyers choose a fixed rate mortgage.

Fixed rate mortgages allow you to know what your monthly payment will be for a set number of months. This is called the initial period (see Initial Period section).

Fixed rate mortgages often have a higher initial interest rate than tracker mortgages, but come with the safety of knowing exactly what your payments will be. The downside is if you want to sell your home, pay off the mortgage, and take a new mortgage to buy a new home, you may have to pay a large early repayment charge.

To get around this you might be able to take the fixed rate mortgage with you, and top it up with new lending, but you would be tied to the current lender, who might not have the best deals , or might not be willing to lend you as much as other banks or building societies.

Tracker rate mortgages can be useful as they often offer more flexibility, like being able to make large over-payments without a penalty. This can be really useful for people who are thinking of moving shortly.

Most mortgages have an initial period where the interest rate is lower than the standard variable rate for the remaining term of the mortgage.

The longer the initial period, the higher the interest rate is likely to be. There are often penalties for paying off a mortgage during the initial period which can make it much harder to move to a new home.

Usually what happens at the end of a mortgage fixed period is that you will automatically go onto the lenders standard variable rate. This is normally much higher than the fixed rate, and it can go up or down. To avoid this you can switch to a new deal with the same lender, or apply to remortgage to a better deal elsewhere.

When choosing an initial period it is important to consider what could change in your life in the next few years. Once you’re settled in your first place things can move fast.

If your home increases in value, as well as your outstanding balance falling each month, the loan to value ratio may reduce enough that you qualify for a lower interest rate after only a couple of years. You wouldn’t be able to take advantage of this if you had fixed for a long time. This works in the same way that buyers with bigger deposits get offered lower interest rates.

There’s no one answer to how long you should fix your mortgage for. That’s why there are multiple options.

The term of a mortgage is how many years it will be paid over. The shorter the term, the higher the monthly repayments will be. A shorter term will reduce the total interest paid.

You can find mortgages with a term of up to 40 years today. Just because the first mortgage you take out is for 40 years though does not mean you will have it for that long. At the end of your initial period you may be able to remortgage and reduce the term. You can also reduce the term by making over-payments.

This is handy for first time buyers. The first year of owning a home is expensive, with all the costs of furnishing it and decorating it. Once the one-off expenses have gone, and you have settled into your budget, and maybe increased your income, you could reduce the term of your mortgage significantly.

There is no ‘normal’ term for a mortgage. The right term changes from person to person.

The interest rate is the amount you are charged for borrowing money. Interest rates are at record lows, ask your parents what their first mortgage interest rate was!

The lowest interest rate is not necessarily the cheapest mortgage though (see the Fees section).

Lenders usually charge higher interest rates to people who have smaller deposits (as a percentage of the property’s value).  That means somebody with a 15% deposit may get a lower interest rate than somebody with a 10% deposit, regardless of the size of the mortgage, or how much they earn.

Interest rates can be fixed or variable (see the Fixed or Tracker section).

Not all mortgage lenders are the same. Different lenders will treat the same person differently after taking into account how their income is made up, their deposit, commitments and the property they are trying to buy.

1. Income

How much you can borrow will vary lender to lender as they have different rules on income from overtime, commission, and bonus income they allow. If you get overtime, bonus, or commission income the amount that different lenders will lend to you can be huge.

Self-employed people are treated very differently by different lenders. Most lenders want to see multiple years of being in business, but a couple of lenders will consider granting a mortgage with just one years proof of income. They then calculate what you can afford differently. Some take the lowest earnings, some the highest, and some average.

2. Deposit

Lenders will ask you how your deposit has been funded. They have differing rules on gifted deposits, builders incentives, and even crypto-assets like Bitcoin!

3. Property

Lenders also treat properties differently. Some require larger deposits on flats. They even treat people differently depending on who they are buying the property from, such as a family member. Not all lenders allow help to buy or shared ownership.

Remember…

Just because a mortgage appears at the top of a list does not mean it is one you will qualify for, and having an application rejected can mean you lose the home you want.

With all these different criteria, that’s why mortgage advisors exist and is why there is no ‘best mortgage lender,’ only a best mortgage lender for you.

There are lots of potential fees that mortgages can come with. This is why the mortgage with the lowest interest rate is often not the cheapest, or best mortgage available.

Potential fees include:

  • Arrangement fees
  • Booking fees
  • Product fees
  • Valuation fees

 

Lenders might have a with fee and a without fee option. There may be a mortgage with an arrangement fee of £1,000, that comes with a lower interest rate which reduces your payment by £10 per month.

However, even if you are fixing for five years, this only saves you £10 x 12 months x 5 years = £600.

In this case you would actually be £400 worse off even though the interest rate is lower.

This is why fees need to be considered when choosing a mortgage. Especially as lenders will give you the option to add a fee on to the loan, causing you to pay interest on the fee as well!

Many mortgages also come with cash back. Just like fees, this can determine which lender is offering the best deal. A monthly payment of £5 more for the first 2 years is worth it if it comes with £500 cashback, especially when you have a new home to furnish!

The size of your mortgage will be determined by a few things:

  1. Your income & commitments
  2. The size of your deposit
  3. The purchase price of your home

1. Your income & commitments

To decide how much you can borrow lenders will look at your income and apply a multiple of it. This could be about 4.5 times your income. Then they’ll look at your credit file to see how much money you are committed to paying each month in things like car loans, student loans, credit card balances, maintenance payments and anything else you couldn’t stop paying even if you wanted to. Lenders then reduce the amount they’ll lend based on this.

Having a £50 per month gym membership shouldn’t reduce the amount you can borrow as you can cancel it, but paying back a loan at £50 per month will probably reduce what you can borrow as you can’t cancel that.

The amount you can borrow will also be reduced if you have children to care for, or pay maintenance for children.

2. The size of your deposit

The bigger your deposit the smaller mortgage you will need for the same purchase price. A bigger deposit, say 15% instead of 10% or 5%, will usually get you a lower interest rate as the bank sees you as less risky.

The lender might refuse to lend you £150k with a 10% deposit, but may accept you with a 15% deposit, as it seems less risky to them. So yes, a bigger deposit might allow you to borrow more.

3. The purchase price

The more you are paying for your home the more money you need to fund it. But ultimately this is limited by the value of the property and your income.

There are lots of different types of mortgages. Fixed rate mortgages and tracker mortgages are the most common. The majority of First Time Buyers choose a fixed rate mortgage.

Fixed rate mortgages allow you to know what your monthly payment will be for a set number of months. This is called the initial period (see Initial Period section).

Fixed rate mortgages often have a higher initial interest rate than tracker mortgages, but come with the safety of knowing exactly what your payments will be. The downside is if you want to sell your home, pay off the mortgage, and take a new mortgage to buy a new home, you may have to pay a large early repayment charge.

To get around this you might be able to take the fixed rate mortgage with you, and top it up with new lending, but you would be tied to the current lender, who might not have the best deals , or might not be willing to lend you as much as other banks or building societies.

Tracker rate mortgages can be useful as they often offer more flexibility, like being able to make large over-payments without a penalty. This can be really useful for people who are thinking of moving shortly.

Most mortgages have an initial period where the interest rate is lower than the standard variable rate for the remaining term of the mortgage.

The longer the initial period, the higher the interest rate is likely to be. There are often penalties for paying off a mortgage during the initial period which can make it much harder to move to a new home.

Usually what happens at the end of a mortgage fixed period is that you will automatically go onto the lenders standard variable rate. This is normally much higher than the fixed rate, and it can go up or down. To avoid this you can switch to a new deal with the same lender, or apply to remortgage to a better deal elsewhere.

When choosing an initial period it is important to consider what could change in your life in the next few years. Once you’re settled in your first place things can move fast.

If your home increases in value, as well as your outstanding balance falling each month, the loan to value ratio may reduce enough that you qualify for a lower interest rate after only a couple of years. You wouldn’t be able to take advantage of this if you had fixed for a long time. This works in the same way that buyers with bigger deposits get offered lower interest rates.

There’s no one answer to how long you should fix your mortgage for. That’s why there are multiple options.

The term of a mortgage is how many years it will be paid over. The shorter the term, the higher the monthly repayments will be. A shorter term will reduce the total interest paid.

You can find mortgages with a term of up to 40 years today. Just because the first mortgage you take out is for 40 years though does not mean you will have it for that long. At the end of your initial period you may be able to remortgage and reduce the term. You can also reduce the term by making over-payments.

This is handy for first time buyers. The first year of owning a home is expensive, with all the costs of kitting it out. Once the one-off expenses have gone, and you have settled into your budget, and maybe increased your income, you could reduce the term of your mortgage significantly. 

There is no ‘normal’ term for a mortgage. The right term changes from person to person.

The interest rate is the amount you are charged for borrowing money. Interest rates are at record lows, ask your parents what their first mortgage interest rate was!

The lowest interest rate is not necessarily the cheapest mortgage though (see the Fees section).

Lenders usually charge higher interest rates to people who have smaller deposits (as a percentage of the property’s value).  That means somebody with a 15% deposit may get a lower interest rate than somebody with a 10% deposit, regardless of the size of the mortgage, or how much they earn.

Interest rates can be fixed or variable (see the Fixed or Tracker section).

Not all mortgage lenders are the same. Different lenders will treat the same person differently after taking into account how their income is made up, their deposit, commitments and the property they are trying to buy.

1. Income

How much you can borrow will vary lender to lender as they have different rules on income from overtime, commission, and bonus income they allow. If you get overtime, bonus, or commission income the amount that different lenders will lend to you can be huge.

Self-employed people are treated very differently by different lenders. Most lenders want to see multiple years of being in business, but a couple of lenders will consider granting a mortgage with just one years proof of income. They then calculate what you can afford differently. Some take the lowest earnings, some the highest, and some average.

2. Deposit

Lenders will ask you how your deposit has been funded. They have differing rules on gifted deposits, builders incentives, and even crypto-assets like Bitcoin!

3. Property

Lenders also treat properties differently. Some require larger deposits on flats. They even treat people differently depending on who they are buying the property from, such as a family member. Not all lenders allow help to buy or shared ownership.

Remember…

Just because a mortgage appears at the top of a list does not mean it is one you will qualify for, and having an application rejected can mean you lose the home you want.

With all these different criteria, that’s why mortgage advisors exist and is why there is no ‘best mortgage lender,’ only a best mortgage lender for you.

There are lots of potential fees that mortgages can come with. This is why the mortgage with the lowest interest rate is often not the cheapest, or best mortgage available.

Potential fees include:

  • Arrangement fees
  • Booking fees
  • Product fees
  • Valuation fees

 

Lenders might have a with fee and a without fee option. There may be a mortgage with an arrangement fee of £1,000, that comes with a lower interest rate which reduces your payment by £10 per month.

However, even if you are fixing for five years, this only saves you £10 x 12 months x 5 years = £600.

In this case you would actually be £400 worse off even though the interest rate is lower.

This is why fees need to be considered when choosing a mortgage. Especially as lenders will give you the option to add a fee on to the loan, causing you to pay interest on the fee as well!

Many mortgages also come with cash back. Just like fees, this can determine which lender is offering the best deal. A monthly payment of £5 more for the first 2 years is worth it if it comes with £500 cashback, especially when you have a new home to furnish!

Want to know more?

Why Jamie Thompson Mortgages