First Time Buyer Mortgage Guide
First Time Buyer Mortgage Guide
Welcome to the First Time Buyer Mortgage knowledge hub.
Whether you are looking for a mortgage broker in Manchester to help you or not, I hope that the information below helps you buy your first house. And to those of you who decide to work with me, I can’t wait to help you buy your first place.
Not buying in Manchester?
No worries. This page should still help you if you are a first time buyer wanting to get on the property ladder. Most of my first time buyer client are in Manchester and the North West but many are not, especially if they are using a specialist mortgage such as stipend mortgage, new job mortgage, NQT mortgage, or fixed term contract mortgage.
How much can you borrow?
How much you can borrow for your first time buyer mortgage is determined by two main things. These are your income, and your commitments.
As a very rough guide, most first time buyers are able to borrow up to 4.5 times there income. The catch is that different mortgage lenders will treat different types of income differently.
If you earn over £37,000 individually, or £55,000 jointly, you may be able to borrow as much as 5.5 times your salary. This could open the door to a lot more properties for your first time buyer mortgage.
Different mortgage lenders treat income differently.
The lenders will calculate your maximum borrowing ability given their income multiplier and reduce it depending on how many financial commitments you have.
This can be relatively straight forward if you earn a set salary that does not change and if you don’t have any commitments or dependents.
Overtime, bonus, commission, car & location allowances
If you earn overtime, commission, bonus or other allowances, this is where different lenders start to treat income differently.
Some mortgage lenders will take an average of non-basic income over 3 months, some over 6 months, and some over a year or more.
There are many lenders that can count all of your location or car allowance into account when deciding how much to lend you.
Typically lenders want to see two years income for self employed first time buyers. The documents they will ask for are your Tax Calculations and Tax Year Overviews.
It is possible to get a self-employed mortgage with only one full years trading, especially if you have experience in the field you’re now self-employed in.
Benefits can be used with some lenders. If you receive child benefit, tax credits, or PIP, some lenders will take these into account when applying for your first time buyer mortgage in Manchester.
Commitments are all the monthly payments you make that you couldn’t stop right away. These include personal loans, car finance, credit card debt, student loan, and other commitments.
The more of these that you have, the less money you have available to pay your monthly mortgage payment. Therefore, the lender reduces the amount they will lend to you.
Different lenders reduce this amount by different amounts. Some lenders are notoriously good for people with car loans and credit card balances that other mortgage lenders would have punished them for.
Personal loans & car finance
A mortgage lender will know that any money committed on loans and car finance isn’t available to pay the mortgage. This might reduce how much they will lend to you.
Just because you have some loan payments doesn’t mean they will definitely lend less; they have some tolerance.
They are more interested in the monthly payment than the total amount still to repay. This means that somebody who has a car loan of £10,000 repaying £200 per month for 5 years may be able to borrow more than somebody with a car loan of £5,000 whose repaying £400 per month for 1 year.
The same logic is also applied to personal loans.
Credit card debt
Having a credit card with a small balance on is not usually going to affect what you can borrow. If you have several thousands pounds of credit card debt, and you don’t pay it off each month, this could reduce how much you can borrow for your first time buyer mortgage in Manchester.
Student loan repayments are treated just like personal loans and car finance. The amount deducted from your pay is what the lender is looking at.
If you aren’t earning enough to start repaying your student loan then it will not affect how much a given lender to lend you. It only can have an effect once you start making payments, and when they are very small it still might not make a difference if you don’t have many other commitments.
If you have children, then some lenders may lend less to you. The effect of this is less the more that you earn. For example, somebody earning £50,000 with no children might be able to borrow the same as somebody earning the same amount who has two children. If these people were only earning £20,000 then the one with children may not be able to borrow as much. Some lenders are much more generous than others in this situation.
If you are paying child maintenance this will be treated like a loan payment by most lenders.
Other commitments could be anything that you would not be able to or want to reduce spending on if your income fell. For example, if you rent a second property close to work. General spending on gym memberships or subscription services wouldn’t usually count, unless it was excessive and therefore affecting your affordability.
When it comes to deposits, bigger is better.
What I mean by this is that the bigger deposit you have as a percentage of the property’s value, the better the mortgage you will get. This is because you will get a lower interest rate if you have a 10% deposit over a 5% deposit, and lower still if you have a 15% deposit.
You are also more likely to be accepted with any given lender if your deposit is larger. This means there are more options available to you, which is a good thing to have when applying for your first time buyer mortgage in Manchester, or elsewhere for that matter.
It’s common for family to gift money to help people buy their first home. The key word here is gift. It needs to be a gift and not a loan, though there is one lender that allows you to use a loan to fund your deposit!
Gifts are typically acceptable from parents, children, siblings, and grandparents. There are occasions when friends and non-family gifts are acceptable too.
Most lenders require 15% deposits on newbuilds. This is because they are seen as riskier by most lenders.
However, there are a few 10% deposit options on new builds, and a 5% deposit isn’t impossible.
If you are interested in a new build you may be able to take advantage of the Help to Buy equity loan scheme.
Be mindful that developers might tell you that you need to use a specific broker or conveyancing solicitor. This is not the case. You are free to choose who you want to use. Watch out for conditional selling.
Like new builds, flats are seen as a little risker by most lenders. This means most of them want a larger deposit. 15% is typical.
Again, there are a few 10% options, and a 5% deposit can be acceptable.
New build flats typically require at least a 15% deposit.
If you are looking at flats, remember to consider the ground rent and maintenance charge. This will be taken into account by the lender when calculating your affordability as if it were a loan commitment.
Right to remain in the UK
If you don’t have indefinite leave to remain the the UK some lenders insist on a 25% deposit, and some will not lend to you at all.
You can get around this deposit rule if you are buying with somebody else who does have indefinite leave to remain in the UK. Read more about getting a mortgage on a spouse visa.
Types of first time buyer mortgages
There are lots of different types of mortgage products. Depending on your circumstances will depend on what features are right for you.
A mortgage broker will be able to guide you though the features and what’s right for your specific situation.
Fixed rate mortgages
Most of the first time buyer mortgages in Manchester that I arrange are fixed rate mortgages. These mortgages have a set interest rate, and therefore a set payment, that cannot change for a specified period.
This means that whatever happens to interest rates in the wider your payments are fixed until a certain date.
The drawback is that these rates are usually set a little higher than other products, and they usually come with large early repayment charges if you need to change your mortgage during the fixed period.
At the end of a fixed period you are usually able to take a new fixed period with the same lender, called a product transfer, or remortgage without penalty to get a better deal elsewhere. A good mortgage broker will contact you a few month in advance to make sure you don’t go onto the standard variable rate at the end of your fixed period.
How long to fix for?
Typical options are 2 and 5 years. There are a couple of 3 year options too.
If you have a small deposit, I personally believe it’s wiser to fix for a shorter time. This gives you the opportunity to take advantage of lower interest rates in the future as you’ve paid of some of your mortgage and you may have more equity in your property. This is helped out even more if the property value increases too.
It also gives you the flexibility to change your mortgage if your circumstances change in the next couple of years, which is quite likely whilst your’re still young.
Typical changes are increase in pay (meaning you can afford a bigger place sooner), getting a partner, separating from a partner, having to move for work, or starting a family.
Longer fixed periods are wise when you are certain you can commit to a specific place for a much longer time.
Other types of mortgages
Other types of mortgages might not have a fixed interest rate. They might go up or down linked to the Bank of England Base Rate, or as the lender wishes.
These tracker mortgages typically come with more flexibility, such as the ability to repay the mortgage without penalties. These are more common with people remortgaging at the end of their fixed period who don’t want to commit to another fixed period as they want to move in the near future.
How long to have your first time mortgage for?
The term of your mortgage is one of the largest factors in determining your monthly repayment. A shorter term will cause a higher monthly payment, and a longer term a lower monthly repayment.
Its very rare these days that a first time buyer mortgage in Manchester has a term of 25 years or less. Most borrowers prefer to have a longer term to make the payment more manageable in the early years of the mortgage.
Having a 30, 35, or even 40 year mortgage does not mean you will have to keep it that long. It’s common for people to remortgage a 35 year mortgage to a 30 or 25 year mortgage after the end of their first initial period. Especially if their income has increased.
This keeps the monthly payment low during the most expensive year of their life as they are buying everything for a new house.
To decide how long to have your mortgage over it’s best to work backwards for what you want your monthly payment to be. Pick something comfortable as with most lenders you can overpay up to 10% of the balance each year. It’s much harder to underpay though.
Fees and costs for first time buyer mortgages
Buying a house is expensive. Not just the house itself but all the things that come with it. There’s no set cost as it will vary person to person. Here are the things to consider though.
Mortgage arrangement costs
Some mortgages come with an arrangement fee. This is a fee that the lender charges to setting up the loan. It’s usually only paid if the mortgage goes ahead.
They range from £500 to £2,000 pounds, though many mortgages have zero arrangement fees.
Mortgages with an arrangement fee usually get a lower interest rate. However, it’s important to consider that at some point the arrangement fee will wipe out any saving from a lower interest rate. That’s why you need to consider the arrangement fees over the initial period when selecting the lowest cost mortgage. Paying an arrangement fee to save less than the arrangement fee is one of the most common first time buyer mistakes I see. A mortgage broker will be able to make sure you don’t make this mistake.
Where it is worth paying an arrangement fee, most lenders allow you to add this to the loan. But some will not allow it if it goes over say, 90%. This means you effectively need a larger deposit which could leave you short on cash when you complete. Don’t get caught out by this.
Some lenders are happy for you to add the fee to the loan without it causing you to pay a higher interest rate.
Other one off costs could be valuation fees, though most first time buyer mortgages come with free valuations today.
You also need to consider cashback. Some mortgages come with £500 or £1,000 cash back. This is like the opposite of an arrangement fee. It could be worth having a mortgage with a slightly higher interest rate if it’s more than covered by the cash back. This is another common mistake I see.
Mortgage broker costs
Many mortgage brokers are available to help first time buyers without charging you. I try not to charge a broker fee for first time buyer mortgages.
Whether they charge you or not they will still receive the same fee from the mortgage lender.
If your case is more complex you probably need to speak to a specialist mortgage broker in that area ad expect to pay a fee. This reflects the added complexity or knowledge required to get you a mortgage.
If your case is straight forward you’ll be able to find a great mortgage broker usually without paying a fee. Sadly, many brokers charge £500 for even the most basic of cases. If you do use a fee charging one, make sure you understand what you are getting for that fee and when it is payable as this can be different from broker to broker.
You’ll need a conveyancing solicitor to do the legal work of buying a house once you have had an offer accepted. Your solicitor will do all the legal work and be in contact with the solicitor action for the vendor.
Estate agents and mortgage brokers may be able to recommend a solicitor for you to use. But remember, you are completely free to choose who you use. It won’t be faster by using an agent’s ‘in house one.’ Remember the agent represents the seller, not the buyer!
Solicitor fees can cost more if you are buying a leasehold property, have a gifted deposit, are using a Help to Buy ISA or LISA, or have other additional work that needs to be done.
Make sure you get all these extras clearly shown on any quotes and they aren’t hidden in the small print. I’ve seen hidden charges of £150 for buying the property by using a mortgage in the small print. Madness.
A condition of the mortgage will usually be that you have to obtain buildings insurance (home insurance) for the property. Most people add contents insurance too. The premium will depend on the type of house you buy and what location. You can get some dummy quotes online.
If you are buying with a partner you should expect to take life insurance. This prevents you leaving one another with an enormous debt if you were to die with the mortgage in place. For most of my first time buyers in Manchester it’s a few pounds a month but depends on the amount of cover you need, your age, and your health.
You should also ensure that if you were unable to work that your income would be replaced. The more sick pay you get from work the cheaper this will be, and there is lots of flexibility in the products.
Income protection typically costs a few pounds a week but will depend on your exact circumstances. If you aren’t convinced it’s for you then you should really consider if you are ready to take on as large of a commitment as a mortgage.
How to decide on a mortgage
The easiest way is of course to have a mortgage broker do all the work for you and then explain to you why this is the best option for you.
Ultimately to get the best mortgage this will be the lowest cost one that you qualify for. That means all of the points above need to be considered, right the way from your income and commitments to if arrangement fees and cash back are worth considering.
Hopefully you understand that calculating the lowest cost mortgage is more than selecting the lowest interest rate.
If you do want to do it all by yourself, make sure you aren’t just looking at one feature like the interest rate. The fees could alter what the lowest cost option is, and of course, make sure you actually qualify with the lender you’re applying to in the first place!
The buying process
This is the process I used to get great results for first time buyer mortgages in Manchester. Other processes might vary slightly (like providing documents later in the process), but this is the process with me, and looking at my Google reviews, it seems to work well.
Selecting a broker
If you’ve decided to work with a mortgage broker then think about who you would like to work with. If you’re going to arrange the mortgage yourself make sure you know all the ins and outs- any mistakes you make will be on you.
When selecting a mortgage broker, I believe you should work with somebody who specialises in your situation. For example, I’d be rubbish at arranging a limited company buy to let mortgage for somebody. I’m brilliant at first time buyer mortgages though.
Some brokers or companies will claim to do all mortgages. That’s fine, but the needs for a fist time buyer are very different some somebody remortgaging in their fifties.
Consider their fees. Some mortgages advisors will charge £500 for even the simplest of cases. Many, including myself, will be fee free for most first time buyers. Make sure you understand what you are getting any fee you pay and when it is payable.
Consider how your mortgage broker communicates. Will you have to take time off work to see them or can then do video appointments in the evening and communicate by WhatsApp, ahem, like me. Consider what will work best for you.
After an initial chat on the phone we’ll arrange a full appointment on Zoom.
This appointment is your opportunity to ask questions about getting your first mortgage and the house buying process. I will then gather your personal details and ask your what your objectives are; how much you’d like to buy for etc.
I’ll be able to give you an estimate of what I think you can achieve. To confirm this, after the meeting I’ll send you a list of documents I need; pay slips, bank statements, and a few other things. Once I have these I can set about getting you an agreement in principle.
Agreement in principle
Now I’ve got your personal details and the documents to prove them I can approach lenders on your behalf. I’ll only approach lenders that you qualify with. This makes sure you aren’t disappointed later on.
An agreement in principle is essentially a certificate form a mortgage lender that indicates how much, if at all, they are willing to lend to you, subject to you proving all the things we’ve said in the agreement in principle application.
Don’t worry though, I’ll only be telling them what I can already prove from the documents I’ve seen- hence why I get all your documents right at the start to minimise the risk of being disappointed later on. Most importantly it’ll be with one of the banks or building societies your circumstances qualify with.
No interest rate or details of the product are selected at this time as they could be different by the time you have an offer on a home accepted.
Making an offer
Once you have this agreement in principle it shows estate agents you are a serious buyer with the ability to bid on the house they are selling.
It’s now down to you to go house shopping. See the useful links section below for some resources to help you with this.
Once you have had an offer accepted you’ll come back to me and I’ll get the final details of the property like the agreed purchase price and what deposit you are wanting to place down. This will then determine the mortgage amount.
Once I have all the final details I’ll go away and research the best mortgage deals for you. This is going to be the lowest cost mortgage that you qualify for and meets your objectives.
It might not be with the lender that we have an agreement in principle with. It depends which lenders have the best products at the time. But at least we know that if other lenders don’t accept you we already have one that should.
We’ll meet again on Zoom and I’ll present the mortgage to you and go through why I’m recommending it. You’ll get a full copy of all the details too.
Assuming your happy with it we’ll need to appoint a solicitor (conveyancer) to name on the application. I’ll come with an option from a company that has done a good job for my clients in the past. You are free to us whoever you want to though. The estate agent may suggest using one they recommend. Keep in mind that their client is the seller of the house, not you the buyer, and who’s interests they really have at heart?
At this point I’ll also present the insurances relevant to you and do the applications.
I’ll then submit your mortgage application for you. The lender will inspect your application and documents and order a valuation of the property. Once they are satisfied with this they’ll issue a mortgage offer.
Once the mortgage offer is issued it is over to the conveyancer (solicitor) that you appointed, and the vendors solicitor to do all the legal work. All you need to do now is provide them with the information they need.
The solicitors job is to check that there are no legal issues with the property, make sure your aware of any restrictions associated with it, and ensure you legally own the property at the end of the process. They will also confirm if any stamp duty is due.
A typical time frame is 12 weeks but it can be much longer.
Once all the legal work is done you and the vendor will agree an exchange and completion date. Exchanging is when you sign the contracts and commit to the purchase. Completion is when you get the keys.
The solicitor will sort out all the money in the background. You’ll just need to get your deposit to them before you exchange.
It’s then time to move into your new house.
I’ll be in touch a few months before your mortgage needs reviewing to keep you on the best product for you, and prevent you from going on to any standard variable rate.
First time buyer mortgage resources
Why I set up the First Time Buyer Mortgage knowledge hub
This hub was set up with the aim of educating first time buyers in Manchester but now I help people accrossthe UK. I see first time buyers making mistakes all the time. Hopefully even those that don’t use me as their mortgage broker can avoid some of those mistakes by learning something here.
First time buyers often ask me the same questions. The chances are you may have some of these questions too. That’s why I’ve answered many of the reoccurring questions in these short videos.
There’s also a whole lot of jargon, acronyms, and abbreviations that people involved with the housing market use. They often forget that this is all brand new to you and you’ve no idea what they are talking about. This is why I’ve shared over a hundred definition in the group. You can see them broken down into different topics here.
More than just mortgages
There’s a whole lot more to being a first time buyer in Manchester than getting a mortgage. Often that’s the easy bit. The hard bits can be deciding where to look, understanding the legal jargon, and just feeling overwhelmed.
The Resources section suggests websites related to the Manchester housing market but they’ll be one for your local area too.
I get to help some members become home owners!
Inevitably some of the people who read this page will ask me to arrange their mortgage for them. This is more of a bonus for me than a goal.
Giving away all this knowledge and then answering your questions allows me to see what first time buyers worry about most when buying their first home. This helps me prepare my own client for the best home buying experience possible.
First Time Buyer Mortgage Dictionary
Over a hundred definitions of terms and phrases that you may come across when buying your first house. They are broken down into four main sections:
- House Hunting
- Legal Terms
A series of short 30 second videos covering mainly mortgage related topics that you should consider if you are a first time buyer.
Tips for First Time Buyers Mortgages
Be open minded
Be open minded about your search area. Don’t rule an area out just because you’ve not been there before. If there are some suitable listings go and check the area out, you might be surprised.
Speak to a Mortgage Broker
I’m not just saying that because I am one. I’m saying it because time after time I hear of First Time Buyers making simple mortgage mistakes. It’s not their fault, they’ve never done this before. Mortgage Brokers are great value for money, and often free as they receive money from the lender. Get in touch with one to discuss all your options, not just what you think your options might be! Here are some things that First Time Buyers in Manchester should consider.
Stay in control
You’ll meet lots of people who want to use their services when buying a house. They’ll also encourage you to use their affiliated services too. At every point you have the choice of who you use and you should pick the ones you are most confident in. You can’t be forced to use a specific service; this is called conditional selling.
Remain in control of yourself too. Don’t get carried away when on house viewing and make sure you are always being realistic.
First Time Buyers have power
Remember, that as a First Time Buyer you can be a homeowner’s dream. This is because you don’t have a property to sell that might cause a hold up for the person trying to sell their home to you. You are chain free.
If I was selling my home and I had two offers at the same price, one from a First Time Buyer, and the other from somebody who still needs to sell their own home, I’d pick the First Time Buyer every day, perhaps even if they were offering slightly less.
Get all your ducks in a row. This means knowing what you want and what you can afford to do long before you’re ready to do it. Be sure to have planned your deposit savings goal, setting up property alerts on Rightmove, and getting an Agreement In Principle.
Useful first time buyer websites
Find A Hood
Tell this website what is important to you when deciding on where to buy a home and it will suggest some locations for you.
Check out crime statistics in the areas you are considering buying your first home in Manchester.
Flood Risk Maps
Check if the area you are looking at is subject to flood risk.
Set your workplace and maximum commute time and see all the areas you can consider home hunting.
Set up alerts to make sure you know when suitable properties come onto the market.