First Time Buyer Mortgages
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First Time Buyer Mortgages
Anthony McQuilliam explains the mortgage process for First Time Buyers.
How is the mortgage process different for First Time Buyers?
The main difference when you are a First Time Buyer compared to someone who’s moving home, is actually that the process is simpler. You won’t have to tie in the sale of a current property and as a First Time Buyer there’s no property chain.
A home mover has to sell a property and make sure they have enough equity for the new home. The overall mortgage process as a whole is not dramatically different. But as a First Time Buyer you can be a more appealing buyer than someone in a whole chain of properties.
What is an Agreement in Principle?
There’s a lot to learn when it comes to mortgages. At school they teach you about the inside of a leaf, and Pythagoras’ theorem – but you never learn about how mortgages work. So as a First Time Buyer you’re thrown in the deep end. You hear so much jargon and things that you’ve never heard about in your life.
A property is the biggest thing you’re ever going to buy, so any mistakes can be very costly. So it’s important to gain some understanding about the process as you go through it.
An important piece of jargon is a DIP (Decision in Principle, Agreement in Principle or Mortgage in Principle). They’re all the same thing: pre-approval for your mortgage. So before you go out and start looking at properties it is a huge benefit to have an Agreement in Principle in place.
It’s where a lender runs a soft credit search and confirms the maximum amount they will lend you. Then, when you’re looking at properties you know exactly what you can afford.
It also gives you a leg up against somebody that hasn’t got an Agreement in Principle. Imagine you see the perfect house. You’ve got your solicitor ready and your Mortgage in Principle in place. Meanwhile the other person that’s interested in the property doesn’t have those things ready… It’s an easy choice for the seller. They will want to move forward with someone who has everything done up front. It gives you a fighting chance of getting that dream home.
How much can a First Time Buyer borrow?
This will vary by lender. If you go and speak directly to your bank, they only have one set of criteria about how much you can borrow. Meanwhile a broker has access to dozens of lenders and can make sure you get the loan you want.
Most providers will lend you somewhere around 4.5 times your annual income, but there are some that may go up to 5.5 times, depending on your income and the deposit you have available.
What deposit is needed for a First Time Buyer?
The bigger the deposit, the easier it is to get yourself a mortgage. The bare minimum you need is 5% of the purchase price. What you find from the lenders is that for every extra 5% of deposit that you put down, you may qualify for better interest rates, because you’re seen as a lower risk.
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Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.
How do I know what my credit score is? How do I improve it?
The first thing you need to do is have a look at your credit score. We use a system called CheckMyFile* which brings together details from four different credit companies in one place. It gives us a much broader view of how your credit score would look to a lender.
A good, quick way to build your credit is to get on the electoral roll. You should make sure you’re keeping up with your direct debits and all your payments on a monthly basis.
*You are now leaving the Bolt Mortgages website. We give no endorsement and accept no responsibility for the accuracy or content of any sites linked to this site. The service promoted here is not part of the Openwork offering and are offered in our own right. Openwork Limited accept no responsibility for this aspect of our business.
What is the First Time Buyer ISA?
The First Time Buyer ISA is now known as a Lifetime ISA. These were created to help people get on the property ladder. It’s a savings pot that you can put money into and once you’re ready to buy a home, you gain an additional 25% from the government as a bonus, once you reach the completion stage of your property purchase.
The maximum that you can put into a lifetime ISA is £4,000 per year. That ultimately means for every year that you save your £4,000 allowance, you get a £1,000 bonus from the government.
What other help is available for our First Time Buyers?
As everybody knows, house prices have gone through the roof in recent times. A lot of people can’t always afford to buy a property on their own.
One great scheme is Shared Ownership which acts as a stepping stone between renting a home and owning one. You can buy a 50% share in a flat, for example. And as house prices increase you still benefit from the equity appreciation and paying off some of your mortgage. You pay rent to a housing association for the other share, and you can buy a greater share of the property as and when you want to.
Another common concern for First Time Buyers is that they can afford the monthly repayments for a mortgage, but they can’t reach the borrowing amount that they need from the lenders. To help with this, there’s a particular mortgage called a Joint Borrower Sole Proprietor (JBSP) product.
Without going into too much technical detail, it essentially means that you own your property in your own name, but you can have a parent or a family member on the mortgage alongside you. That way you can use their income to increase the amount you can borrow, without them owning the property.
What fees are involved when buying a house?
When you sit down with a broker for one of our initial fee free strategy calls, we break down all the fees involved. It’s all good to save up your deposit. But if you’ve spent all your money on that and you can’t pay for the fees, nothing will ever go through.
The first cost to look at is stamp duty, which only applies to First Time Buyers if the property is worth over a certain amount. This limit seems to be changing every couple of months at the moment.
Then you’ve got survey fees, where you can choose for different valuation surveys to take place on the property. You also have a mortgage broker fee, solicitor fees and costs of searches.
How can a mortgage broker help?
So much of this is down to education. As a First Time Buyer it can be daunting – you don’t get told how any of this works. It’s hard to see all the money you have saved disappear into your deposit.
It really helps when you’re going through the process to have somebody alongside you to help. It means you know exactly what’s happening at each stage of the process. A lot of the nerves when buying your first house come from the unknown. Having someone alongside you to explain the process is worth their weight in gold.
Approved by the Openwork Partnership on 25/01/2023
Your home may be repossessed if you do not keep up with your mortgage repayments.