First time buyer

What is a First Time Buyer

A First Time Buyer is anyone looking to purchase their first and primary residential home. It’s become increasingly difficult for First Time Buyers in particular to obtain a mortgage in recent years. However, there are schemes available aimed at making it more possible.

What is an Agreement in Principle?

An Agreement in Principle (AIP) is a conditional offer of a mortgage. The conditions will usually be that you are able to provide proof of income and that the chosen property is suitable.

Whilst not essential, obtaining a mortgage decision in principle before approaching the vendor with your offer can instill faith and therefore improve your chances that the offer will be accepted.

How much can a First Time Buyer borrow?

Theoretically, being a First Time Buyer should not affect the amount you are able to borrow. The loan is based on your personal financial circumstances. The lender will assess your total income, expenditure and any other financial responsibilities. Your credit score can also impact the decision.

Whether you buy alone or with a partner will also drastically affect how much you can borrow. There are a range of free mortgage calculators available online to help you to assess how much you can borrow and what your monthly payments will be.

How to improve your credit score

Prior to applying for a mortgage, it’s important to ensure you have a strong credit rating. There are a number of websites offering free access to your credit report, so it’s easy to check.

In order to improve a low score, ensure that you are on the electoral roll at your current address and that your current address is correct on all accounts you hold. It’s important to stay within 50% of your available credit and meet all of your payments in a timely manner in the period prior to your application.

If you’ve never used any credit facilities, you may also have a low score. In this case you can use a special credit builder credit card. Make sure you pay the balance in full each month and this will increase your score.

How much deposit do I need?

When buying your first home, many lenders will require a higher deposit from you. A typical amount is between 10% and 20% of the property price.

A range of government backed schemes to help First Time Buyers obtain a mortgage without the need to meet such rigid criteria, are now available.

What help is available for First Time Buyer

There are three different schemes available to help those struggling to get on to the property ladder.

The help to buy and NewBuy schemes only require a 5% deposit. They both involve borrowing a portion of the loan directly from the government, rather than a mortgage lender. This portion is interest free and allows you to pay off the mortgage more quickly for an initial term. Some regions within the UK will not be able to access these.

Another option available to you as a First Time Buyer is the shared ownership scheme. This allows you the option to purchase a share of the property, rather than the whole property. This makes the deposit lower and the loan amount lower, resulting in lower monthly repayments. You will also pay rent on the property, usually to a local authority, who will own the remaining share. There are regional variations depending on the scheme provider.

What fees are involved when buying a home?

On top of the actual cost of the deposit and mortgage payments, a number of other costs are involved when you apply for a mortgage.

Arrangement Fees

This fee is charged by the lender for organising the mortgage. It will vary between mortgage providers and products, often called a product fee.

Valuation Fees

Every lender will want to have your chosen home independently evaluated. You are responsible for these costs. Some lenders will offer a free valuation as part of the mortgage you are applying for. These valuations generally do not offer any structural surveys but will provide the lender with what they need to assess whether the property is worthy of a mortgage.

Stamp Duty

Stamp duty is ordinarily charged on the sale of all homes over £125,000. The figure is based on the cost of your home across various tax bands. If you purchase any property under £500,000 before 31 March 2021, however, you’ll benefit from the current stamp duty holiday and will not have to pay this at all. This only applies if your mortgage has completed by 31 March 2021, if it hasn’t then you will be liable to pay stamp duty.

Legal Fees

You will need to pay a range of legal fees, such as conveyancing, local authority searches and similar. These are carried out by your solicitor.

How can a Mortgage Broker help if you are a First Time Buyer?

There is a lot to consider when deciding on your first mortgage. For example what type of mortgage is most appropriate for you, how long your mortgage term will be and what interest rates are available.

A Mortgage Broker can help you to find the most appropriate mortgage offer for you. They have a full view of the market, allowing them to see not only the most appropriate offers, but also which lenders are most likely to accept your mortgage application.