Buying your first home is as daunting as it is exciting. Whether you are doing it alone or with a partner, it is a major step into adulthood.

Whilst the excitement of an independent lifestyle flourishes, the significance of considerations when finding your home can not be understated. You will rarely make a larger investment, financially or emotionally, and with next to no experience in doing so it is invaluable to bolster your knowledge of the basics to the highest level.

This guide will inform you on the very basics of what you need to know in regard to mortgages before you buy a property, and ensure that you are fully prepared to afford your perfect first home.

First-Time Buyers

Who Qualifies as a First-Time Buyer?

Before we start, it is important to understand who exactly qualifies as a first-time buyer. This is someone who has never owned a residential property, in the United Kingdom or overseas.

Whether it’s with a mortgage or without, a first-time buyer can not previously have owned their own home, even if they were renting it out. This also includes inherited property, as inheriting property makes you a homeowner.

There are several government schemes out there for qualifying first-time buyers, but these are only available for buyers who will be living in the home, so not to include those who are buying rental property to let out.

If you are buying a home with a partner, and they have previously owned residential property, you may not qualify for some of the first-time buyer perks.

Explaining Mortgages

What is a Mortgage?

A mortgage is a legal agreement for a loan that is used towards the purchase of real estate.

The loan will have an interest rate, meaning you pay back an additional percentage of the loan over time.

Failure to stick to your mortgage plan could lead to your home being repossessed, so it is important that you budget and save sustainably.

Mortgages require a deposit, usually of at least 5%, which is a percentage of the value of the house. For example, if the house is worth £300,000, your deposit might be as low as £15,000.

LTV: Loan to Value

You will become familiar with the term ‘Loan to Value’ or ‘LTV’. This is the value of the money you have borrowed for your mortgage, so if the house is worth £300,000 and you place a deposit of £15,000, you have borrowed £285,000. This is 5% less than the value of the house, so the LTV is up to 95%.

If your LTV is lower, your interest rate is likely to be lower as well. As you have already paid more of the deposit, the lender is taking less of a risk. This would mean that the total expenditures towards your house is lower.

There are a range of Mortgage Calculators available online which allow you to work out your LTV, such as this one.

Types of Mortgage

There are two main types of mortgages: fixed rate and variable rate mortgages.

Fixed rate is the more common of the two. This is where the interest rate remains the same throughout the entirety of the deal period. If you do opt for a fixed rate, changing interest rates will not affect you.

With a variable-rate mortgage, your monthly payment can go up or down depending on the terms of the mortgage. There are several other options, but we recommend speaking to a financial advisor for the most informative insights on your options.

How to get a Mortgage

Saving for a Deposit

Before you look for a mortgage, and a property, you should save for your initial deposit. We would advise that you save as much money as you can, however you should seek to speak to a mortgage advisor to gain a better understanding. At New Homes Broker, we have a network of dedicated independent financial advisors who can help guide you through this process, allowing for more clarity when determining a budget for your property.

Finding Mortgages

At New Homes Broker, we have a network of trusted financial advisors who have a thorough understanding of mortgage rates and options. This is highly advised, particularly for buyers with small deposits or any first-time buyer who will benefit from guidance.

When Should I Apply for a Mortgage?

There is no direct answer as to when you should apply for a mortgage. Some homebuyers will apply at the start of the home-search, and others will apply as soon as they are prepared to put an offer in for a house, but you should consider that mortgage offers tend to last between 3-6 months. With this in mind, you should plan to apply for a mortgage in accordance to your financial situation, after discussions with an advisor.

Help for First Time Buyers: Government Schemes

For those who are worrying about having a smaller deposit, there are a range of government schemes available for assistance. The ‘First Homes Scheme’ opens the door for First-Time Buyers to the possibility of buying a home for 30-50% less than its market value. The Government website explains:

“You can look for new homes in your area that are advertised by developers as part of the First Homes scheme.

Developers offer these homes to first-time buyers with 30% to 50% of the market value taken off the price.

Every home that’s sold is valued by an independent surveyor to make sure the discount is based on actual market value.

The homes cannot cost more than £420,000 in London, or £250,000 anywhere else in England, after the discount has been applied.

You can only sell the home to someone who is eligible to buy a First Home. You must give them the same percentage discount that you got, based on the home’s market value at the time of sale.”

You can find out more information about the First Homes scheme here: https://www.gov.uk/first-homes-scheme

Application Process

Applying for your mortgage is stressful, with lots of paperwork and information to be provided.

You can apply for mortgages directly through banks or building societies, although we will always recommend speaking to your mortgage advisors beforehand.

You should prepare for the process by gathering all necessary information. Examples of this information include bank statements, utility bills, and your credit score. It is important to have a high credit score. Anything below 560 is usually classed as ‘very poor’ and whilst a low credit score isn’t the be-all and end-all of mortgages, it certainly damages your chances of having a loan approved. For a higher chance of acceptance, take the time to get your credit score into a position deemed as acceptable.

This is so that the lender is assured that you have a sustainable income and can be trusted to pay your mortgage. We would again advise that you should run through all of this with a financial advisor, so that you are well prepared and presented professionally when applying.

Conclusion

Overall, the process of buying a house is very lengthy with lots of paperwork. For that reason, we would highly recommend coming up with a financial plan, where you assess your budget for a deposit, but also anticipate the future payments towards your mortgage.

Working with a Buyer’s Agent such as New Homes Broker has a range of benefits, as we not only find your home, but we can also provide guidance from mortgages to legal paperworks, using our large network of advisors and solicitors.

Things You Need To Know About Mortgages As A First-Time Buyer In 2024.