First Time Buyers Guide

First Time Buyer?

Welcome to the beginning of your mortgage joy journey. There is a whole lot to get stuck into, but we’re here to answer your questions in the simplest of ways. 

Jump to:

1. What exactly is a first time buyer? And who qualifies as a First Time Buyer?

2. Your affordability. Can you afford a home?

3. Boost your chances of getting a First Time Mortgage

4. First Time Buyer Deposit: How much do I need?

5. How to Save for your first time buyer mortgage deposit

6. What help can I get for my First Time Mortgage?

7. Hidden costs of buying your first home

8. What documents do I need for my mortgage application?

9. Household bills to think about when planning how much you can afford:

10. Side Hustles: Can they be included in my affordability? About Self Employed Income

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1. What exactly is a first time buyer? And who qualifies as a First Time Buyer?

According to MoneyAdviceService, ‘A person is generally classified as a first-time-buyer if they’re purchasing their only or main residence and have never owned a freehold or have a leasehold interest in a residential property in the UK or abroad.’
 
What does this mean? 
 “If you have never owned a property or a share of one before HUZZAH, you’re a first time buyer!”
 
If you have never owned a property or any share of one – whether bought, gifted or inherited – at any time during your life, either inside or outside of the UK, you are a First Time Buyer. Hurray! 
 
‘But my mum’s, uncle’s, friend, told my brother that you can be a First Time Buyer more than once…’ 
 
Sorry folks, you cannot qualify as a first-time buyer twice. you’ll need to have never owned a property. It doesn’t matter if the property was shared ownership or you owned it jointly with someone else.
 
Did you know…
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2. Your affordability. Can you afford a home?

Ah, the big question, how much can I ‘get’ for a mortgage as a First Time Buyer? Lenders used to calculate this based on a simple formula. Annual Income x 4 = Mortgage Affordability. But now, there’s a bit more to it.
 
When you apply for a mortgage, lenders calculate how much they’ll lend based on both your income and your outgoings – so the more you’re committed to spend each month, the less you can borrow. (I know Klarna seems like a good idea at the time!)
 
In Mortgage Propeller simple terms, this just means whether you can afford the repayments. They’ll not only look at your income… also your outgoings and credit score. 
 
You can still use the basic formula to calculate your affordability, just make sure you’d be able to keep up with repayments and have an excellent credit score, before you get your hopes up! 
You can check your credit score here via Check My File, free for the first 30 days!

3. Boost your chances of getting a First Time Mortgage

According to a recent report by Aldermore Bank, ‘45% of first time buyers have had mortgage applications rejected.’ Almost half of all first time buyers! 

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So what can you do? Boost your likelihood with these 10 steps:
 
1: When it comes to your deposit - the bigger the better!
This biggest thing between you and your first time home is the deposit. Mortgage providers reserve their lowest interest rates for people with large deposits. A good place to start if you’re a first-time buyer is to open a lifetime ISA account. You can find out more in our blog: Why Saving for your First Mortgage Deposit Doesn’t Have to Completely Suck
 
2: KNOW YOUR CREDIT SCORE
It is ESSENTIAL that you know your credit score, and have a solid high rating. Why? A high score means that lenders are more likely to consider you because you are a lower risk as a borrower. You can check yours on services like CheckMyFile, which is free for the first 30 days. The sooner you know where you stand the better. A good credit score is the new flex for First Time Buyers!
 
3: Pay your debts and close any unused accounts in advance
When reviewing you as a customer, mortgage brokers will look at the total amount of credit available to you – and the amount you owe. So clear as much of your debt as possible, loans, store cards, payment plans, and close down any accounts you no longer use. This will help lenders be more confident in your ability to keep up with your mortgage repayments… (and boost your credit score!)
 
4: Get on the electoral roll and update your address
Pretty self-explanatory. This is so the broker can verify your identity. If you are not registered, contact your local authority or sign up online.
 
5: Avoid unusual properties
Properties in this category – include flats above commercial premises such as cafes and bars, old or unusual buildings, and homes built using non-standard construction materials. Why? Mortgage brokers need reassurance that if you default, or can no longer pay your mortgage, that they can get their money back. So for your first home, keep it sensible enough! 
 
6: Be prepared with all documents
Documents include proof of address, payslips, passports, and more. We’ve written a whole blog on it to help you get organised. Read 10 Documents you need to apply for a Mortgage
 
7: If you have self-employed earnings that you want to declare for your affordability, get your SA302 ready!
In this day and age many of us have ‘Side Hustles’ or are running our own gig completely. Unfortunately, this means you’ll need to provide extra information on your earnings. If you are self-employed, you will need an SA302 form relating to the last two to three years from HMRC, or your full accounts for the last two to three years.
 
8: Know the kind of mortgage you want
There are LOADS of types of mortgages out there. We’ve broken them down in this simple blog: What type of mortgage suits me best? 
 
9: Bank or Broker? Getting the best deal
Getting the best mortgage deal as a first buyer could save you tens of thousands of pounds over a 25-year term. It’s a big deal. Brokers have access to deals that are not available directly with banks. So that’s worth keeping in mind when you’re crossing that bridge. 
 
10: Don’t chop and change your application
Don’t mess around with your application once you’ve started. By this we mean, changing figures, bumping salaries and deposits. This will just confuse everyone and potentially hold up your application. Not only could the lender refuse to give you the extra money, but it may also decide it’s no longer prepared to lend to you at all.

4. First Time Buyer Deposit: How much do I need?

In the current climate, first time buyers are expected to have a deposit ranging from 10% - 15% of the property value. However, with Boris Johnson announcing the return of 95% mortgages, this could see a surge in 5% deposits! 
 
So let’s say your new home is £150,000, the deposit required could look like:
 
5% = £7,500
10% = £15,000
15% = £22,500
The general rule of thumb is, the bigger the deposit the better. Why? Multiple reasons.
 
• A bigger deposit will give you more deals to choose from
• Lower monthly mortgage payments
• And increase your chances of a broker taking you seriously 
 
Saving for your first mortgage deposit can seem intimidating… hey, aren’t most ‘first times’?
One, it’s a lot of money, and two, saving can be associated with sacrificing the fun stuff. Our recent blog dives into saving tips and ticks. 

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5. How to Save for your first time buyer mortgage deposit

Saving up money is difficult, and can be one of the biggest obstacles in the way of you and your first-time mortgage. Like any obstacle, with research, guidance and planning it can be broken down into something more manageable.   

Open an Individual Savings Account (ISA) 

The government offers ISA Lifetime accounts (also known as a LISA) to those aged 18-40. This allows you to save a maximum of 4000 per year, with no tax on any interest or growth, and the government will add a 25% bonus to your savings at the end of each year.  

Make a plan and organise your goals

Many first time buyers can be in denial about how much they need to save for their first mortgage deposit. Therefore, it is important to make a plan and get organised! 

First, work out your affordability using a mortgage calculator to estimate how big a mortgage you can get. The exact amount will of course depend on your mortgage in principle provided by your Mortgage Broker down the line - but it doesn’t hurt to look and prepare! 

Second, start thinking about your 10% - 15% deposit. What is 10% - 15% of your mortgage affordability? What is that total divided monthly over 2 years (or however long you have to plan) into your savings account? 
Third, set up a monthly direct debit into your savings account. It can seem daunting, but setting aside a bit of money after payday monthly will be worth it! 

Read our blog post to find out about more ways you can start your saving right now.

6. What help can I get for my First Time Mortgage?

Ask parents for help: 
 
Statistics estimate that 59% of potential First Time Buyers expected their parents or family members to support them in buying their first property.  Although not an option for everyone, there are several ways that parents can help you buy your first home, like when it comes to mortgage deposits, advice and guidance. Read our blog post to find out the 7 ways parents can help with a first time buyer mortgage. 
 
Help from a mortgage broker: 
 
Mortgage Brokers help borrowers get a mortgage, acting as a connector between the borrower and the lender. They have expert knowledge of the mortgage broker and will understand a borrower’s individual circumstances, which helps to save borrowers time and money. 
 
Mortgage advisors can…
• Assess your financial situation 
• Can answer questions on Mortgages, explaining what the pros and cons are of different mortgages 
• They can provide access to many lenders and mortgage products, easing the application process. 
• They can search the market on your behalf and advise on the type of mortgage that is right for you. 
 
We encourage you to ask your mortgage broker anything and everything. Remember, when it comes to the biggest financial decision of your life, there are no stupid questions! 
 
First Time Help To Buy Government Schemes
 
First time home buyers can get help buying a home by using a government scheme. They are particularly aimed at those who might be struggling to afford the hefty deposit that comes with buying a new home. These schemes can vary between the different regions of the UK. 
 
Lifetime ISA 
An ISA Lifetime account (also known as a LISA) is available to those aged 18-40. This allows you to save a maximum of 4000 per year, with no tax on any interest or growth, and the government will add a 25% bonus to your savings at the end of each year. You can keep saving until you’re 50. 
 
Shared Ownership 
With Shared Ownership, you buy a share of the property and pay rent on the rest. Your household income must be less than £60k. 
 
Help to Buy Equity loan 
An equity loan can help you lower mortgage repayments. 
 
You can consider this option if you have saved a 5% deposit, but aren’t able to borrow enough to buy in your chosen area. Instead of taking out a 95% mortgage with a 5% deposit, the government loans you a set amount of equity, and you pay the rest. The interest rate of an equity loan is usually lower than for a mortgage. 
 
However, these loans are only available on new build homes. In addition, the size of government loan depends on where you live. Whilst it’s 40% in Lonon, it’s only 15% in Scotland! 
 
House Sales Scheme 
Under the House Sales Scheme, you can buy your social housing home at a discount of 20-60%. You will have needed to have rented your home for at least 5 years. 
 
Solicitor Help 
A solicitor can help you deal with the legal side of buying a home. This is called conveyancing.  You do not have to use one, but your mortgage broker may suggest one, and many people who own a home will have used one. 

7. Hidden costs of buying your first home

Buying a home is going to be the most expensive purchase you will probably ever make. Budgeting is the key factor into planning your first time buy. Unfortunately, there are a few hidden costs that can be overlooked by First Time Buyers. 
 
1. Legal Fees 
Once your home transaction is processed legally, it means there will be solicitor’s fees. These fees could add up to a few grand depending on the price of your home. It’s advised to always shop around when sourcing a solicitor for the most competitive fees. 
 
2. Surveyor’s Fees 
This fee is an optional fee but is highly advised as a surveyor will provide you with a written report, identifying any hidden defects in the house. 
 
3. Property Tax 
This tax is charged on the market value of all residential properties. This is an annual payment that just has to be done. 
 
4. Stamp Duty 
Stamp Duty is a Government tax that you pay when buying a home. The cost of this depends on the price you paid for the property. Your Stamp Duty will usually be 1% of the value of your home. 
 
5. Home Insurance 
This is an essential add-on. Your home insurance is a monthly fee and the cost depends on the value of your home. 
 
6. Valuers Report 
Your lender will request a valuer to come and view your home to make sure you're paying a fair price. The lender will have their own valuer. However, you will have to pay for the report.

8. What documents do I need for my mortgage application?

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Hooray! You’ve decided to apply for a mortgage, it’s an exciting time for you and your journey to your dream home. So, where to begin. To properly prepare for the mortgage application, it would be a good idea to get together the main important documents you will be asked for. 
These documents include:
 
Proof of income: for example, the last 3 months' pay slips. For further information on what to provide if you are self-employed or furloughed, read the full article here.
 
Bank statements: you could be asked to present statements for the last 6 months. 
 
Evidence of deposit: if you are providing the deposit then you will be asked to provide a saving statement/ bank statement. If it is a gift you will be asked for different documents depending on who the gift is. To find out more on gifted deposit read the full article here. 
 
Proof of Address: through a current driving license or bank statement. 
 
Proof of Identity: through a current passport or driving license.
 
Credit Report: You can check your credit file over at Check My File, free for the first 30 days!
You can read a full blog on all the documents you may need for your mortgage application here: 10 Documents you need to apply for a Mortgage

9. Household bills to think about when planning how much you can afford:

When applying for a mortgage it is important for you to consider the types of mortgages that you can apply for. There are two main types of mortgages:
  1. Fixed rate: The interest you’re charged stays the same for a number of years, typically between two and five years.
  2. Variable rate: The interest you pay can change.

Fixed rate mortgages are useful because they give you peace of mind that your monthly payments will stay the same, helping you to budget. Although, fixed rate options are usually slightly higher than variable rate mortgages and if interest rates fall, you won’t be able to benefit from this.

TIP - Remember, if you are wanting to leave this type of mortgage early there may be charges that you have to pay
In the last two to three months of your fixed period make sure to look for a new mortgage deal or you’ll be moved automatically onto your lender’s standard variable rate which is usually higher.

Variable rate mortgages are the opposite of a fixed rate mortgage. The interest rate – and, consequently, your monthly mortgage repayment – can fluctuate at any point throughout the term of the mortgage. 
 
There are two main types of variable interest rate: 
  1. Standard variable rate
  2. Tracker rate
The standard variable rate is fixed by your lender, who can increase or decrease it at any point. Generally this change is based on changes in the Bank of England’s base rate.
A tracker rate follows the movements of another interest rate, usually the Bank of England’s base rate. So, if the base rate goes down, the tracker rate goes down too and vice versa. However, the tracker rate is usually higher than the rate being tracked. For example, a tracker rate could be the Bank of England’s base rate plus 2%.  
TIP - This type of mortgage may mean that you’ll end up with a low rate and a low monthly repayment. 
You’re taking on the risk that the interest rate might rise in the future, so your lender will reward you with a lower rate, at least initially. 
On the other hand, that risk may mean that interest rates may rise dramatically, which will mean that your monthly repayments could increase drastically or even become unaffordable. 

10. Side Hustles: Can they be included in my affordability? About Self Employed Income

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Getting a first time buyer mortgage when you’re self employed, or have self employed income, can be a bit more difficult. However,  it is not impossible, and self employed income can definitely be included in your affordability. 
 
Mortgage lenders need reassurance that your self employed income will be enough to pay your mortgage in the long term. Generally, two years of up to date accounts signed off by an accountant are required for you to be considered by a mortgage lender. However, providing as much information as you can on your income is also helpful. 
 
It also helps if you have seen increasing profit, or consistent growth in your self employed income, as this will show lenders that you are a safe buyer with a secure income. 
 
You could also get help from a specialist self employed mortgage adviser who has a lot of experience in helping those with income from self employment.

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