First Time Buyers – Getting Your First Mortgage
Buying your first property can be quite a stressful and difficult experience, especially if you are not sure about how the whole process works.
Before you choose a property, the first thing to do is to sort out your mortgage.
You will need to be realistic about how much you can afford to pay back each month in mortgage repayments – remembering to factor in any payments you may be making on current loans, credit cards and child care where applicable.
After doing that, you then need to do the tricky bit of searching the mortgage market.
There are now several mortgage lenders who can offer mortgages designed for first time buyers who may have had an adverse credit entry registered on their credit file.
It can be a bit of an overwhelming and many of the specialist mortgage lenders will only accept mortgage applications from registered mortgage brokers, so this is where getting impartial mortgage advice from an adviser can really help. At Selective Mortgages we have over 20 years of helping First Time Buyers with an adverse credit history secure a mortgage to purchase their first home
Just like every borrower, you need to decide what kind of mortgage you want: for example a fixed rate mortgage or tracker mortgage and this is something we will provide you with guidance on.
Income Multiples
In the past, lenders simply multiplied your income to calculate how much they would lend you. Normally a single person could borrow 3.5 x their single salary while a couple would be offered 2.5 x their joint salary. In the later days of the house price boom, some lenders were willing to lend single applicants 4, 5, even up to 6 times their annual salary
More recently though, mortgage lenders have moved to using affordability criteria.
This is where they consider your outgoings and your income to work out what you can afford in repayments.
Deposits (or downpayments)
Although it was possible in the past to apply for a 95% mortgage where past adverse credit has been registered, such deals have disappeared and it is usual for first time buyers with a history of adverse credit to have a deposit of at least 15% of the purchase price. The deposit funds can be provided from your own funds or via a gift from a direct family member such as your parents.
If you are looking to purchase a property from a family member at a discounted purchase price, some lenders will allow the deposit to be provided by way of the difference between the full market value of the house and the discounted purchase price, this is called a gifted equity deposit, but please be assured we will provide with guidance around the proof of deposit funds requirements as they can vary between lenders
Repayment vs. Interest-Only
Most mortgages should be taken on a repayment basis, as this is the only guaranteed way to reduce your debt. However, there are some first time buyer mortgages which are able to be arranged on an interest-only basis, this reduces the initial monthly payments but means that you’re only servicing the debt; no capital is actually being repaid during this time and this means you still owe the same amount that you borrowed at the end of the mortgage term. There are very strict requirements around interest only mortgages in terms of how the capital balance is to be repaid, and we would always recommend that a mortgage is set up on a capital repayment basis wherever possible.
Homebuying Schemes
As a First Time Buyer, you might also be eligible for one of the Shared Ownership or Right to Buy schemes which are run across the UK that have been put in place by the government and local authorities.
Shared Ownership schemes that are run by Housing Associations result in borrowers buying a share of a property (between 25% and 75%) and paying rent on the remainder. The borrower under this arrangement does have the right to increase their share in the future if they desire.
Under the government’s Help to Buy scheme, the government will provide an Equity loan of 20% of the property purchase price, or a 40% equity loan in London post code areas. You will be required to provide a minimum 5% deposit of your own to give you a 75% mortgage or 55% mortgage in the London post code areas. Your minimum 5% deposit can be provided via your own funds or by a gifted deposit from a family member.
Please note that the Help to Buy scheme is now only available to First Time Buyers on qualifying new build properties, and there are now also regional limits applied to the maximum purchase price on the Help to Buy scheme depending on the region you are buying in, we can provide you with more detailed information around this on request.
A final word…
If you are ready to own a home and wish to secure a mortgage, there are good reasons why we suggest taking impartial mortgage advice via Selective Mortgages:
We have over 20 years experience in the specialist mortgage market and have access to all available lenders within the market so you can be sure we will have access to a mortgage option for you, if you are eligible.
Please feel free to call us today or complete our Online Mortgage Enquiry Form and we will quickly call you back to discuss your mortgage requirements