What type of first-time buyer mortgage should I choose

First-time buyer mortgages

Many mortgage companies have special deals for first-time buyers, which are generally aimed at helping people get on the property ladder.

These mortgages usually accommodate having lower deposits (i.e., the ratio of the mortgage to the value of the property can be higher) and have lower application fees or provide free valuations and cashback.

These mortgages are often discounted to make the early years cheaper (but you may pay it back later). In general, first-time buyer mortgages can be beneficial at a difficult time – but do still check out the rest of the market if there are some particularly good deals.

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Which type of first-time buyer mortgage is best for me?

Your personal circumstances will determine which form of mortgage is best for you as a first-time buyer. We’ve put together a rundown of the various types of mortgages to help you find the best fit:

Fixed-rate mortgages

A fixed-rate mortgage is one in which the interest rate on your loan is locked in for a set period of time, usually between 2 and 15 years, but more often between 2 and 5 years. A fixed-rate mortgage provides flexibility, allowing you to plan for a certain period of time. You see if your interest rate is fixed it stays the same so if your interest rate stays the same then so does your monthly payment giving you the certainty of knowing what you are paying every month. When a fixed-rate period expires, you’ll usually be transferred to the bank’s standard variable rate, which is a higher interest rate. This is a great time to remortgage to get a reasonable price on your current mortgage.

Standard variable rate mortgages (SVRs)

These are rates which are set by the lender who is lending you the money. SVRs don’t come with any incentives or lower interest rates, and the lender can adjust the interest rate at any time.

Tracker mortgages

These are variable interest rates linked to an external rate, such as the Bank of England base rate. They are set a certain percentage above or below the rate they follow, rather than matching them exactly.

Discount rate mortgages

These monitors (at a lower level) a lender’s Standard Variable Rate by a fixed sum, similar to tracker mortgages. E.g., if the SVR is 4% and the discount is 1%, you’ll be paying a 3% interest rate. These rates, however, are subject to adjustment, and although the amount of discount may not change, the rate of interest will. The lender can change this rate at any time they wish.

Capped mortgages

the rate is capped at a certain amount. A capped and ‘collared’ mortgage, on the other hand, is a loan under which the interest rate is not allowed to fall below a certain level or go above a certain level. These are much rarer than other types of deals.

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Offset mortgages

These are mortgages which are linked to a savings account and bank account when you open the mortgage. The lender will open a savings account and bank account for you. You cannot link the mortgage to a savings account with another bank or building society. What happens is the money in your savings account or bank account offsets the interest against the same amount on your mortgage. For example, if you have a £100,000 mortgage and you have £10,000 in savings then you will only pay interest on £90,000 with of mortgage. You then have an option to either reduce the term of the mortgage to pay it off quicker or you can reduce your monthly payment. The more savings you have the less interest you will pay on your mortgage. These mortgages can be more complicated than other types of loans, so make sure you understand the financial commitment as well as the effect of any changes to your savings (especially negative changes) on your mortgage.

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For more details, call our Mortgage Saving Experts today.

How does a mortgage work for a first-time buyer?

One of the first items to look at is how much money you can borrow. Only after you’ve established your budget can you begin seriously looking for a home. The size of your deposit, in addition to knowing how much you can borrow, will play a role in this. Your lender is more likely to consider increasing the sum you will borrow if you put down a larger deposit.

However, while lenders focus on your wages, they also take into consideration what debts you have such as loans, credit cards, student loans, childcare costs etc to name a few. This means they pay just as much attention to your expenses as they do to your earnings.

As a rule of thumb, assume you’ll be eligible for around 4.5 times your annual gross income. If you have many outgoings, such as an expensive vehicle to maintain, and a lot of credit card debt, lenders will most likely lend you less money because you already have debt. Most lenders expect you to have some debt such as a car but as long as you are sensible and don’t go mad with borrowing money you should be fine.

Calculate how much you can borrow for a mortgage

Lenders often consider how you would cope if interest rates were to rise in the future. While rates have been very low for more than a decade, and most analysts believe they will stay low for the near future due to the covid-19 pandemic, you mustn’t find yourself unable to reach higher monthly repayments if a series of rate increases occur unexpectedly. Affordability stress testing is the term for this.

Your credit score and background also influence the amount you can borrow. You won’t have any mortgage background to look at as a first-time buyer, but if you’ve had trouble with other types of credit in the past – credit cards, car loans, and so on – it may affect the rates of interest you’re eligible for.

If your financial situation is dire, you will need to consider a poor credit mortgage. However, you can improve your odds of receiving a good rate by not getting into trouble with debt and having any defaults, County Court Judgements (CCJs) or have been in arrangements with your creditors or entered an IVA, debt management Plan or even been Bankrupt in the past because all of these things will restrict the number of lenders you can go to.

Compare first-time buyer mortgage deals

If you’re a first-time buyer, one of the biggest moves towards buying your first home is getting a mortgage. Mortgages can be confusing, so if you’re ready to purchase your first house. To learn more about the various types of mortgages, how much of a deposit you’ll need, and what mortgage you can afford. Compare the best first-time buyer mortgages with our “get a mortgage quote” on our home page.

Mortgage tips and tricks for first-time buyers

Buying your first home is a huge deal, and it’ll probably be one of the biggest financial decisions you’ll ever make, so make sure you do your homework and consider all of your choices before jumping in. The good news is that there are special first-time buyer mortgages available, as well as Help to Buy schemes designed to help you get on the property ladder. If you need help finding the right mortgage, get in touch and we will be happy to help

Help to Buy and other government schemes

There are 2 government Help to Buy schemes aimed at helping first-time buyers.

Help to Buy: Equity Loan

With a minimum 5% deposit, the Aid to Buy: Equity Loan is for first-time buyers and home movers. The government will lend up to 20% of the property’s value as a deposit which you do not start paying interest on for the first 5 years.

Since you have a 5% deposit and a 20% loan, you will have a 25% deposit and apply for a 75% loan-to-value (LTV) mortgage, which is usually more affordable than the 95% mortgages because the interest rate is lower, and you borrow less money because your mortgage is smaller.

The maximum property price you can get with an Equity Loan varies depending on where you are looking for a home in England. From highest to lowest, here is a list of regional price caps:

London £600,000
South East £437,600
East of England £407,400
South West £349,000
East Midlands £261,900
West Midlands £255,600
Yorkshire and The Humber £228,100
North West £224,400
North East £186,100

The scheme is available on new-build properties until March 2023. (These figures are correct at 11/06/2021)

Help to Buy: Shared Ownership

You can buy between 25% and 75% of a property through the Shared Ownership scheme and pay rent on the remaining share. You pay the developer rent in new builds; you pay the housing association rent in social housing.

The remainder of the property may be purchased later for its current market value.

Help to Buy ISA

As of November 2019, new customers to Help to Buy ISAs are no longer accepted.

Established consumers can use them in the same way as a traditional cash ISA, with the added benefit of a 25% government bonus.

The Lifetime ISA is a suitable alternative to the Help to Buy ISA if you choose to profit from a similar scheme. It helps you save up to £4000 a year for a down payment on a home or retirement. Your savings will be boosted by 25% by the government.

Coronavirus and mortgages

Many lenders have pulled many mortgage deals due to the coronavirus pandemic, especially 95% and 90% mortgages. However, these mortgages have returned to the market in recent months and more lenders have their staff working from home and have processes in place to administer the number of applications they receive so it’s business as usual.

Stamp duty for first-time buyers

To give it its full name, stamp duty land tax is a tax levied by the government on all property sales. In most cases, first-time buyers must pay stamp duty for any residential property or plot of land worth more than £300,000.

Existing homeowners and first-time buyers do not have to pay stamp duty on properties under £500,000, thanks to a mini-budget announcement in July 2020.

Scotland and Wales have slightly different rules.


Who is a first-time buyer?

If you’ve never owned a home before, you’re a first-time buyer. So despite the word ‘buyer’, you are not a first-time buyer if you have previously inherited a house. You are not a first-time buyer if you are buying a house with someone who has ever owned a property anywhere in the world previously. You are not a first-time buyer if you have already owned a home anywhere in the world.

What type of mortgage should I get?

There are literally thousands of different types of mortgages available and deciding which one to get can be difficult. However, before deciding on a mortgage, you must first determine the type of mortgage you want repayment, interest-only, fixed, tracker, or discounted. Which one is best for you is determined by your situation? If you choose the wrong one, it could cost you thousands of pounds. You may not qualify for all mortgages depending on your current circumstances.

What’s a guarantor mortgage?

A guarantor mortgage is when a relative act as a guarantor and agrees to make the mortgage repayments if you can’t. You can usually borrow a larger amount than you would be able to on your own.

How much deposit do I need?

There are some 100% mortgages that don’t require a deposit (although they do require a third party to act as a guarantor), but most mortgages do need you to put down a deposit. The required deposit is usually at least 5% of the property’s value, although many lenders reserve the most competitive rates for customers who have far higher deposits available.

Should I use a mortgage broker as a first-time buyer?

Since obtaining your first mortgage can be difficult, a mortgage broker can assist you by providing guidance and locating the best rates available. Mortgage brokers will assist you in obtaining the cheapest deal in the marketplace given your circumstances and advising you on mortgages from the whole of the market whilst providing updates and advice on the whole process from start to the day you get your keys. Lenders base their rates of interest based on the loan to value (LTV) ratio, which is the proportion of the mortgage to the property’s value. As a result, the higher your deposit, the lower your LTV, and the lower your interest rate because you are a lower-risk consumer with more equity in your home. Divide the amount you need to borrow by the property’s value and multiply the result by 100 to get your LTV. For example, if your first home is worth £200,000 and you have a £10,000 deposit, you’ll need a mortgage of £190,000. Multiply £190,000 by £200,000 (which equals 0.95) and multiply by 100. (95). As a result, the LTV is 95 percent, which is a benefit that more and more lenders are now offering. The LTV would decrease to 90% if you raised your deposit to £20,000. A lower rate could save you thousands of pounds over the course of your mortgage, so the larger the deposit you can put down, the better.

What is a repayment mortgage?

Your contributions are calculated to ensure that you repay the entire loan as well as the interest over the agreed-upon period (e.g., 25 years). It means that your monthly contributions cover both the interest and the capital, so you owe nothing in the end. These are also called capital and Interest mortgages. This has an odd impact. Since your outstanding debt is higher in the early years, most of your monthly payments are used to pay interest. As you pay off your mortgage, over time the majority of the contributions will eventually go toward paying it off.

What is an interest-only mortgage?

Interest-only mortgages were once prevalent with first-time buyers, but after the credit crisis of 2008, it’s doubtful that you’ll be able to get one. Interest-only mortgages can only be offered if there is a realistic plan to repay the money under new laws that went into effect in April 2014, making them even rarer. There are several other pieces of criteria you will need to meet if you want an Interest Only mortgage such as needing a larger deposit and having a minimum amount of equity in your property like £250,000. With Interest Only mortgages all you are doing every month is repaying the interest on the money you have borrowed, and you do not repay any of the capital. For example, if you borrowed £100,000 on Interest Only over 25 years you will still owe £100,000 after 25 years because all you have done is pay back the interest on that debt.

Why are the longer fixed rate deals more expensive?

Longer term fixed rate are higher than shorter term mortgages because if the lender that lends you the money has borrowed that money from another bank, they are being charged interest on it. If the rate you are paying is lower than what they are being charged, then the lender will start to lose money on your mortgage so to mitigate the risk of interest rates they are charged going up over the rate you are paying they increase the longer-term fixed rates to offset this fact.

What happens when my incentive period comes to an end?

If you select a two-year fixed rate, the rate will be fixed for two years before switching to the lender’s standard variable rate (SVR). Most consumers would remortgage (replace the mortgage with a new one) to a more competitive rate with a new lender. Or if you are unable to change lender to get a better rate your current lender may offer you a better rate than the SVR providing you are not in arrears with your mortgage. As a matter of course our advisers at Mortgage saving Experts will contact you around 4 months before the rate changes to the SVR to discuss your options giving you peace of mind.

What is a variable rate mortgage?

As the name implies, the interest rate on your mortgage can and will fluctuate. It is a rate which is set by the bank or building society that has lent you the money and they can change it any time they wish. Variable-rate deals are divided into three groups: trackers, standard variable rates (SVRs), and discounts. Tracker rate mortgages are rates which track the bank of England Base rate and change whenever this rate changes.

How long can I track a mortgage for?

Trackers come in a variety of lengths, with two years being the most common. A ‘lifetime tracker’ is a tracker that lasts the entire duration of the mortgage. If you leave early during an opportune time, there is normally a charge to pay. Early repayment charges are also waived or only applied for a limited time for lifetime trackers. It varies, so double-check. Some tracker rates do not have Early Repayment Charges.  

Do trackers always follow the Bank of England (BoE) base rate?

Some trackers do not track the Bank of England’s base rate. They instead follow the Libor rate (London Interbank Offered Rate), which is the rate at which banks lend money to one another. Libor is more widely used by ‘sub-prime’ and buy-to-let mortgages than regular residential mortgages, but it’s worth keeping an eye out for. Keep an eye out for lenders who advertise their products as ‘trackers’ but have their mortgage deals meet a rate set by the lender. Woolwich’s tracker collection, for example, is based on the Barclays Bank Base Rate, making it more of a discounted rate than a tracker.

Will my tracker only ever move when the rate it follows moves?

Yes always. A true tracker can only change direction when the economic indicator it is tracking changes.

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For more details, call our Mortgage Saving Experts today.

Want to know more?

Get in touch with of our mortgage saving experts today to find out how we can help.

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