First-Time Buyer Guide: Everything You Need to Know

Embarking on the journey of buying your first home is a thrilling chapter in your life. Yet, navigating the first time buying a home process can be daunting, particularly when you’re not versed in the jargon and steps to buy a house. This first time buyers guide aims to arm you with all the necessary first time home buyer tips as a first time buyer in the UK. We’ll explain the mortgage process and help you budget for additional costs, ensuring you’re supported at every juncture.

What is a Mortgage?

A mortgage for first time buyers is essentially a loan obtained to purchase a property or land. Typically extending over a term of 25 years, though this can be variable, the loan is secured against your home’s value. Should you default on repayments, the lender is entitled to take back your property, emphasising the importance of understanding first time buyer mortgage rates.

As a first time home buyer, grasping the necessity of a deposit to secure a first home buyer loan is crucial. In the UK, you’re generally expected to put down a minimum of 5% of the property’s purchase price. Yet, amassing a heftier deposit could unlock access to first time buyer home loans with more favorable terms and low down payment mortgage options.

Understanding Loan to Value (LTV)

The concept of Loan to Value (LTV) is pivotal when applying for first home mortgage loans. It indicates the proportion of the property’s value you’re borrowing from the lender. For instance, if you’re buying a £200,000 property with a £20,000 deposit, your LTV stands at 90%.

It’s important to note that a lower LTV usually leads to more attractive interest rates, as lenders perceive borrowers with a substantial deposit as less risky. Consequently, saving for a larger deposit can be beneficial, potentially offering you the best mortgage for first time buyers.

Help for First-Time Buyers

To support first-time buyers with modest deposits, the UK government has introduced several first home buyer schemes, such as Help to Buy Equity Loans, Shared Ownership, and the First Homes Scheme. These initiatives are part of the broader first time home buyer programs designed to facilitate easier access to the property market.

  1. Help to Buy Equity Loans: This scheme allows you to borrow a percentage of the property’s purchase price from the government, reducing the amount you need for a deposit.
  1. Shared Ownership: Shared Ownership enables you to purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share. Over time, you can increase your ownership share through a process called staircasing.
  1. First Homes Scheme: This initiative offers newly built homes at a discount of at least 30% off the market price. These properties are prioritized for local first-time buyers and key workers.

It’s vital to meticulously research and comprehend the eligibility requirements and benefits of these schemes to assess if they align with your needs, especially if you’re looking to qualify for first time home buyer perks.

Finding the Right Mortgage

When seeking a mortgage our experience in supporting first time buyers at MortgageTek sets us apart from the competition, we provide clear, jargon free advice from the outset and help you understand your affordability.

 Understanding Mortgage Repayment Options

There are two main types of mortgage repayment options: repayment mortgages and interest-only mortgages.

  1. Repayment Mortgages: With a repayment mortgage, you make monthly payments that cover both the interest on the loan and a portion of the loan itself. Over time, your mortgage balance decreases until it is fully repaid at the end of the term.
  1. Interest-Only Mortgages: Interest-only mortgages require you to pay only the interest on the loan each month. At the end of the mortgage term, you’ll still owe the original loan amount and will need a plan in place to repay it. Interest-only mortgages are less common and are typically only available for buy-to-let properties.

Repayment mortgages are the most prevalent mortgage loans for first-time buyers, ensuring that you’re progressively paying off your loan and accruing equity in your property. As a first time buyer unless you provide very large deposit you are unlikely to get an interest only mortgage.

Budgeting for Additional Costs

When budgeting for your first home, it’s crucial to account for the additional costs involved in the buying process, such as conveyancing fees and solicitors’ charges.

  • Solicitor or Conveyancer Fees: You’ll need to hire a solicitor or conveyancer to handle the legal aspects of the purchase. Fees can vary, so it’s advisable to obtain quotes from different professionals. We introduce our clients at MortgageTek to trusted partners who have been helping our clients with the conveyancing process for years. We are able to call upon our conveyancer contacts to ensure our client’s interests are at the forefront of their minds.
  • Survey Costs: Before purchasing a property, it’s wise to have it surveyed to assess its condition. There are different types of surveys available, ranging from basic valuation surveys to more comprehensive structural surveys. Most lenders offer free basic mortgage survey to support first time buyers.
  • Mortgage Arrangement and Valuation Fees: Some mortgage lenders charge fees for arranging the mortgage and conducting a valuation of the property. These fees can vary, so it’s important to consider them when budgeting.
  • Stamp Duty Land Tax: Stamp Duty Land Tax (SDLT) is a tax imposed on properties over a certain value. The rates and thresholds for SDLT vary depending on whether you’re a first-time buyer or a previous homeowner. It’s essential to calculate your potential SDLT liability before making an offer on a property.
  • Moving Costs: Don’t forget to budget for the costs associated with moving, including hiring a removal company or renting a van.
  • Buildings Insurance: As a homeowner, it’s crucial to have buildings insurance in place to protect your property against unexpected events such as fire, flood, or theft.

By budgeting for these additional costs, you’ll gain a more comprehensive perspective on the total expenses of the home buying process, ensuring a smoother home purchase process.

The Mortgage Application Process

The mortgage application process may appear daunting, but grasping the steps involved can facilitate getting approved for a mortgage. Here’s a succinct guide to the typical mortgage applications process:

  1. Gather the Necessary Documentation: To apply for a mortgage, you’ll need to provide proof of identity, proof of address, bank statements, payslips or accounts, and other financial documents. Self-employed individuals may need to provide additional documentation, such as tax returns and business accounts.
  2. Affordability Assessment: Lenders will assess your affordability by reviewing your income, expenditure, and credit history. They want to ensure that your monthly mortgage repayments are affordable and that you can comfortably meet your financial obligations.
  3. Mortgage Agreement in Principle: Before making an offer on a property, it’s advisable to obtain a Mortgage Agreement in Principle (AIP) from a lender. An AIP indicates how much you’re likely to be able to borrow, giving you confidence when making an offer.
  4. Property Valuation: Once you’ve found a property and made an offer that has been accepted, the lender will conduct a valuation to determine if the property is worth the purchase price. This valuation is for the lender’s benefit to ensure they’re lending against a property with sufficient value.
  5. Formal Mortgage Offer: If the valuation is satisfactory, the lender will issue a formal mortgage offer. This offer will outline the terms of the mortgage, including the interest rate, monthly repayments, and any special conditions.
  6. Completion and Exchange: Once all legal work is completed, and the necessary funds are in place, the purchase can proceed to completion. On the day of completion, the property officially becomes yours, and the keys are handed over.

Mortgage Options for the self-employed and contractors

For those who are self-employed or contractors, securing a self-employed mortgage involves extra steps, but qualifying for a mortgage is certainly achievable. Despite the challenge of demonstrating your income, there are several viable options to consider.

  • Self-Employed Mortgages: Some lenders offer specialized mortgages designed for self-employed individuals. These mortgages assess your income based on your self-assessment tax returns, business accounts, and bank statements.
  • Contractor Mortgages: At MortgageTek we are able to help you obtain a mortgage regardless of your day rate, length of contract or contracting history.

Seek advice from a mortgage adviser at MortgageTek, we are skilled in contractor mortgages and self-employed mortgages, to explore the options available to you and increase your chances of securing a mortgage. Our expertise can be invaluable, especially for advice for first time home buyers who may find the process daunting.

Becoming a first-time buyer in the UK is an exciting journey, but it’s essential to approach it with careful planning and understanding. This guide has provided you with valuable information on the mortgage process, budgeting for additional costs, and exploring mortgage options as a day rate contractor or self-employed individual. By following these steps and seeking expert advice when needed, you’ll be well-prepared to navigate the world of home ownership and make informed decisions, whether you’re buying your first home or investing in a property.