Mortgage for first time buyers

Mortgages for first time buyers explained: here's what you need to know to become a home owner

mortgages for first time buyers
(Image credit: Getty Images)

When you start looking for mortgages for first time buyers, it can be a daunting experience. How should you apply for your first mortgage? Should you consult a broker or go to your bank? What advice should you actually listen to and can you trust those mortgage calculators? 

It's a minefield. From the different mortgage types available, to additional requirements, deposits and all the rest, we've got you covered with information you can actually trust.

Don't be overwhelmed when it comes to finding the best mortgage rates as we've written this comprehensive guide with first-time buyers in mind and it will walk you through everything you need to know. If all you want to do is compare mortgages, click this link to go to our mortgage comparison tool now.

Getting a mortgage

Why you can trust Real Homes Our expert reviewers spend hours testing and comparing products and services so you can choose the best for you. Find out more about how we test.

What to consider when you’re taking out a mortgage as a first-time buyer:

  • It’s essential to think about how much you can set aside to pay as a deposit and look at what you are able to borrow before you go house-hunting. However, it’s also vital to think about the affordability of paying for your home and daily life; 
  • Monthly mortgage repayments to your lender are just one aspect of the cost of owning a home – they’re accompanied by the council tax and utility bills you may be used to from renting, but also by buildings insurance, plus upkeep and maintenance of the property. Add in what you spend on transport, food and entertainment each month for an overview of the likely spend; 
  • It’s true that lenders take these factors into account when you apply for a mortgage, but you need to consider them, too, so the costs are right for your personal circumstances.

Saving for a first time buyer deposit

In general, banks and building societies will lend you up to 95 per cent of a property’s value (the so-called loan to value or LTV). This means you need a deposit of at least five per cent of the property’s value.

Put down 10 per cent, however, and you’ll be able to get a better mortgage rate, and if you can find even more, you’ll have a wider choice of mortgages and the best available rates.

If you aren’t able to save for a deposit at all, there are some mortgages available without. These include guarantor mortgages where your guarantor (for example, a family member) agrees to make the payments if you fall behind. They would need to agree to a charge on their own property or to open a savings account with the lender which can’t be withdrawn for a period or until you have paid off a sufficient amount of the loan.

Are there other mortgage costs?

You’ll need to budget for fees on top of the mortgage. Most lenders have an arrangement fee, and some also charge a booking fee.

How much can a first time buyer borrow?

Lenders will look at both your income and outgoings to see if you can afford the repayments on the loan. They’ll also consider what would happen if interest rates were to rise, and the mortgage costs increased. 

As a rough guide, with standard outgoings, you might be looking at a loan that’s around four times your annual income. Remember, though, that it’s actually more complicated than this, so you’ll need to be prepared with details about what you pay out each month in any loan repayments, to cover bills, for food shopping, going out, and so on.

A single buyer can apply for a mortgage, but buying with a partner or another person can mean you can borrow more.

It’s worth getting an agreement in principle from a lender that shows how much you can borrow. An estate agent may ask to see this to check that you are a serious buyer. Be aware that this isn’t the same as a mortgage offer, which you would receive once you’d formally applied for a mortgage on a property and checks and a valuation had been carried out.

Find the right mortgage as a first time buyer

Both banks and building societies offer mortgages. You can look at best buy tables and online comparison sites where you’ll be able to put in how much you want to borrow, the size of your deposit, and look at both fixed and variable rate deals (see below).

It’s also worth talking to a mortgage broker. Go for someone who can advise on the whole market rather than being tied to a provider. Online mortgage brokers or advisors are becoming increasingly popular, and provide the same qualified service as those located in a physical office. 

Mortgage types available to first time buyers

Mortgages can be repayment, interest only or a mixture of the two. Most first-time buyers won’t be considering interest-only mortgages as they demand much higher LTVs. They aren’t widely on offer either.

A repayment mortgage means each month you’ll be paying off the amount you owe and some of the interest on the loan. In the first years, it’ll be mostly the interest you’re paying off, so it will take time for the statements to show the amount of the loan decreasing.

If you made the repayments throughout the life of the mortgage, you would clear the debt and you would own the property outright. 

In reality, it’s more likely you might swap to a different mortgage deal at some point or move and then what you owe would be recalculated.

An interest-only mortgage means monthly payments are just paying off the interest on the loan. The payments are lower than with a repayment mortgage but the total cost of the mortgage over its lifetime will be higher because the loan isn’t reducing.

At the end of an interest-only mortgage term you still owe the lender the money. Bear in mind that you would need to show how you are going to pay off the lump sum when you take out the loan.

Can my first mortgage be buy to let?

Yes, it can – there is no rule that stipulates that you must live in a home you own in order to invest in buy to let. In fact, especially if you are looking for a holiday let mortgage, it is best not to already have a residential mortgage, as you're more likely to pass the affordability test if you aren't already making large repayments. However, be prepared for the higher costs of taking out buy to let mortgages, particularly the substantially higher deposit required to qualify. Find out more in our guide to buy to let mortgages. 

Mortgage terms available to first time buyers

The length of the mortgage term will affect how much you pay overall over its lifetime as well as how much you pay each month. Longer terms equal lower monthly payments on a repayment mortgage but you will have spent more overall because you will have paid more interest.

Can I get a mortgage if I'm self-employed?

Yes, and, contrary to popular belief, getting a mortgage if you're self employed is not necessarily more difficult than if you're in full-time employment, nor is there a rule that you can't buy your first home while self employed. You will need to show your broker/lender a much fuller record of your finances (including a tax statement from HMRC) stretching much further back than the typical six months required from a first-time buyer on standard employee payroll. You'll also need to start thinking about the salary requirements for a mortgage long before you apply. For more information on what you'll need, read our guide to self-employed mortgages

What’s the difference between a fixed and variable rate mortgage?

Mortgages can be either variable or fixed rate. With a fixed rate mortgage you’ll know how much you will be paying each month over the set period of the fixed rate applying to the mortgage. On the downside, if interest rates did go down, you wouldn’t get the benefit. The fixed rate could apply for a two, three or five year period, but there are also some fixed rate mortgages which apply for 10 or more years.

At the end of the fixed rate period, you can look at other deals the lender might be offering or move the mortgage to a lender with a better deal.

If you were to finish the mortgage early for some reason, you would probably pay an early repayment charge, so do factor in any possible change in your circumstances over the term when you’re deciding how long you want to fix the mortgage rate for.

Variable rate mortgages are likely to have lower interest rates than fixed rate versions, but if you opt for one of these, your interest rate can change. It’s likely to do this if the Bank of England increases the base rate.

Different types of variable rate mortgages

All variable rate mortgages are not the same. You can choose from:

Tracker mortgages have a variable interest rate which is linked to the Bank of England base rate for an agreed period. If the rate fell, you would benefit, but you need to consider if you can manage increased payments if the rate rises.

Standard variable rate (SVR) mortgages have interest rates set by the lender, which can increase or decrease the rate. This is most likely to happen because of changes to the Bank of England base rate, but changes can be independent of what happens to the base rate.

Discounted rate mortgages are linked to the lender’s SVR, and if it changes, so will what you pay. 

Mortgage brokers: common myth busting

When choosing a mortgage, you may wish to use the services of a mortgage broker, or independent mortgage adviser, as they're also known. Different mortgage brokers work under different terms, hence the mortgage deals they'll be offering you will differ. The main distinction is between a 'tied' mortgage broker and a 'whole of market' mortgage broker. A mortgage who is 'tied' to a particular lender will only offer you products from that particular lender. A whole-of-market lender, on the other hand, presents you with option from a panel of lenders that should be representative of all the different segments of the mortgage market.

A whole of market broker does not look at every single deal available from every single lender. They should, in theory, provide you with better choice of mortgages, but you need to assess your own situation before you use their services. For example, if your bank is your lender, they may well have mortgage deals exclusive to their own customers that will be better for you than other options. 

If you are a first-time buyer, however, there are other, good reasons to use a mortgage adviser. They will help you assess your finances and complete paperwork, which is likely to make the mortgage application process faster. They also have to offer you independent and impartial mortgage advice that is in your best interest. So, if you are completely new to the process and have the means to pay for one, a mortgage broker can be a good option. 

Online mortgage broker Habito is a good combination of both: they will give you the best unbiased advice about taking out a mortgage; help you seek out the best deals; answer any queries you have; and use their inside knowledge to negotiate the best deal based on your financial history and current status. Use their free calculator service below.

Mortgage broker vs. bank: who should I talk to first?

The answer to this question depends very much on your circumstances – and on your standing with your bank. Many people still automatically apply for a mortgage with their bank; this strategy can seem like the easiest thing to do, but it can also backfire as banks dislike risk. If your application is not straightforward, they may well turn down your application. If you have substantial savings with your bank and are steadily employed, by all means go for it. In most other cases, it's a good idea to speak to a broker.  

When should I apply for a mortgage? 

So, you've got your deposit ready, your credit rating is good, and you feel you know enough about mortgages. When do you take the plunge? We say: at least six months after you've been employed at your current job, and at least three months after you've reduced your spending – to make sure that the lender will see your financial situation in the best possible light. 

Should I wait until after Brexit to get a mortgage?

You may have heard rumours about a possible huge drop in house prices after Brexit, and, understandably, might be waiting it out to see if you can get a property cheaper. This strategy is likely to backfire, though: if anything, the current house price predictions suggest a rise in property prices from 2020 onwards, especially if you live in the north of England. In any case, you should always base your decision to take out a mortgage based on your current circumstances, not hypothetical future events. 

Can I get a mortgage if I have bad credit?

We'll be very honest here and say: probably not. Lending criteria are currently quite strict, and if you have a poor credit score, most lenders will decline the application. However, the good news is that if you are a first-time buyer, your credit history might not be so dire that you'll need many years to build it back up. Moreover, if you're relatively young and have family, you could consider moving in with them while you rebuild your credit rating. Find out more about what you'll need to do this in our guide to mortgages with bad credit

What happens when you’ve found a home?

Once you’ve had an offer accepted on the home you want to buy, you can apply for a mortgage. You’ll need to provide documents to prove identity, income and show outgoings. Background checks will be undertaken to check your credit history. The lender will also talk to you about valuing the property.

Once everything is complete and the lender has satisfied all its criteria, a mortgage offer can be made.

Comparing mortgages

We've teamed up with online mortgage advisor Habito. Use this form below to get an idea of what you can borrow, then speak to an advisor for unbiased advice about taking out a mortgage, help seeking out the best deals, and answers to queries you may have. They can use their insider knowledge to negotiate the best deal based on your financial history and current status, too. 

More on home buying: 

Sarah Warwick
Freelance Editor

Sarah is a freelance journalist and editor writing for websites, national newspapers, and magazines. She’s spent most of her journalistic career specialising in homes – long enough to see fridges become smart, decorating fashions embrace both minimalism and maximalism, and interiors that blur the indoor/outdoor link become a must-have. She loves testing the latest home appliances, revealing the trends in furnishings and fittings for every room, and investigating the benefits, costs and practicalities of home improvement. It's no big surprise that she likes to put what she writes about into practice, and is a serial house revamper. For, Sarah reviews coffee machines and vacuum cleaners, taking them through their paces at home to give us an honest, real life review and comparison of every model.