First Time Buyer Mortgages
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First Time Buyer Mortgages
Matt Coulson and Richard Campo explain how the mortgage process works for First Time Buyers.
Information in this podcast is correct at the time of recording in January 2025.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
The market for First Time Buyers is really buoyant. Land Registry data says 33% of all transactions were made by First Time Buyers in 2024, which is up from 29% the year prior. With the government committed to build 1.5 million new homes over the next five years, this could finally be the time for First Time Buyers.
When you’re buying for the first time, there are lots of questions, which we’ll go through in detail. But the fundamental thing I always share is the three Cs of lending. When I first started in mortgages in 1999, my boss at the time in a building society explained this to me. The three Cs are Capacity, Collateral and Commitment. That last one I’m going to upgrade a little bit to credit, as in credit file.
Capacity is industry parlance for affordability. So we’ll look at your income, your outgoings and what you can afford to pay. Part of that is the deposit, because it has a big impact on the price of the mortgage.
Collateral is a big one, and many people overlook this – but the actual property you buy does have an impact.
For example, if it’s a very high value property, some lenders put restrictions around that, i.e bigger deposits. If you’re buying a new build apartment, sometimes lenders want a bigger deposit. The same goes if it’s very unusual with a thatched roof. A lender’s favorite property is a bog standard terraced house in a major city – there’s lots of them and they’re easy to value. Any variance from that is when you can start to have certain restrictions.
Last is Commitment, which I’m going to upgrade to Credit from here on. People are aware that credit history has a huge impact on this. These days, people have ready access to their credit file, which is brilliant. We’re going to come on to some specific points around that.
But obviously if you’ve got a clean credit history, you’ve always made your payments on time, you don’t have a lot of debt, that’s positive. If you don’t, it’s not a problem – you can still get a mortgage with credit blips and credit outstanding, as long as you can afford your credit commitments and the mortgage. Credit commitments include things like school fees and nurseries – they’re not necessarily debts.
So we marry those three things together. If you imagine a Venn diagram in your mind, the selection of lenders you can use are in the overlap in the centre. The more you pull one of those three circles apart, the smaller that section gets. That’s the right way to visualise that relationship.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer? What’s the minimum deposit for a First Time Buyer?
Before I answer that specifically, just to echo what Richard said, I’m excited about the next few years for First Time Buyers. A healthy First Time Buyer mortgage market means a healthy property market and economy.
Another area that’s really improved is the income multiple. Lenders generally apply an affordability model, which has a few more layers of complexity than just a straight-up income multiple. It’s not just that you can borrow a set multiple of your salary. They’ll look at your credit commitments and build that in.
But some lenders are really trying to push what they can allow a First Time Buyer to borrow and there has been a bit of competition, as well. We now see 5.5 or six times income being possible for some First Time Buyers.
Depending on your situation and what you earn, that could even go a little further. With interest rates changing and shifting over the last few years, it has been trickier. The lenders are trying to solve some of these challenges by increasing that borrowing – and we expect that to continue.
Another thing that we’ve seen improve is Loan to Value. You can get 100% mortgages – although these are not necessarily mainstream. They tend to be more niche, but they exist. But if you’ve got a 5% deposit, so you’re looking for a 95% mortgage, there are lots of lenders out there for you.
I should just add that the bigger the deposit, the more competitive the rate is going to be. Lenders move in 5% increments, so for a 95% mortgage you can expect a higher rate. For every 5% you increase your deposit by, you’re going to get a slightly better deal.
What are the types of interest rates available on a mortgage for a First Time Buyer?
There are two fundamental choices – fixed and variable. I’ll start with a fixed because it’s more straightforward. For a two, five or 10 year period, you fix your mortgage payments and nothing changes.
Variable rates can get a little bit more complex, and there are two different types of variable rate. Most people are familiar with a tracker which is linked specifically to the Bank of England. You tend to pay a margin on top. If you have a very big deposit, you might pay something like 0.1% above the base rate whereas on a 95% mortgage you might pay 1% above the base rate. If the Bank of England moves rates up or down, your payments go up or down.
There’s also something called a discount rate. All banks have a standard variable rate, and as we speak in January 2025, an average variable rate for a lender would be somewhere between 7% and 8%. That’s really high, considering the Bank of England is at 4.75% today. So you wouldn’t go to a bank for that.
But what they might do is give you a 3% discount on that rate for the first two years, so you pay around 4.5% or 5%. They’re priced similarly to trackers, but what they’re linked to is different. If the Bank of England increases or decreases rates, a discount won’t necessarily follow in line with that, but often does.
Variable can be a bit more risky because your payments could go up or down. They tend to be penalty free as well, which is a nice thing. So if there’s a big market movement or you get nervous, you can normally flip into a fixed rate.
I won’t go into huge detail now, but there’s an important relationship between the two. If a fixed rate is cheaper than a tracker rate, it means we’re expecting interest rates to fall – and vice versa. Ultimately your personal situation will drive the decision, but that relationship around rates is a guide as to what the market is expecting the Bank of England to do.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
If you are the sort of person that really values certainty, the idea of having a mortgage rate that can change would potentially keep you up at night. So a fixed rate is probably going to be your first port of call.
We often say that the difference in pounds and pence between the fixed rate and the tracker is essentially the premium you’re willing to pay for certainty and security. That number is different for everyone. If you’re pretty risk averse and you like to know what’s coming every month, that number is quite big for you and you’ll want that fixed rate.
If you’re a little bit more open to risk and you have a rainy day fund, a tracker might be worth considering. You might try and benefit from the potential upsides of a rate that can go down.
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What government schemes are available to help First Time Buyers?
Sadly, this is a short answer, because as of early 2025 there’s very little. The Help to Buy schemes are closed in England, although they are still available in Wales.
There’s still shared ownership, which is a great scheme. So if you can’t afford to buy a whole property, there’s the option of buying a portion and renting the remainder. There are qualification rules around that and typically your income can’t exceed a certain level.
For example, you could buy a 25% chunk of a property and rent the remaining 75% – you only need a deposit for the 25% portion. We’ve got a shared ownership section on our website, so if that’s of interest have a look at that.
To fill the gap for a First Time Buyer, some developers are leading things like Help to Buy themselves and offering equity shares. That’s site and developer specific, but it’s worth looking into. There’s also Own New, again not a government one, where the developer’s sales incentives go directly to the lender to get you a lower interest rate. Again, we have a page for that as well.
Nothing else comes to mind at the moment, but hopefully the government might come up with something soon.
What documents do I need to get pre-approved for a mortgage as a First Time Buyer?
Lenders want to see evidence of those three Cs that Richard talked about. So for your Capacity, which is effectively your income and your deposit, the lender would want to see your most recent three pay slips. If there’s additional income like bonuses, commission or overtime, they might want a few more pay slips and a P60.
If you’re self-employed, typically it will be your personal tax returns in the form of an SA302. It could be your company accounts, or contracts if you’re working on a day rate. Effectively, the lender’s going to want to see your income to make an assessment on it.
The deposit is straightforward. It just needs to be sat in a bank account and they may ask to see a buildup of those funds. If a large amount has landed from somewhere else, for example, a gift from a family member, they might want to see bank statements from the person helping you with the deposit.
But if you’ve built that up within your own savings, we need typically 12 months’ bank statements.
With our clients we verify lots of things digitally. We have a platform and a portal for you to access where you can share that information. In addition to the proof of income, we need ID and address proof, which is fairly standard. It’s not too onerous and we try to make it very easy with digital tools.
What are the steps to follow when applying for a mortgage as a First Time Buyer?
The obvious place to start is to speak to a broker. Make that the first port of call. The advantage brokers have is that we have access across the market. You might speak to your bank and think you can’t qualify for a loan, but actually there might be a lender that does suit you.
A broker will always be happy to talk to you well ahead of you finding a property, to discuss getting a deposit together and explain how the whole mortgage process works. It’s always worth getting advice that’s specific to you, because people are often pleasantly surprised about what they can do. And then, if it’s something you want to move on with, we get into the details.
We call that a fact finding process. We get all the nuts and bolts together, then formally approach a lender based on your specific requirements to get an Agreement in Principle. That’s a rubber stamp to say the bank will lend you a certain amount of money. It’s normally valid for three months or so.
Then, if you find a property, you simply put the offer in. Note that the estate agent is legally obliged to put any offer you make to the seller. It’s good to put it on email as well – even if they say it’s too low, they have to put it forward.
Once you’ve agreed a price on a property, we can formally apply for the mortgage. We’ll go through the documents and make sure that’s all good – we tend to do that at Agreement in Principle stage to make sure it’s rock solid. The application process is then just a formality for us.
A mortgage is always subject to a property survey. The ideal survey is a blank one that confirms the price is fair and there are no comments. If, for example, the valuer finds the property is not worth the price, you may have to negotiate with the seller. The bank always works on the purchase price or the valuation – whichever is the lower.
Equally, there could be issues with the property such as damp or structural problems. It’s there to protect the bank, but also to protect you. The survey is something we can never really control, but it’s very important to make sure that the property is worth the money and there are no major issues.
Assuming that’s all good, the bank will then go through the formal underwriting process and issue the mortgage offer. That’s a legally binding document and the money is generally available for six months.
Although that seems like a lot of steps, generally it just takes two or three weeks. The copy of the offer then goes to your solicitor and they run searches on the title and check anything else needed. All being well, they’ll send back a Report on Title and then you’re in a position to exchange contracts, complete and move in.
What are the most common mistakes to avoid when applying for a mortgage as a First Time Buyer?
There is a long list, and I would always recommend a conversation with a mortgage advisor as early as possible.That will give you a much more specific version of this answer.
To highlight a handful of things, firstly, credit is really important. Lenders base a lot of a decision around your credit score. For First Time Buyers that can be tricky, because you might not have much of a credit file. You’re in an earlier life stage and potentially don’t have a long history behind you.
We recommend looking at your credit file. The big three credit reference agencies are Experian, Equifax and TransUnion. Most will allow you to create an account and see your file on a free trial period. Take a look and see what a lender is going to see. Is your address history correct? You can take steps to correct or improve things if needed.
Keep your spending relatively tight – which you might be doing anyway if you’re saving for a deposit. Spend at reasonable levels, because a lender will look at your bank statements as part of the underwriting process. They don’t want to see you straying beyond overdraft limits, for example, or having too many expenses.
If there are debts in the background, like credit cards, car loans or hire purchase agreements, be aware that those can hinder your borrowing capacity. We’re not suggesting you must clear every debt, but having an awareness of what is outstanding is helpful. Is there something on your credit file that you could easily clear or reduce?
Again, having a conversation with an advisor early in your journey could identify things specific to your scenario, in addition to the above.
Can I qualify for a mortgage as a First Time Buyer with bad credit? So anything else to add there?
Bad credit is very subjective. To some people bad credit is a missed payment five years ago on a credit card. For others it might be something more formal like a default or a county court judgement (CCJ).
If you’ve had any missed payments in the last 24 months, that can have an impact. It’s dependent on your overall situation. If it’s more formal, like a CCJ or default, banks will always ask why it happened.
Let’s say you moved home three years ago, and a utility bill was missed. You had a default for £100 but paid it as soon as you became aware of it. That’s probably not going to have much impact – that’s quite a reasonable situation. But if you’ve missed lots of multiple payments over the last couple of years and that’s been a long-term trend, you probably won’t get a mortgage on the high street. Meanwhile, lots of other banks are quite flexible with this.
You might need a bigger deposit, or have a slightly higher interest rate. But people are often pleasantly surprised about what they can do. Lenders are reasonable. Talk to us about the situation. The key timeline is the last two years – aim to keep those as clean as you can. And remember that lenders look at the last six years on your credit file, but no further.
What happens if I miss a mortgage payment as a First Time Buyer?
It’s not good, but there are options. The previous government introduced something called the Mortgage Charter, a piece of legislation that the majority of major lenders signed up to, designed to help people who were getting into difficult situations due to the cost of living crisis.
Because of that, you could potentially extend your mortgage term or switch temporarily to interest only. There are other potential options if you are about to start missing mortgage payments. Lenders have been very forthcoming, because they don’t want to have to pursue somebody who’s missing payments. It becomes very expensive, messy and legal for them.
This framework actually has helped them support people who are heading towards that situation. If none of these things work for you and you do miss a payment, it will impact you potentially borrowing again in the future. So try not to miss one – those government led options can hopefully help you avoid that.
You can explore the options by speaking to your advisor as early as possible. So please don’t put your head in the sand. We’ll walk you through these options – and it’s not as scary as you think.
Can I get a Buy to Let mortgage as a First Time Buyer?
Yes, you can, but it’s not as easy for a First Time Buyer, and typically it’s linked to your income. A bank will want to check you really are doing this as an investment, and not planning to move into it. A few years back, the rules were looser, and people would get a bigger mortgage on a Buy to Let than they could afford on their income. That’s why that rule exists now.
Perhaps you live at home and want an investment property up north, while you live in the south. That’s fine, but just understand it’s going to be underpinned by your income. If this is something specifically you want to look at, jump over to our Buy to Let page.
How can a mortgage broker help me with my First Time Buyer mortgage application?
We really pride ourselves on helping First Time Buyers as you are the lifeblood of the property market. We’re completely free, and don’t charge any fees for our services. We’re open seven days a week and we’re accessible through Teams and Zoom.
We want you to have a conversation with us as early as possible in your journey, because as Rich pointed out, the earlier you talk to us, the more likely it is you can find yourself with the home you’ve dreamed of.
We can help you with budgeting, planning and saving and of course recommend different mortgage options for you. We potentially have access to exclusive rates, and lenders that aren’t accessible directly and only through certain brokers.
We’re very passionate about the advice, the help and the hand holding. That’s what we do. When we get to the point of you finding a property, you’ll be ready to go and we might be able to find you some exclusive products too – so everybody’s a winner.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Our Steps together for First Time Buyers
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In essence, this schemes allow you to purchase your home with a much smaller deposit thats is ordinarily required.
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We are here to guide first time buyers, individuals looking to remortgage and those wishing to apply for additional mortgages. It doesn’t end there either; we’ll keep in gentle contact giving you any relevant advice and support.
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