Mortgages for first-time buyers

Taking the first step onto the property ladder can be exciting, confusing, and sometimes stressful, but ultimately rewarding. Preparing yourself well financially can help you approach becoming a first-time buyer with confidence.

What is a first-time buyer mortgage?

First-time buyer mortgages are specifically designed for people who are new to the housing market. Some companies may use incentives such as cashback schemes, to entice you to get a mortgage with them. They may also offer 95% or 100% mortgages, which only require a 5% deposit or none at all. But remember that you’ll still need to meet strict affordability criteria to get approved.

When’s a good time to buy my first property?

There’s a great deal of personal and financial commitment involved in buying your first home, so it’s important to have stability in your life.

For example, it’s usually best to be in a permanent job. A steady income can show companies you’re more likely to meet the monthly mortgage repayments – and remember, if you can’t keep up with the payments, you may lose your home. Getting a mortgage when you’re self-employed can be a lot harder, since your income may be unpredictable.

Lenders often like to see that you’ve been living at a long-term, permanent address. You can use your parents’ address if you’ve been staying in student housing or other temporary accommodation. Make sure to register on the electoral roll with it.

It can be beneficial to wait until you’ve built up your credit history. If you don’t have much of a credit history, it can be harder for companies to assess the likelihood of you paying them back, so they may refuse you a mortgage.

Finally, the economic climate may affect your decision, as this can impact house prices and mortgage interest rates. If you buy property just before a dip in property prices, you may get into negative equity – this is where you owe more on your mortgage than the current value of the house, making it very difficult to move home again.

How much does a first-time buyer mortgage cost?

Here, we’ll look at how much you’ll need to spend on a deposit and monthly payments – but check out the associated costs of buying a home too.

How much do I need for a deposit?

A deposit is a lump sum you pay towards the price of a property when you buy it. It’s usually expressed as a percentage of the property price, e.g. a £20,000 deposit on a property that costs £200,000 would be a 10% deposit.

So how much do you need as a first-time buyer? There’s no one-size-fits-all answer – it can depend on things like the lender’s criteria, the cost of the property, your financial situation, and your credit score.

You may be able to get a mortgage with a 5% deposit – or, rarely, no deposit at all. These are called 95% and 100% mortgages. They typically come with higher interest rates, or require a guarantor, to reduce risk for the lender.

A larger deposit usually means smaller monthly payments and lower interest rates – it’s worth bearing this in mind when deciding what property you can afford. Generally speaking, you should be able to get a good deal with a 15% deposit, and the best rates are usually available to people who can put down 25% or more.

How much will I need to pay each month?

Most first-time buyer mortgages are repayment mortgages (rather than interest-only mortgages), so you’ll pay back part of what you owe each month, plus interest. The size of your regular payments will depend on:

  • The mortgage interest rate. This is calculated as a percentage of what you owe – it may change over time if you have a variable or tracker rate.
  • How much you borrowed. The more you borrowed, the more you’ll pay each month. That’s why putting down a bigger deposit can reduce your regular repayments.
  • The mortgage term. This is how long you’ll be paying of the mortgage for. Stretching your repayment out over more years will decrease the amount you pay each month – although you’ll then end up paying more interest overall.

Can I get help with the cost of a house?

If you’re saving for deposit, you may want to use a Help to Buy ISA or Lifetime ISA. The Government will top up savings in these accounts, helping you reach your target deposit sooner. Just remember to read the terms and conditions carefully – in particular, using a Help to Buy ISA for a deposit can be tricky, and may require some negotiation with your solicitor.

Under the Government’s Help to Buy scheme, you can also get an equity loan to buy a new-build. This can reduce your monthly repayments, helping you buy a more expensive home than you could otherwise afford. You’ll need to start paying back the loan after five years.

Finally, you could consider shared ownership. This allows you to buy a share – usually between 25% and 75% – of the property and pay rent on the remaining share.

Can I afford a mortgage?

Already browsing homes for sale? Before you get attached to a country manor, modern city flat, or that cool lighthouse with the views, it’s important to understand what’s within your budget.

Review your savings, income and expenditures, and work out how much you can afford for a deposit and monthly payments. Getting a ‘Decision in Principle’ (DIP) or ‘Agreement in Principle’ (AIP) from a direct lender or mortgage broker can help you decide a property budget – but remember, this doesn’t guarantee you a mortgage.

Also consider how your financial and lifestyle circumstances may change in the future, and how a variable interest rate mortgage could rise – so it’s best if you can afford a bit more than what you get. Of course, you may be able to switch to another mortgage in the future, but there are risks and potentially costs involved in this.

Remember, you must make your monthly mortgage repayments on time and in full, or you may lose your home.

You also need to think of the associated costs of buying a home, besides the home purchase itself. This can include legal and valuation fees, stamp duty, and removal costs – as well as more optional costs like decorating and buying furniture.

Can I get a buy-to-let mortgage as a first-time buyer?

It’s possible to get a buy-to-let mortgage as a first-time buyer. But lenders are likely to see you as more of a risk, so they may ask for a larger deposit or a guarantor. If you buy your first home and live in it for a year or more, you may be able to get an ‘agreement to let’ from your mortgage provider instead – this then allows you to lease out your home on your current mortgage, although you may have to pay more interest.

Note that getting a buy-to-let mortgage could affect your ability to get a residential mortgage (i.e. for property you want to live in) later.

How can I get a first-time buyer mortgage?

To get a mortgage, you must convince lenders that you’re a low enough risk. There are several ways you may be able to improve your chances of acceptance:

  • Putting down a decent deposit – e.g. by saving up, getting help from a relative, or using a Help to Buy scheme
  • Using a guarantor – this is someone who promises to make your payments if you can’t
  • Showing you’ve handled credit responsibly in the past – find out how your credit score may affect your mortgage eligibility
  • Showing you’re capable of comfortably making the monthly repayments – e.g. by only applying for a mortgage you can afford, boosting your income, or reducing how much you spend
  • Applying with correct and up-to-date information – this helps the lender assess your affordability accurately

How do you prove you can afford a mortgage?

When you apply for a mortgage, you’ll usually be asked about things like:

  • How much you earn
  • How much you regularly spend (e.g. your living costs, such as rent, food and bills)
  • Your other debts and financial commitments (e.g. credit cards and loans)
  • Your savings

You may need to provide documentation like payslips, bank statements, and proof of identity as evidence.

What should I do when I get a first-time buyer mortgage?

A mortgage is a step up in responsibility from renting or living at home. Here are our top tips for first-time buyers:

Compare mortgages with Experian