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What are the best mortgages for First Time Buyers? 

One of the most important decisions you will have to make when it comes to picking a mortgage as a first time buyer is what type to go for. There are four main types; fixed, variable, discounted variable and tracker with advantages and disadvantages for each. 

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Credit will be secured by a mortgage on your property. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Written quotations are available from individual lenders. Loans are subject to status and valuation and are not available to persons under the age of 18. All rates are subject to change without notice. Please check all rates and terms with your lender or financial adviser before undertaking any borrowing.

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First-time buyer guide

Leanne Macardle

Leanne Macardle

Editor
Published: 29/01/2019

At a glance

  • Becoming a first-time buyer is both a financial and a personal long-term commitment.
  • While there are many things to consider, the process of buying your first home needn't be too difficult if you're aware of what's involved.
  • There is a choice of low deposit first-time buyer mortgages available, including those that require a deposit as low as 5% and 10%.
  • There are a number of mortgage rate types available, all of which come with their own advantages and disadvantages.
  • There is assistance available, including first-time buyer mortgage Government schemes. See the links in this guide for more details.
  • You can choose to buy your first home directly with your chosen mortgage provider or you can enlist the help of a dedicated mortgage broker.

First-time buyer mortgages explained

You may already know what you're after, which means you can simply choose the best deal for you. If you're not sure yet, we're here to help with a quick overview of the basic things you'll want to know before taking that first step onto the property ladder.

Brief introduction to the different mortgage types

fixed mortgage, as the name suggests, allows you to 'fix' your mortgage rate for a certain amount of time. This can be from two years to as many as 10. The interest rate will not change during this time and nor will your monthly repayments, which means you can be sure of your mortgage outgoings for a while. After the allotted period ends, you will automatically move on to the provider's revert rate (also shown in the table), unless you remortgage.

variable rate mortgage does not offer repayment security, but instead offers the chance of a lower rate. While some variable mortgages will have an end date, after which they'll revert to the lender's revert rate, you could keep such a mortgage for the entirety of your mortgage term (which is usually 25/35 years) without needing to remortgage. Don't be too taken in by the lower rates on offer, though, as the variability of the rate means it could go up as easily as down, which means there's no guarantee that your monthly repayments will stay the same (and it could be harder to budget as a result).

discounted variable mortgage offers you a discount on the lender's standard variable rate for a certain period of time. However, as with a regular variable mortgage, your rate can change at any time during the term of the mortgage, which again means you can't be sure of what your repayments will be. Furthermore, given that the revert rate will be higher than most rates, you'll certainly want to consider remortgaging once the discounted period ends.

Finally, a tracker mortgage is another type of variable rate mortgage, but with a difference. They track a certain rate, usually the Bank of England base rate, and offer a consistent percentage above that rate. So, if you think that base rate will remain the same or decrease, you could benefit from a deal that tracks it; however, if you think base rate will rise, this kind of deal becomes less appealing, as your mortgage rate (and therefore repayments) will follow suit.

There are other, less common types of mortgage, such as offset mortgages and capped mortgages, but you are unlikely to find these available to first-time buyers. Likewise, you are less likely to find interest-only mortgages anymore, as they are much less common than they were in previous years. You will therefore most likely be repaying your mortgage bit by bit every month, known as a repayment mortgage, which means you'll be paying off both the interest and part of the capital each month. For some flexibility, see if the mortgage offers underpayments or payment holidays by clicking on 'Details' for the deal you are interested in.

Which type of mortgage is best for you will depend on your personal circumstances, the wider mortgage market and your attitude towards risk. For an idea of what the mortgage market and house prices are doing at the moment, have a look at some of our most recent mortgage news.

What do I need to know?

Some useful first-time mortgage terms to start with:

  • APRC stands for the annual percentage rate of charge. It takes into account, not just the initial rate, but also product fees and other costs, to make it easier to compare between products.
  • LTV, or loan-to-value, relates to the loan percentage that you will require compared with the value of the house. So, if you put up 5% of the value/price of the house as a deposit, you will need a mortgage that has a loan-to-value of 95%. The lower your LTV, the better the deal you will likely be able to get. Read more about LTV

Getting a mortgage

Before you pick out a mortgage, you will also need to know your credit rating. The better your credit score, the greater the likelihood your mortgage application will be accepted. So, if you've got any credit card debt, try to pay it off and cancel the card before applying, and see if there is anything else you could do to improve your rating.

Your credit rating is just one part of the overall affordability assessment that your lender will use to see if you are worth the risk of lending money to, and how much they'll lend you. To assess if you'll be able to afford to make your repayments, providers look not only at your credit rating and income, but also at your expenses, including bills and any child-related expenses. In essence, they want to know if you can still keep repaying your mortgage in the event that life becomes more expensive for you.

Mortgage costs

However, before you apply and allow the provider to judge you, make sure you scrutinise what they have to offer, and that goes beyond the mortgage rate and type. Keep in mind that some providers charge initial fees, which may or may not be added to the mortgage, and there are other costs involved as well.

Your lender will likely charge you for having a valuation done to determine the value of the property you are buying. You may also want to do your own survey, to make sure that you're aware of all the things that may be wrong with the house and are prepared to fix them (and/or use them to haggle for a lower price), especially if you are looking at an older property. Other charges may include local authority searches, to check for any planning issues.

You will also need to hire a solicitor or such to handle all the legal documents. What you most likely won't have to worry about anymore is stamp duty, as this was abolished near the end of 2017 for first-time buyers looking to buy a house worth £300,000 or less. For property that costs between £300,000 and £500,000, first-time buyers will need only pay 5% stamp duty on the amount above £300,000.

Other expected expenses are home insurance and moving costs. So, make sure you don't just have enough money to cover the deposit and any mortgage fee, but also at least £4,000 extra to cover all the other costs related to buying a home.

Saving for a deposit

Despite all the above, the largest expense you will have is likely to be the deposit. If you are looking to buy a house that is worth £200,000 – which is less than the average UK house price – you will need at least a £10,000 deposit. Why not compare savings and ISA accounts see if there's an account (or combination of accounts) that can help you reach your homeowner dream.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Help to Buy and other first-time buyer savings schemes

While you will need to work hard to save up enough money to be able to buy a house, there are some Government schemes that could help you get there. The most popular are the Help to Buy schemes, with the Help to Buy: equity loan scheme running until 2021, and the Help to Buy ISA still going strong.

While the equity loan scheme helps you once you have that 5% deposit, the Help to Buy ISA helps you get there. With the latter, you can save up to £200 per month and benefit from a 25% Government bonus, up to a maximum of £3,000 over the years. And since it's an ISA, you won't have to pay any tax on the money in the account. Moreover, if you are looking to buy with a partner, you can both get a Help to Buy ISA and the related Government bonus. 

A newer scheme is the Lifetime ISA. This allows you to save with a 25% Government bonus up to the age of 50, which can be used either for buying your first home or retirement. You have to be under 40 to apply. 

Note that at the time of writing (early 2019) there are just three cash lifetime ISAs available. If you instead opt for a lifetime ISA of the stocks and shares variety, remember that you’ll be risking your investment on the stock market. While this could result in great profit, you could also end up with less than you put in.

Should I use a mortgage broker?

You may be feeling overwhelmed by all the options available to you, and all the information you need to keep in mind when going through the mortgage process. A mortgage broker could be of great help with this, guiding you through the process and helping you every step of the way.

The advantages of using a mortgage broker are that they can look at the whole market (not all brokers offer this) to find the deal that is best suited to your personal circumstances, and can sometimes get you exclusive offers you wouldn't be able to find yourself. They are also great if you want a human instead of a webpage to ask your burning first-time buyer questions to.

However, some mortgage brokers charge a fee for their services, and this is probably the biggest disadvantage. You'll have to decide for yourself whether they're worth the money – assuming they'll be able to get you a better deal than you can find on your own – or you'd rather go it alone. 

Note that the mortgage market is regulated by the Financial Conduct Authority (FCA), so whether you use a mortgage broker or not, you can be sure that any provider that displays the FCA's logo can be trusted. Of course, some will still be better than others.

Applying for a joint mortgage

You can apply for any of the above mortgages as a couple or group of friends (although not all providers will allow more than two people to apply together). If you do decide to do this, bear in mind that you will share the responsibility of making repayments, which means that if your mortgage partner becomes unable or unwilling to pay, you'll be liable.

While risky, there are certain advantages to getting a joint mortgage. You'll be able to get a bigger deposit together, you'll likely be able to borrow more as both of your incomes etc. will be looked at, and you'll split the repayments, making everything a bit more affordable.

If you're interested in this route to home ownership, make sure you both have a good credit rating before you apply, and agree on what kind of ownership agreement you will have. You may want to consult an independent expert before leaping in, especially if you are not otherwise contractually tied to the other person (by marriage or civil partnership, for instance).

Pros and cons

  • Your own home. It's not just the actuality of buying your first property, it's also the warm feeling that comes with owning your first home.
  • No more rent. There are good reasons to rent your home but for many people paying rent is just wasting money that could go towards owning their own home.
  • More freedom. As it's your own home, you won't be bound by the restrictions that tenants often face from landlords.
  • The first step. Becoming a first-time buyer is your first step on to the property ladder.
  • Financial commitment. Buying your home is probably the biggest and longest financial commitment you'll ever make.
  • Good credit rating. To help improve the chances of your first-time buyer mortgage application being accepted, and to be able to access more affordable mortgages for first-time buyers, your financial health needs to be in good shape and you will need to meet the affordability requirements of the mortgage lender.
  • Extra fees and costs. Valuations, brokers' fees, local authority searches and solicitors' costs are just some of the extras you'll have to consider as a first-time buyer.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Finding the best first-time buyer mortgage can often seem somewhat bewildering to first-time buyers. Deciding on which mortgage is right for you can be made easier by consulting our mortgage guides.

couple being given key to home

At a glance

  • Becoming a first-time buyer is both a financial and a personal long-term commitment.
  • While there are many things to consider, the process of buying your first home needn't be too difficult if you're aware of what's involved.
  • There is a choice of low deposit first-time buyer mortgages available, including those that require a deposit as low as 5% and 10%.
  • There are a number of mortgage rate types available, all of which come with their own advantages and disadvantages.
  • There is assistance available, including first-time buyer mortgage Government schemes. See the links in this guide for more details.
  • You can choose to buy your first home directly with your chosen mortgage provider or you can enlist the help of a dedicated mortgage broker.

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