First-time buyers’ guide
Guide for first-time buyers
Considering purchasing your first home? It’s an exciting journey, though it can be a complex one, especially with the current challenges of high interest rates and the ongoing cost-of-living crisis. Our guide offers valuable tips on everything from saving for a deposit and understanding various mortgage options to finding a reliable broker and securing the best deals available.
First-time buyers’ need-to-knows
This guide is designed for those purchasing a home for the first time, offering all the essential information needed to secure a mortgage for your initial property. A first-time buyer is defined as someone who has never previously owned a property, whether in the UK or abroad. However, if you’ve owned a home before and are looking to re-enter the property market, this guide will still be relevant for you.
1: Consider carefully if a mortgage is right for you and if you can afford it
Is a mortgage the right choice for you? Can you truly afford it, or will making each payment be a constant struggle? Keep in mind – renting is not a negative option. If the choice is between continuing to save or risking foreclosure on your first home due to financial strain, the decision is clear. This section also addresses:
- Conducting a thorough financial review to determine what you can comfortably afford each month.
- Utilizing our Ultimate Mortgage Calculator to estimate the true cost of a mortgage.
- Understanding why lenders typically limit borrowing to four or five times your income, and the importance of stress-testing your finances in case interest rates rise.
2: Often you’ll need a 10% deposit to buy a property… but it’s still possible if you’ve got less than that
Although 95% mortgages are an option, not every lender provides them, and interest rates usually drop significantly if you can put down at least a 10% deposit. However, there are still resources and assistance available for those with a smaller deposit. This section discusses:
- The importance of your deposit size and how a lower loan-to-value ratio can lead to more affordable mortgage rates.
- Assistance options for first-time buyers with a limited deposit, such as the 95% mortgage guarantee scheme, shared ownership, and Lifetime ISAs.
- An explanation of how guarantor mortgages and “mates’ mortgages” function.
3: How to boost your chances of getting a mortgage
Lenders are selective about who they approve for mortgages. To secure the most favorable mortgage offer, it’s not just about having a substantial deposit; you also need to maintain a strong credit score. You can enhance your credit score by:
- Getting on the electoral roll.
- Checking your credit file (for free).
- Not missing payments and keeping credit applications down.
4: Decide what type of mortgage you want – fix, variable, tracker, or other…
Once you’re certain that a lender is willing to offer you a loan, it’s important to think about the specific type of mortgage that suits your needs. Our comprehensive guide provides a detailed explanation of what a mortgage entails, how it is ‘secured’ against your property, and outlines the advantages and disadvantages of various mortgage options, such as:
- Repayment and interest-only mortgages.
- Fixed-rate and variable-rate mortgages (such as trackers).
- Offset and guarantor mortgages.
5: Getting a mortgage is tougher if you’re self-employed/a contractor
If you’re self-employed or working as a contractor, securing a mortgage can be challenging because you need solid evidence of your income. Employees have an easier time, as they can provide payslips, but for those who are self-employed or without a permanent contract, the process is more complicated.
In this section, we explain what documentation a lender will require before considering your mortgage application. This typically includes business accounts and tax returns.
For further details, check out our Self-employed Mortgages guide.
6: Don’t forget to factor in other costs, including mortgage fees and stamp duty
When calculating the expenses, ensure you account for all the costs involved in purchasing a home and securing a mortgage. While you may find ways to reduce these expenses, you cannot eliminate them entirely. This section outlines the essential items to budget for, including:
- Arrangement fee. Charged by the lender for taking out the mortgage – typically about £1,000+.
- Valuation fee. Lenders charge this to see how much your property’s worth – typically around £300 to £500.
- Legal fees. To cover the cost of all the legal work involved. Budget for £500 to £1,500.
- Stamp duty. A fee you pay to HM Revenue & Customs based on how much you’re buying your property for. First-time buyers in England and Northern Ireland don’t pay stamp duty on the first £425,000 of a main residential property.
7: How to get a mortgage step-by-step– including going solo or via a broker
When you’re applying for a mortgage, you essentially have two primary routes: you can either apply directly with a lender or go through a mortgage broker. Our comprehensive First-time Buyers’ Guide provides an in-depth look at both methods. Generally, opting for a broker can be advantageous, as they efficiently narrow down the best deals, often have access to exclusive offers, and are skilled at matching mortgage options to your specific financial situation.
This section covers:
- How different brokers work and which deals they search.
- Which brokers are free and what questions to ask them.
- How to compare the widest range of mortgages if going solo.
8: Watch out for the hard sell on insurance
To offset reduced earnings from headline mortgage rates, some lenders increase the cost of related insurance products. This section outlines the insurance policies you might encounter aggressive sales tactics for, what costs you should anticipate, and how to identify the most affordable options. Types of insurance worth considering include:
- Mortgage payment protection insurance.
- Buildings and contents insurance.
- Life cover.
9: First-time buyers’ quick Q&A
Are you wondering if a lender will finance your property? What documents will you need to prepare? How long should the term of your mortgage be, and why might the ‘annual percentage rate’ be misleading? Plus, what if you plan to rent out your property later on? This chapter addresses these and other concerns you might have about purchasing your first home.
After you’ve gone through our First-time Buyers’ Guide, take a look at the latest mortgage rates available for first-time buyers using our Mortgage Best Buys tool.