Eligibility Criteria for a First-Time Buyer Mortgage UK
Every lender has varying lending policies and rules, so it's vital you check these before you apply. Otherwise, you are very likely to have your first-time buyer application refused.
Policies could relate, for example, to your age, your employment type, the location of the property, the type of home you wish to buy, and other factors such as your credit rating or deposit source.
Brokers work to assess your circumstances and match your borrowing requirements with a suitable lender, thereby reducing any likelihood of being rejected for a first-time buyers mortgage.
Deposit Requirements on a Mortgage for First-Time Buyers
The deposit you pay is calculated as a percentage of the property price. For example, if you're buying a home for £250,000, a 5% deposit would be £12,500, and a 10% deposit would be £25,000.
As a rough indication, lenders with products enrolled in the mortgage guarantee first-time buyer scheme require a minimum deposit of 5%, and there are sometimes products outside of the scheme with a similar down payment requirement.
Other lenders will need any applicant for a first-time buyers mortgage to put down at least 10%, and potentially more if you’re looking to purchase a buy-to-let.
Being able to secure mortgages for first-time buyers with low deposits can be useful in that it is easier to purchase a property without having to save a larger value. However, the downside is that a first-time buyer mortgage based on a higher Loan to Value will also be more expensive in interest charges.
Loan to Value is the amount you'd like to borrow through a first-time buyer mortgage against the property value. If you are buying the same £250,000 property and have a 10% deposit, your Loan to Value is 90% since you're applying to borrow £225,000 towards the cost and covering the other £12,500 through your down payment.
The ideal situation is to have a 15% deposit before you apply for mortgages for first-time buyer applicants, although that may not always be possible.
Calculating Monthly Repayments on a First-Time Buyers Mortgage
We often work with clients who are concerned about what their first-time buyers mortgage will cost in monthly repayments, and it is important to budget and be confident you can afford the costs.
Lenders add interest to your first-time buyer mortgage repayments, either based on a fixed-term interest rate or with a changeable interest charge for tracker or variable mortgages, which adjust according to the Bank of England base rates.
Higher-value mortgages for first-time buyers will inevitably cost more to repay, and the higher your deposit, the lower your repayments since the total debt value will be smaller.
Another influential factor is the term. Most first-time buyers mortgage products run for a standard 20 or 25 years. Still, if you have a longer contract that runs for, say, 30 years, your monthly repayments will reduce accordingly since you're spreading the repayment over a longer period.
It is worth reiterating that a longer term means your first-time buyer mortgage UK will probably cost more overall, even if the monthly payments are lower.
Using a First-Time Buyer Scheme to Help With a First-Time Buyer Mortgage UK
There are several ways to improve your chances of approval, reduce your first-time buyer mortgage deposit requirement, or make it easier to apply – and the right scheme may depend on your circumstances, the value and location of the home, and your financial position.
The Help to Buy ISA is not now available, nor is the Help to Buy equity loan scheme, but you can still open a Lifetime ISA if you are below 39 and use the account to increase the deposit you have to put down in a mortgage for first-time buyers.
This ISA pays £1,000 on top of every £4,000 you save a year, so you can effectively increase your deposit by 25% every 12 months, which should help you save a deposit faster and increase the number of mortgages for first-time buyer applicants you are eligible for.
Other schemes you might wish to consider to help with your first-time buyers mortgage include:
- Right to Buy or Right to Acquire, providing discounted property prices for people who have lived long-term in council or housing association homes to buy the residence with a first-time buyer mortgage.
- Shared Ownership, where you can take out a first-time buyer mortgage for a proportion of the property and pay a rental premium on the balance owned by the housing association. Over time, you can buy additional ratios and build up to full ownership.
- First Homes is designed for low-income buyers and provides considerable discounts on the value needed through a first-time buyer mortgage to purchase a home.
The mortgage guarantee first-time buyer scheme we mentioned earlier may also be useful. The government guarantees the loan, making it easier for a lender to approve mortgages for first-time buyer applicants with a small 5% minimum deposit.
If you would like further advice about applying for a first-time buyer mortgage UK or working out which help schemes are best suited to your circumstances, please get in touch with mortgage brokers at any time.
