First time buyer mortgages

Are there specific deals available for first time buyers?

There are specific schemes aimed at first time buyers which may need a smaller deposit, or have lower fees, but you will also have access to the majority of other mortgages.

How much of a deposit do I need?

Generally the more deposit you are able to put in the cheaper the interest rate you will have access to. A number of years ago there were several lenders that would look to lend without you needing a deposit, but they were removed and as a rule a deposit of at least 5% has been required.

There has recently been a 100% mortgage launch for those first time buyers who are renting, so if someone has 12 months track record of renting it is possible that you could purchase a property without needing a deposit. There are terms and conditions applicable and the rate of interest may be higher than other deals where a deposit is used.

There are other specific occasions where no deposit may be required, for example:

• Right to Buy – If you are buying the property you rent from a Council or Housing Association tenant at a discount. The discount will be counted as the deposit by many lenders
• Shared Ownership – This is a scheme whereby you buy only a portion of a property, and rent the remaining part. There are only certain properties which are available to buy on this basis
• Using family members as guarantors – If a member of your family owns their own property,with or without a mortgage, and they are happy to help out, then they can use the equity in their property to guarantee the deposit
• Buying the property you currently rent at a discount – If your landlord is prepared to sell you the property at below it’s market value, then that figure can be used as the deposit by some lenders
• Buying a property from a family member at a discount – If a member of your family is prepared to sell you a property at below it's market value, then that figure can be used as the deposit by some lenders

How long should I take the mortgage over?

Traditionally mortgages were taken over a 25 year period, but changes in property prices has resulted in the terms being extended to fit a purchasor's individual affordability. Many lenders are happy to lend over a 35 or even 40 year term.

What type of mortgage should I take?

The main types of mortgage rate are Fixed, Discount, Variable and Tracker. Which type of rate you go for depends on your situation, and your mortgage advisor will look at your circumstances and recommend the best for you.

Fixed rates

A fixed rate mortgage is one where the rate of interest charged for is fixed for a period of time at a rate set at the beginning of the deal. The benefit of this is that in periods where interest rates are rising your payment will not change and helps with budgeting. The downside is that if rates drop you may be paying more than you need to. The period of time you have your rate fixed for can be from as little as 1 year, with the most popular being 2 years and 5 years.

Discounted rates

A discount rate mortgage is one where the interest charged is a variable rate and is linked to the lenders variable mortgage interest rate, but is a set amount below this for a period of time. The benefit of this is where lenders variable rates are reducing, you will see your payments reduce, but you need to bear in mind that they will increase if rates increase.

Variable rates

A variable rate mortgage is where you are charged the lenders variable rate, which could increase or decrease. You might consider this if you are looking to pay the mortgage off quickly as it may have no penalties to do so.

Tracker rates

A tracker rate mortgage is where the interest charged is a variable rate but the rate is a certain percentage above the Bank of England base rate. So if Bank of England rate changes by 1%, so will yours. There is often a discount of this tracker rate for a period of time.

What fees are associated with buying a property?

Valuation fee

When buying a property as a first time buyer, you want to know that the property is worth what you are paying for it, and if any repairs are needed. You can then make a decision on whether you want to proceed with the purchase and whether you want to reassess your offer to take into account any repairs needed.

Traditionally, lenders have instructed a surveyor to undertake a basic valuation, but this is now often replaced by a desktop valuation where information is gathered online on the likely value of the property. Whilst this may be acceptable to the lender, it does mean that nobody has been into the property to see and assess any particular issues. Both of these scenarios could leave you owning a property, which you may wish you had never bought, for example, structural issues or damp problems would not have been brought to your attention and you will have little chance of recovering any costs from anyone.

With some mortgages this valuation may cost you £200-£300, however in some instances it is provided free of charge. A more in depth survey is a Homebuyer or Level 2 Survey, this will cost from around £450 and will go into far more detail. This type of survey is suitable for most conventional or standard properties. For larger, more unusual properties or those in a state of disrepair there is a Full Structural or Level 3 Survey.

We would always recommend that first time buyers go for more than the basic valuation, it will help identify problems and can aid you in negotiating a lower price for the property.

Lender Arrangement fee

Some mortgages have arrangement fees and others don't. In many instances, these fees can be added to the advance, but it will mean that you are paying interest on a larger debt.

Whether it is worth paying a fee for a mortgage depends on the interest rates, the size of the mortgage and the size of the fee. Your mortgage advisor will be able to compare the deals and calculate which is the most economic route for you.

Broker fee

Your mortgage advisor may charge you a fee to undertake the research, make a recommendation and submit an application. Make sure you know what this figure is before committing to proceed.

Legal fees

You will need a solicitor or conveyancer to deal with the legal work involved in your purchase. If you would like a quote for this then please ask, as we have arrangements with a number of solicitors.

Stamp Duty

This is a tax paid when you purchase a property. Eligible first time buyers won't pay Stamp Duty on residential property purchases up to the value of £425,000. On purchases over this and up to £625,000 the tax is 5% of the amount over£425,000. Over £625,000 then normal Stamp Duty rates apply.