First Time Buyers

Generally speaking, a deposit of at least 5% of the purchase price will be required, although there may be some exceptions to this in the event that you are buying a property under the market value, possibly with a gifted equity deposit from the vendor who would usually be a family member. A larger deposit will influence the rates of interest and mortgage deals that will be available. Deposit can come from a variety of sources.

Most commonly this will be from personal savings and investments, although in recent years there has been a growing number of borrowers receiving financial help from family by way of gifted deposits. This is normally acceptable to a lender, provided that the funds are not repayable, and the donor of the gift will not have any financial interest in the property or be living in the property. Regardless of the amount of deposit you have, the amount of borrowing must still fit within the lender affordability calculations.

It is important that an affordable monthly budget is established at the early stage of a discussion to ensure that your expectations can be met. Traditionally a lender used to calculate lending based on a multiple of income. This is no longer the case as individual circumstances are very different when it comes to how people spend their disposable income. A lender will have a specific affordability calculator into which all income and known commitments are entered. Any future unknown costs may be estimated or the lender may assume a figure based on information from the Office of National Statistics. Income used in the calculation can be from employment or self-employment.

Some types of benefits may also be acceptable and these can be clarified by our experts. A detailed analysis of all your income and expenditure by one of our specialists will provide an accurate indication of a maximum mortgage that may be available. However, in some circumstances it may be that this is actually greater than you are comfortable with, once you have established your monthly budget for mortgage and related costs. The amount of deposit may also influence the amount available to borrow, with some lenders applying a “cap” on higher loan to value cases which may be 4 or 4.5 x the income, regardless of the affordability calculation.

Mortgage costs for First-Time Buyers are as follows.

• In the first instance you will need a deposit to put down. This usually starts at 5% of the value of the property you are looking to purchase.
• Stamp Duty will be payable if you purchase a property for over £300,000.
• You will also need to pay for a Solicitor or Conveyancer who will take care of all the legal paperwork when purchasing a property.
• Your Solicitor will also collect payments for The Land Registry (For when your property is registered in your name), HMRC (to pay the Stamp Duty), Local Authority and various other third parties (while they carry out the due diligence on the property you are looking to purchase).
• You may also be required to pay for a Survey/ Mortgage Valuation fee.
• And lastly you may also be required to pay for a Mortgage Advisers fee, and depending on your mortgage product any product related fees to the lender.

What Other Costs are There for First-Time Buyers?

The standard costs for First-Time Buyers are usually a deposit, survey/ mortgage valuation fees, Solicitor costs and Mortgage Broker and mortgage lender fees. On top of these fees, it is important to take into account the costs of actually moving. This can sometimes cost a considerable amount if you need to hire the services of a removal company. Once you move into your new home there can also be costs for redecorating and furnishing a property.

When you apply for a mortgage, the lender will make a full assessment of your financial situation. Your income from all sources will be taken into account, together with any regular outgoings and commitments. These commitments will include loans, credit cards, child care and travel costs. It is important that you do not over commit yourself and the lender affordability calculations will take account of potentially higher interest rates in the future.

In addition to assessing affordability, lenders will carry out a check of your credit profile and history. They will also need to establish your address history for at least the last 3 years and would expect that you are registered on the electoral roll at your current address. To support a mortgage application, you will need to provide evidence of your income, usually the latest 3 months payslips if you are employed or tax calculations and accounts if you are self-employed, together with your latest 3 months banks statements, proof of Identification and address. Documentary evidence of your deposit will also be required at the application stage.

Most bridging lenders will require you to have a deposit of 25-30% of the value of the property or asset you want to secure the bridging loan on. This will usually include the rolled up interest and therefore is categorised as the Gross Loan Amount.

If you do not have the required deposit amount then bridging loan lenders can usually take security over other property or assets you are willing to include.

A lot will also depend on your exit strategy. If it is deemed secure and strongly viable then you are likely to be able to secure a product which requires a smaller deposit. While in the same situation if your exit strategy is deemed as not so strong and secure then a lender may require a deposit of between 40-50%.

To find out an indicative idea of how much deposit you may need, speak to one of our in-house brokers who can help you get started.

The Help to Buy ISA is a savings account designed to assist first-time buyers build up a deposit.

Although you cannot purchase property under the age of 18, from the age of 16 or over you can save up to £1,200 into a Help to Buy ISA in the first month after opening the account. After that, the maximum monthly contribution you can make is £200.

The main attraction of a Help to Buy ISA is that the government tops up any contributions you make into the account by 25%. If you pay £200, the government will top this up to £250. The maximum the government will give you is £3,000, and you’d need to save £12,000 to get this. The returns you’ll receive vary depending on which provider you go to, so it’s worth doing plenty of research to find the best Help to Buy ISA rates.

Funds held in the Help to Buy ISA may be used to buy property costing up to £250,000, or up to £450,000 if you are buying in London.

Lifetime ISA

The Lifetime ISA is available to anyone aged from 18 up to 40, who wants to buy their first home or save for retirement, or both. You can save up to £4,000 into a Lifetime ISA  each year, and the government will again top up any contributions you make by 25%.

Savings held in a Lifetime ISA can be used to buy a first home costing up to £450,000 anywhere in the UK.

If you have both a Help to Buy and a Lifetime ISA, you can only use the government bonus from one of these accounts to buy a property.

Whether you’re a First-Time Buyer with poor credit or already a home owner, the criteria for whether you qualify for a mortgage when you have poor credit is usually similar.

Lenders will assess your eligibility based on the ‘hard data’ that is showing on your credit file. Things they will look at to assess an application can range from the number of Late Payments, Defaults or County Court Judgements (CCJ’s) that show on your credit file, as well as how recent or historical this data is. The data is not limited to this as credit files can hold a lot more detailed information.

Other things that they will consider when assessing your eligibility will be your general financial conduct. This is usually assessed by looking carefully at your personal and/ or business bank statements.

Being a first-time buyer with poor credit does not instantly disqualify you from obtaining a mortgage. The assessment process is complex, and it will help if your case is presented to a lender in a favourable way. That is why it can be important to speak to an experienced Mortgage Adviser who can help you with the purchase of your first home.

I am a First-Time Buyer with No Credit, Can I Get a Mortgage?

Having no credit as a First-Time Buyer does not mean you cannot get a mortgage. While this will most likely mean you will have a low credit score, it will not rule out your eligibility to obtain a mortgage.

While it can be difficult to instantly change your credit profile if you haven’t had credit in the past, you may already have other parts to your overall profile that can counteract against this in a positive way.

A bigger deposit, being on the electoral roll and a good employment history will be looked at favourably. Our Mortgage Advisers have the experience to assess your profile and give you a good indication whether not you may qualify for a mortgage. They can also inform you to what you can do in the short or long term to put you in a position to obtain a mortgage. Get in touch today to see how they may be able to help you.

First-Time Buyers can usually access mortgage rates that are available to all applicants. On top of this lenders sometimes have rates that are exclusively reserved for first time buyers that may also include extra benefits added to them. The benefits can range from free mortgage valuation/ surveys, cash back and in some instances help towards fees.

Speak to one of our experienced advisers at Secure Finance Ltd to see what rates may be available to you.

Best Mortgage Lenders for First-Time Buyers

Most lenders are happy to lend to First-Time Buyers. No lenders are specifically set up for solely helping First-Time Buyers. If you have a good credit profile, a large deposit, good employment history with good levels of income and are on the electoral roll then you will always be in with a chance of obtaining a mortgage from some of the best mortgage lenders on the market.

If your income is not enough to achieve the amount of borrowing you need, a mortgage with a Guarantor may be an option. This type of mortgage will be suited ideally to borrowers who are on a career path where the current income is relatively low but is likely to increase substantially in the medium term.

Essentially, a third party is named on the mortgage application as a guarantor and they agree to cover the monthly repayments if you do not maintain them.  The Guarantor will not own or have any interest in your property, nor will they be named on the Title Deeds. They are however required to sign a legal document to confirm that they will make your mortgage repayments if you do not.

The mortgage lender may require additional security to be provided by the Guarantor. This could be;

• A Legal Charge against a lump sum interest paying savings account. This may be for an amount equal to the additional lending that has been allowed and it will not be accessible until either the mortgage is affordable based purely on the income of the borrower.
• A Legal Charge against the residential property of the Guarantor. This means that if they do not cover any missed repayments, their own property is at risk of being repossessed in order to recover the debt.

The financial circumstances of the Guarantor will be looked at by the lender to make sure that they are in a position to take on the commitment. They would normally be expected to own their own home and have a good credit history. The income of the Guarantor should be sufficient to cover your monthly payments in addition to their own mortgage and regular spending. It is essential that the potential Guarantor seeks independent legal advice and the solicitor for the lender would expect to see evidence of this.

Buying your first home is a time of excitement but also for many it represents a period of anxiety and a step into the unknown. One area of the process that is relevant for nearly all First Time Buyers is that of the mortgage.  With what appears to be so many different options available together with a mind boggling amount of terminology it is perhaps no surprise that this is a part of the house buying exercise that many seek help and advice.

Advice can be found from a variety of sources including:

Family and friends – A good source of honest and hands on experience of home ownership.  It does however depend on their knowledge of the current mortgage industry to the accuracy of the information being provided.

Internet – A huge amount of information at your fingertips 24 hours, 7 days a week.  However, with such a vast amount of information it can be difficult to know where to begin and to determine what is relevant to you and your individual requirements.

Lenders – Fully qualified advice tailored to your individual needs.  This could however represent a restricted viewpoint of the market as they only able to advise on what they can offer or do for you.

Mortgage Brokers/Financial Advisers – Fully qualified advice again tailored to your individual needs. However, do check on their access to the market. A broker with unlimited authorisation should be better placed to give a wider view of options than a broker with a restricted panel.  There may also be a fee payable.

First Time Buyer Mortgage Advice

At Secure Finance Ltd, we have access to much of the mortgage market. Our Mortgage Advisers will always endeavour to find the most suitable First Time Buyer mortgage for you based on your specific circumstance. Call us to see how we can help.