Taking the first step on the property ladder is likely to be one of the biggest decisions you will ever make. It can be exciting, daunting and a little confusing at times as you make your way through the home buying journey.

Drake Mortgages is a whole of market mortgage broker and everyday we help first time buyers to fulfill their dreams and aspirations of property ownership.

The house buying process can seem complicated when looking at it for the first time. Here we will aim to cover most of the basics of first time buyer mortgages so you can feel more confident about your options.

What is a First Time Buyer?

To qualify as a first time buyer you cannot have previously ever owned any residential property. Even if this was some years ago and you have now sold the property, you will not qualify.

This is important because First Time Buyers (FTB) currently receive special reduced rates for Stamp Duty and are also eligible for other savings and property schemes. Learn more about Stamp Duty Land Tax.

The mortgage lenders will ask questions concerning your eligibility and your conveyancing solicitor will also make some more formal checks.

What is a First Time Buyer Mortgage?

A mortgage is simply a large loan that will help you to buy a home to live in.

You borrow the money from a mortgage lender and agree to repay it over a set period, for first time buyers this is typically 25-30 years. As the mortgage is for a large sum of money the lender takes your new property as security and the loan is formally secured against your home.

This means that if, at any point during the mortgage term, you fail to keep up the monthly repayments, the lender can sell your property to repay the debt. Mortgages are always secured against properties or land.

A First Time Buyer Mortgage is a mortgage that is only available to people who are buying a home for the first time. Often these can come with some special interest rates or discounts provided by the mortgage company.

How much can you borrow?

The amount you can borrow is linked to your deposit, the amount of cash savings you can put towards the property purchase, and your provable income/s.

Lender’s generally like a minimum 5% deposit for FTB. The 5% is a percentage of the price you have agreed to pay for your new home with the balance coming from the mortgage. In this example the mortgage will be 95% loan to value or LTV. You can pay more than the minimum 5% if affordable and you may then be offered a cheaper mortgage.

As an example:

So by adding your cash deposit to the mortgage amount borrowed you have enough money to buy your new home.

Mortgage lender’s use your income to determine how much they will lend you. If after this calculation the loan is not big enough then you will need to find some more money to increase your deposit.

Paying the mortgage back

There are two choices of repayment when applying for a mortgage:

1. REPAYMENT – Each month you will pay the mortgage interest along with some of the money borrowed. At the end of your mortgage term the loan is completely repaid.
2. INTEREST ONLY – Each month you only pay the lender the mortgage interest so at the end of the mortgage term the full mortgage amount needs to be paid back

Repayment (capital & interest) mortgages are the most popular with first time buyers as this is the least risky and provides some certainty that the loan amount will reduce over time.

It is possible to request an interest only mortgage but you will need a much bigger deposit, somewhere around 25% and not every lender has this option.

Mortgage Interest Rates

Mortgage interest rates are how mortgage lenders make money from their borrowers.

They charge you interest for the money that you have borrowed. The amount of interest is determined by the interest rate.

There are some different types of interest rate such as:

• VARIABLE – The amount of interest charged can vary if interest rates change. Up or down.
• FIXED – Your interest rate is fixed for a set period of time and will not change.

Lenders do compete against each other to attract new customers, so thoroughly researching the interest rates available for FTB’s is very important.

Applying for a Mortgage

Applying for a first time buyer mortgage requires quite a lot of information about your finances, your employment, the property and all of the paperwork to back this up with.

Particularly if you are buying your first home, it can be a great benefit to have a mortgage broker helping you along the journey.

Your mortgage brokers primary role is to search and find you the best mortgage. But they will also provide guidance on getting your finances and paperwork in order plus they will help with all of the forms needed and answer any questions you may have including what type of survey you may need.

Affordability forms an important part of applying for a mortgage. The lender will be looking at both your income and your expenditure, to see if you are likely to be a responsible borrower. Our mortgage affordability calculator will help you work out how much you can borrow.

You formally apply for a mortgage once you have seen a property to buy and the seller (vendor) has accepted your offer.

Our mortgage Jargon Buster might be useful if there’s a few terms that you are unsure of.

Estate Agents

As a first-time buyer, you are unlikely to have previous experience of estate agents.

Make no mistake, they work for their vendor (the seller) and the vendors interests, not yours. They are gatekeepers to your dream property and will avoid recommending offers from some buyers.

When making an offer the Estate Agents will often ask first time buyers to produce a Decision in Principle from a lender. DIP’s are based on some basic credit search information and an affordability assessment. 

By using our mortgage affordability calculator you will be off to a great start in terms of knowing what you affordability is looking like in the market.

Putting yourself in the best possible position is paramount when dealing with Estate Agents, so contact us to talk about getting a Decision in Principle.

The Property Search

Historically, buyers would visit a few Estate Agents to look for suitable properties for sale.

Now the property search can be conducted online 24/7.

Normally you will buy a property via an agent, whether they are ‘real’ or virtual. It is unusual for a first time buyer to deal directly with the person selling the property (vendor).

The agent will want to know that you are a serious buyer who can follow through with the property purchase. Accordingly they will ask many questions about your financial status, borrowing ability and cash deposit available.

It is recommended that prior to beginning your property search you obtain an Agreement in Principle (AIP) from a mortgage lender. We can help arrange this so that you can confidently search for properties to buy knowing that a mortgage is possible.

Once you have agreed a price the agent will coordinate the sale with everyone involved and will liaise with you regarding your mortgage and the solicitors.

The Agent works for and is paid by the person selling the house (not you).