First-time buyer mortgages
Thinking of taking your first step onto the property ladder? Our Specialist Financial Advisers will search the market to find the best deal for you.
There are two key parts to buying your first home. Saving for your deposit and getting a mortgage. Here we’re just going to look at getting your mortgage – but if you need it, we also have some helpful advice on saving for a house deposit.
To start with the basics, a mortgage is a loan which helps you buy a property. You pay back the loan with interest each month.
The mortgage added to your deposit makes up the total house price. So, if you want to buy a house for £250,000 and you have a £30,000 deposit, you’ll need a £220,000 mortgage.
In that example, your mortgage would form 88% of the purchase price. This is known as the Loan-to-value (LTV) ratio.
Usually, the lower the LTV ratio, the better interest rate you will get on your mortgage. That means you’ll pay less back to your lender over the course of the mortgage term.
Due to the COVID-19 pandemic, it can be hard to find 90-95% LTV mortgages at the moment. You’ll usually need at least a 10% deposit. However, the government has introduced a new 95% mortgage scheme to encourage banks to start doing them again. Help to Buy mortgages are also an option for those with a low deposit.
If you’ve never applied for a mortgage before, it can be a bit daunting. But if you’re well prepared, there’s no reason to be nervous.
The key thing to understand is that the lender will be looking for affordability. They’ll only offer you a loan if they think you can pay it back.
To assess affordability, lenders will look at the following things:
The amount you earn and the stability of your salary is crucial. Lenders need to see that you have enough regular income to cover the mortgage payments, after all your expenses.
As a rough guide, you’ll usually be able to borrow around 4 or 4.5 times your salary (or combined salary, if you’re applying as a couple). This does vary though.
You’ll need to prove your earnings through payslips and P60s if you’re in full time employment. If you’re applying for a mortgage as a self-employed person, you’ll need to show at least two or three years of consecutive tax returns.
To calculate your ability to pay a mortgage back, lenders will also look at your regular expenses. Things like food and energy bills are to be expected, but if you’re paying off a student loan, car finance or other debts, this could have more of an impact on your application.
If you’re paying a lot in rent, don’t worry. The lender is only interested in expenses that will continue alongside your mortgage.
With that in mind though, you might need to be prepared to cut back on any non-essential outgoings - like expensive gym memberships or takeaway habits.
Everybody has a credit record, which is used by agencies to give you a credit rating (or credit score). The healthier your score, the more likely you are to be approved for a mortgage.
You can check your rating for free at any time through the main credit score agencies, like Equifax or Experian.
Your credit score is based on various factors, including your debt levels and your bill repayment history. If you have a history of missed payments for example, it’s likely to mean a lower credit score.
Even if you think your credit score should be healthy, it’s worth checking before you make your mortgage application. If you’ve house shared at any point, your housemates’ payment history could have affected your own score – and you might need to work on improving it.
Credit scores take time to build, but there are things you can do that may help to boost your rating:
Assuming the lender is happy to loan you the money, you’ll usually have a few options in terms of your actual mortgage product. You should be able to choose:
All these factors have an impact on your monthly payments, and therefore on the total cost of the mortgage over the term.
Most mortgages last for around 25 years, but you may be able to extend this. Giving yourself longer to pay back the loan means lower monthly payments - but because of interest, you will be paying back more overall.
If you can afford higher monthly payments, you could reduce the term to get your mortgage paid off quicker.
Most mortgage lenders offer you the chance to fix your interest rate for up to 5 years, and sometimes longer.
The longer you choose to fix for, the higher interest rate you’ll pay – but you do get the stability of knowing exactly what your payments will be. Fix for just 1 or 2 years, and you’ll get a lower rate of interest – but once the term expires, you’ll either need to remortgage or you’ll be on your lenders standard variable rate (SVR).
The SVR is usually significantly higher than the fixed rate and can go up or down at any time.
There’s lots to consider when it comes to choosing your fixed term. Speak to a Specialist Financial Adviser from Wesleyan Financial Services who can help you make the right call.
On some mortgages, you get the option to pay an up-front product fee in return for access to a better rate.
Depending on how much you’re borrowing and the length of your fixed term, the product fee may or may not be worth paying. At Wesleyan Financial Services, we can help you work that out.
There are lots of other fees to think about when buying a house too.
Of course, there’s more to buying a house than arranging a mortgage. If you’re not sure what happens (and when) in the home-buying process, here’s a very brief overview of the steps involved.
And just like that, you’ve bought your first home.
Remember, at various stages of the process, there could be additional costs to pay. You can find out about the extra costs of buying a house here.
Buying your first home is exciting and scary in equal measure. But at Wesleyan Financial Services, we can help take the stress out of it by finding the right mortgage for you.
Our Specialist Financial Advisers can provide impartial mortgage advice, listen to your needs and search the market to find your deal. Wesleyan Financial Services offers fee-free mortgage advice. We will be paid a fee by the mortgage lender upon completion of the loan.