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By The Next Step

Your questions answered…first-time buyer mortgages

4 min
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For those of you graduating this year, firstly, congratulations! And secondly, you may be starting to plan the very exciting step of buying your first home.

Here at The Next Step, we thought we would share answers to some of the most frequently asked questions about first-time buyer mortgages to help you on your way.

Q: Who qualifies for a first-time buyer mortgage?

A: You’ll be classified as a first-time buyer if you’re purchasing your first residential property. This also applies to couples where both partners have never previously bought a home. If you’ve owned a home before (either in the UK or abroad), you will not qualify for first-time buyer status.

Q: How do first-time buyer mortgages work?

A: Most first-time buyer mortgages are repayment loans. With a repayment loan, your monthly payments are used to pay back the money borrowed and the interest added to the loan, until you eventually own your home outright. You’ll usually be offered a fixed or variable rate mortgage.

A fixed-rate mortgage will keep your interest rate and monthly mortgage repayments set at a rate for two, three or five years – although in some cases, you can fix it for as long as 10 years.

A variable rate mortgage doesn’t have a fixed interest rate. Instead, interest payments will be adjusted at a level above a specific benchmark or reference rate. Variable rate deals typically fall into three main categories: standard variable rates, tracker rates and discounted rates.

Q: How much deposit do you need for a first-time buyer mortgage?

A: While it’s possible to buy a property with a 5% deposit in some cases, most mortgage lenders require a down payment of at least 10% of the property purchase price. As of March 2023, the average house price in the UK was £285,000. This means a 10% deposit would be £28,500.

The size of your deposit will determine how much you need to borrow for your mortgage. The more money you have saved, the less you’ll need to borrow from the bank. A higher deposit will also reduce the loan-to-value (LTV) rate, which typically means you’ll get a better deal on your mortgage.

Q: How long does a first-time buyer mortgage application take?

A: It typically takes around three months for a mortgage application to be completed.

Usually, the steps include finding a mortgage deal after speaking to a mortgage adviser, getting an agreement in principle, awaiting valuation of your property from your mortgage provider and finally, your solicitor authorising the completion of the mortgage on your home.

Q: Are first-time buyer mortgages more expensive? 

A: Not necessarily. The rate you pay will largely depend on how much deposit you have, along with your credit history. Generally speaking, the bigger your deposit, the lower your interest rates will be.

Q: Can first-time buyers get an interest-only mortgage?

A: There is nothing to officially rule out a first-time buyer getting an interest-only mortgage (where only the interest is paid off monthly and the outstanding balance of the loan must be paid back at the end of the mortgage term).

However, given the need for a high deposit, certain income requirements and a viable repayment plan, most first-time buyers would struggle to meet the lending criteria required by most providers.

Q: Can first-time buyers get a buy-to-let mortgage?

A: A buy-to-let mortgage is a loan specifically designed for people who want to buy a property and rent it out. It is possible to secure a buy-to-let mortgage as a first-time buyer, but your options may be limited. You’ll typically need a much larger deposit, and interest rates are likely to be higher.

As a first-time buyer, you’ll also have no previous experience or mortgage repayment history to provide a lender with the evidence they need to show that you will be able to meet the obligations of a buy-to-let loan. As a result, lenders may see you as too high risk and reject your application. Others may accept, but you’re unlikely to get a very good deal.

Please note that most buy-to-let mortgages are not regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on your mortgage.

Want to find out more about stepping onto the property ladder? Check out our guide to buying your first home on the Wesleyan website.

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