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First Time Buyers
Remortgaging can be an effective way of saving significant amounts of money, and this flexibility means you can adjust your expenditure to match your financial situation.
How is the process or the mortgage process different for First Time Buyers?
The process itself isn’t actually any different to any other type of buyer. It’s still the same transaction in principle, the only difference for First Time Buyers is that it’s very new to you.
That’s why you may find it more beneficial to have Ample Mortgages go through the whole process, whereas clients who have bought properties before might not want that level of support.
What is an Agreement in Principle?
An Agreement in Principle is the very first step of the mortgage process. It’s where the lender will indicate how much you can potentially borrow. The lender will search your credit file and assess the property value, your deposit amount, your income details, whether you’re employed or Self-Employed. This helps them to make a decision on whether they will lend the funds or not.
It can sometimes be called a Decision in Principle or a Mortgage Promise, but the names mean the same thing. It’s a preapproval from the lender, which is a really good document to have if you’re property searching. When speaking to estate agents, if you’ve been pre-approved, it shows that you’re a serious buyer because you’ve already got your funds ready to go.
With an Agreement in Principle, and as a First Time Buyer, having no chain, you’re in a really good position to buy the house, from the perspective of a seller.
How much can a First Time Buyer borrow?
Lenders have income multiples that they use, it could be four times your income or up to four and a half times, depending on the scenario. They would also take into account your expenditure, any existing credit commitments,and whether you’ve got any dependents.
Taking that into consideration, they will decide an affordability figure. It’s the same affordability assessment regardless of whether or not you’re a First Time Buyer. The good news is, there is a lender that’s released some enhanced affordability criteria specifically for First Time Buyers and they are offering up to five times your income.
What deposit is needed for a First Time Buyer?
In the current market, the minimum deposit that is required for purchase is 5%. There are about twenty five lenders offering 95% mortgage products at the moment.
As a first time buyer, if you’ve got more than 5% it will release more lender availability to you and more competitive deals. At a 5% deposit, the lowest rate at the moment is 3.95%, so offering anything more than 5% deposit means that interest rate will drop down.
How do I know what my credit score is and how do I improve it?
You can access your credit score and your credit report by registering with one of your credit reference agencies. Experian or Equifax are the most common credit reference agencies that Mortgage Lenders use, so by accessing their reports, Mortgage Brokers can offer a good indication as to what the lender will decide.
By downloading your report from either Experian or Equifax, you can access pretty much the same information as the Mortgage Lender will have. If you’re not already registered with one of those agencies, it will ask you for your card details because there’s a monthly subscription, but more often than not you get a free 30 day trial. It’s possible to download your report and then cancel the subscription if you don’t want to proceed with it.
If you don’t think your score is where it needs to be, there are a few things you can do to help increase it. One of the first things is to ensure you’re registered on the electoral roll at your current address. Build up a credit history, as having little or no credit does actually make it harder for the lenders to assess your profile because they can’t see that you’ve borrowed and repaid money in a reliable way.
If you get a credit card that you use for your food shopping or your fuel costs and repay in full each month and make all of your payments on time, it will inevitably increase your score as well.
What sort of help is available for our First Time Buyers?
There’s a new Mortgage Guarantee Scheme that the government released in April 2021 whereby the government supports the lender in their ability to offer 95% mortgages. So all this means is that lenders funds are protected by the government, the 5% deposit is just a standard mortgage.
Help to Buy Scheme
This is only applicable to new build properties, and depending on where in the country they are, there is a maximum property value. You need a 5% deposit of your own funds and then if you’re in London, you can potentially borrow up to 40% of the property value, outside of London, you can borrow up to 20%, towards your deposit.
You would then get a mortgage on the remaining property value. The loan from the government is not due to be repaid until you’re in year six of the property ownership, and interest is only 1.75%. There’s also a one pound a month management fee as well that is paid in addition to the interest only payments. The loan can be repaid whenever you want to, so you can avoid interest altogether if you have the funds available, or else it must be repaid by the twenty fifth year of ownership.
With regards to the scheme, you repay 20% or 40% of the cost of the property at the time, so if it has risen in value, you will owe more than you borrowed.
THE MORTGAGE PROCESS IN 13 EASY STEPS
When you are happy with the figures, it is recommended that you get what is commonly known as an ‘Approval in Principle’ (AIP) or a ‘Decision in Principle’ (DIP).
This is a ‘pre-approval’ from the lender, based on the information you have provided the broker. The lender will come back after doing an electronic credit search on you (this is generally done the same day) and they will say “Yes’ or “No’ depending on if they are happy and willing to lend you money. The great thing about this is:
- It shouldn’t cost you any money to get to this stage (just make sure your broker doesn’t charge a fee for this) and…
- You are not obligated or committed in any way. All this process does, is gives you the peace of mind that a mortgage is available to you, should you find a home to buy and if you want to go ahead and start a mortgage application.
When you are happy with the figures, it is recommended that you get what is commonly known as an ‘Approval in Principle’ (AIP) or a ‘Decision in Principle’ (DIP).
This is a ‘pre-approval’ from the lender, based on the information you have provided the broker. The lender will come back after doing an electronic credit search on you (this is generally done the same day) and they will say “Yes’ or “No’ depending on if they are happy and willing to lend you money. The great thing about this is:
- It shouldn’t cost you any money to get to this stage (just make sure your broker doesn’t charge a fee for this) and…
- You are not obligated or committed in any way. All this process does, is gives you the peace of mind that a mortgage is available to you, should you find a home to buy and if you want to go ahead and start a mortgage application.
Engage with Estate Agents and find a home within your budget.
Once you have found a house you wish to buy, make an offer to the Estate Agent, update your mortgage broker and wait with fingers crossed to see if your offer is accepted.
Assuming your ‘offer’ is accepted, inform your mortgage broker. Your broker will check to make sure the mortgage that they quoted for you, is still the best value deal for you, based on your circumstances. Due to the fact that some time may have elapsed, there may be a better option available to you as lenders are always withdrawing and offering new mortgage deals on a daily basis.
You will need to instruct a solicitor to deal with the legal work required for the purchase. Your broker will be able to help you find a reputable solicitor to do this work for you and can provide you with competitive quotes. If you are happy with the cost, your broker can instruct the solicitor on your behalf. You can of course do this yourself if you wanted to. The solicitor will send you a questionnaire to complete so they know what work they are being asked to do for you (a decent broker will help with this document if you feel overwhelmed by the questions being asked).
Once your broker has confirmed the best deal for you (90% of cases tend to be with the same lender that you received a ‘pre-approval’ with), then you will need to supply some evidential documents which your broker has requested from you, to accompany the mortgage application. These documents vary from lender to lender, but are likely to include; Proof of Identification / Proof of Address / Latest 3 months’ Bank Statements / Latest 3 months’ Payslips / Proof of Deposit.
The mortgage process will start and this will include a valuation of the property you wish to purchase, along with plenty of communication between the lender and the broker (you will, of course, be updated throughout this process). The entire process usually takes between 2 and 8 weeks to be formally approved for your mortgage and get all the ticks in the right boxes. This is the point at which the lender will produce what is called a ‘Mortgage Offer’.
The Mortgage Offer is a formal document and a copy will be sent to yourself, your mortgage broker and your solicitor, allowing you to progress to the next stage, ahead of preparing for completion. The next stage involves your solicitor doing further work behind the scenes, including such things as ‘searches’ and other enquiries to make sure that you are not buying a house with a planned nuclear reactor being built next door!
After all enquiries have been answered, you can start to agree a moving in date. A discussion between your Estate Agent, yourself and the sellers will take place so you can get to a mutually agreed date. Do let your broker and solicitor know of this planned date as they will still have work to do behind the scenes for you.
Once this planned date is confirmed, your solicitor will discuss with you the ‘Exchange of Contracts’. Before contracts have been exchanged, you or the seller can pull out of the transaction at any time – hence why buying a house is known to be stressful. However, once you have ‘Exchanged Contracts’ you (and the seller) are contractually committed to conclude the buying / selling process.
Once a date for completion is set (your solicitor will set this after discussing it with you), your mortgage company will be informed by the solicitor, so that they can prepare to release the money to the Solicitor, who will in turn, pass these funds to the seller. Your mortgage broker will make sure any insurances are put on risk for you and you can then move into your new home! (assuming you have booked your removals van ?)
WHAT OTHER COSTS / FEES SHOULD I BE CONCERNED ABOUT?
Valuation Fee – This should be shown within the mortgage quote / summary and is payable at the time of the mortgage application. Approximate cost £150- £500 depending on the price of the house and the type of valuation survey chosen.
Lenders Fees – These fees should be shown within the mortgage quote / summary and will range from £0 – £995 (they could be more on some occasions). These fees can either be paid upfront or added to the mortgage loan.
Broker Fee – Some brokers may charge a fee for their service. This fee can be charged upfront, upon ‘Mortgage Offer’ or upon ‘Completion’. This fee will always be shown and made transparent when you first discuss mortgages with a broker and will be shown in the fee section in your mortgage illustration. An acceptable fee for a standard mortgage, in our opinion, ranges from £295 – £695 based on the level of work carried out and the service you receive.
Solicitor Fees – Your solicitor fees will be between £1000 – £1600 based on your location.
Stamp Duty – Stamp Duty is not payable if the purchase price is less than £300,000. If your purchase price is higher than this £300k threshold, the cost will be detailed within the solicitor’s quote – although your broker can provide you with this figure if required. Please note you are only classified as a FTB in the governments eyes, if you have never owned a property, mobile home, house boat or owned a property anywhere in the world.
DO I QUALIFY AS A FIRST-TIME-BUYER?
If you don’t currently own a home, then yes, you could qualify as a first-time-buyer (FTB). Whether you qualify for a ‘first-time-buyer mortgage’ is a different scenario and this all depends on your income, expenditure, the size of your deposit and credit file which has been covered above. Some lenders will classify you as a FTB even if you have previously owned a house although this is lender specific.
DEPOSIT QUESTIONS
How much deposit do I need to buy a house?
In most cases, you will need a down-payment as a first-time-buyer – although there are some lenders offering mortgages for first-time-buyers with no deposit. These types of mortgage will come with lots of terms and conditions as described later in this guide. Another good tip is simply: – the higher the deposit, generally speaking a better deal or rate will be available from the mortgage lender. Lenders will offer rates based on a 5%, 10%, 15%, 20%, 25% and 40% deposit, with the rule of thumb being that the higher the deposit, the more competitive the deal will be.
Can the deposit come from a family member?
100% mortgages (Where you have no deposit) are available for UK first time buyers in certain circumstances, although they do come with a few terms and conditions. To be accepted for this type of deal you would need a family member to have savings or ample equity within their own home, which the mortgage provider could use as security. Lenders will either want this family member to move a set amount of savings to them for security, or they will place a ‘charge’ over the equity in their property.
You would be advised to discuss these options with your mortgage broker, so they can offer you some guidance on the schemes available. They would want to confirm that your parents or other close family members are in a position to assist you with this type of ‘no money down’ mortgage.
Can I get a mortgage without a deposit?
These days it is very common for first time buyer mortgages to include parental help in the form of a deposit or to act as guarantors for mortgage payments. So Yes, the whole deposit or even just part of it, can be provided by a close family member. When a family member does provide a deposit, the lender will want them to provide it to you as a ‘Gift’ and not a ‘Loan’ which is due to be paid back at some point in the future.
SHOULD A FIRST-TIME-BUYER GET THE MORTGAGE FIRST OR FIND A HOUSE FIRST?
Our advice would be to sort out your finances first. This way, you know what you can afford and the costs involved. Once you know these figures, you can search for your first home within a price range that you know is affordable. If you do it the other way round and find your dream house first, then apply for a mortgage, you may find that you can’t afford it or the lender won’t give you the mortgage you need to buy it which will be extremely disappointing.
HOW LONG DOES THE BUYING PROCESS TAKE?
The typical first time buyer mortgage process takes on average 3 – 12 weeks. This time frame is wide because there are many factors at play here. The mortgage for example, could be approved in 24 hours. The mortgage offer could be produced within 2 – 6 weeks. The actual process can then add more days or weeks to this process depending on:
1. Whether or not the solicitor is ‘on the ball’, OR if they encounter any problems/issues along the way which would need to be resolved and/or
2. The seller and the rest of the chain would need to have their ‘ducks lined up in a row’ in regard to their mortgages being sorted and their completion and moving in dates all being agreed upon. If one of these factors breaks down, or someone in the chain pulls out, the process can really drag on.
WHAT IS “THE CHAIN”?
When you buy a house there is often a ‘chain’ of people, all relying on each other for the house buying/selling process to work. This is probably best explained by an example:
- You find your dream house and buy from Mr & Mrs Jones
- Mr & Mrs Jones are moving to a new house and are buying Mr & Mrs Smith’s house
- Mr & Mrs Smith are selling to downsize to the beach and are buying from Granny Smith
- Granny Smith is moving into a nursing home.
So, in the above scenario there is a ‘chain’ of people, all reliant on each other on getting mortgages approved and hoping that no one pulls out, has a better offer, or a change of heart. If someone pulls out of the chain this is referred to as ‘the chain has broken’ – not words or a phrase you want to hear
With first time home buyer new build mortgages, then there is no chain and the process is so much simpler as you are not relying on any third parties.
Some might say that buying a house is one of life’s most stressful processes and it is for the reasons and delays mentioned above, that people might feel or experience this.
The mortgage process itself and being approved by a lender is actually relatively easy and painless.
DO FTB’S HAVE ACCESS TO ANY SCHEMES WHICH CAN HELP WITH THE PURCHASE? E.G. SHARED OWNERSHIP / HELP TO BUY (HTB)
Yes, first-time-buyers can access both Shared Ownership Schemes and Help to Buy (HTB). Both schemes are designed to make house ownership more achievable to first time buyers. We have summarised these schemes here for you.
SHARED OWNERSHIP
A Shared Ownership mortgage is where you own a percentage (%) of the house and pay rent for the share that you don’t own. It allows buyers to get on the property ladder, where they may not have been able to previously, based on affordability or the size of the deposit needed. Most Shared Ownership deals will allow you to buy the remaining share (known as ‘Staircasing’) when time and your personal scenario allows for this.
HELP TO BUY (HTB)
HTB is a government run scheme designed to assist people get on the housing ladder. The most common form of HTB is where you put down a 5% deposit on a new-build home and the government provides a 20% deposit. This allows you to obtain a 75% mortgage deal which are better value deals compared to a 95% mortgage deal.
The ‘equity’ that the government have assisted with, is interest-free for a period of 5 years and thereafter there is an interest payment to be made which needs to be factored in for your future affordability.
CAN SOMEONE ELSE GUARANTEE YOUR MORTGAGE?
Yes, and this is the point of a guarantor. It is in effect someone else guaranteeing to the mortgage company that they will pay the monthly mortgage cost if you were to default or stop paying. However, most mortgage companies insist that the guarantor is a close family member rather than a friend.
WHAT IS A JOINT BORROWER,SOLE PROPRIETOR MORTGAGE?
There are many variations of a guarantor mortgage and a brief overview is provided in this article. Some of the options available are:
- Some mortgage lenders will accept a family member as a guarantor, and will base the mortgage on their income and your future earnings potential.
- Others may use a guarantor for part of the deposit requirement. They may take this deposit as physical cash, savings deposited into a different bank account or a charge on the family member’s property.
- A new style house ownership known as ‘Joint borrower, sole proprietor’ is more common nowadays instead of the traditional ‘guarantor’ mortgage. An example of this is that you buy a house with your Mother / Father – The affordability is based on their earnings (as well as yours), the mortgage is in everyone’s name, but you are the legal and sole owner of the property.
Our advice is to speak to a professional first time buyer mortgage broker to discuss the various options available to you as every bank / lender has different criteria on what they will / will not offer you.
