First-time buyer mortgages

Historically, lenders often determined mortgage borrowing capacity by applying a simple multiple of an individual's salary, such as 3 times or 4 times their annual income. Nowadays, this can work as an estimate when you’re in the early stages of house hunting, in reality, lenders will look at a number of aspects to determine how much you can afford to borrow.

Lenders will assess how much you can borrow based on your personal circumstances, like how much you’ll be able to repay each month and how you’ve handled credit in the past; this helps them to understand how much of a risk lending to you will pose to them. When making a decision about how much they are willing to lend you, a mortgage lender will look at things like:

• Your monthly income

• Your monthly outgoings (including how your outgoings will increase when you move into your new property; for example, if you purchase a leasehold property, you may need to pay a service charge or ground rent).

• Your age and how long you can spread the mortgage over

• Your employment status and the type of job you have

• Your credit history

When determining how much you can afford to borrow, a mortgage lender will also need to consider whether you’ll still be able to afford your monthly mortgage payments if interest rates were to rise in the future.

It’s a good idea to use a first-time buyer mortgage calculator to get a clearer picture of how much you’re likely to be able to borrow.

Buying your first home is exciting and stressful all at the same time, but being a first-time buyer does come with its perks, which is why the UK government and lenders have a strict definition of who qualifies as a first-time buyer. 

HMRC defines a first-time buyer as “an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.”

But what does this mean? Having never owned an interest in a residential property simply means that you’ve never owned a house, flat or other residential property. This includes owning part of a property. For example, if you previously owned 50% of a property with a partner or any share of a property as part of a group. If you’re applying for a joint mortgage, you’ll both need to be first-time buyers to benefit from any first-time buyer initiatives.

Some lenders will have a more relaxed definition of first-time buyers to qualify for their first-time mortgage products, such as not having owned a property for a certain period of time. Remember, though, qualifying for a first-time buyer mortgage product won’t mean that you qualify as a first-time buyer for things like stamp duty if you have previously owned a property. 

The majority of mortgage lenders will require you to have at least a 5% deposit for a first-time buyer mortgage. This means you’ll need to have at least 5% of the price of the property you’re looking to purchase saved before you apply for a mortgage. For instance, if you’re looking to buy a £250,000 property, you’ll need to have at least £12,500 saved as a deposit. 

When looking to buy your first home, the cost of the house and saving for your deposit aren’t the only costs you need to consider. Buying a house comes with a range of different fees. These can include:

• Solicitors fees

• Mortgage broker fees

• Survey costs

• Stamp duty

• Valuation fees

• Arrangement & booking fees

You’ll need to budget for these costs when looking to buy your first home, as well as any costs associated with moving, such as van hire or a removal company.

In 2017, the government introduced a stamp duty land tax (SDLT) relief for first-time buyers. If the property you’re purchasing is less than £425,000, you’ll pay no stamp duty. 

If you’re a first-time buyer in the UK purchasing a property for over £625,000, you can’t claim the relief. If your property price is between £425,001 and £625,000, you’ll pay 5% in SDLT on the amount over £425,001.

Let’s look at an example; let's say you’re a first-time home buyer purchasing a property for £550,000. You won’t pay stamp duty on the first £425,000, but you’ll need to pay 5% SDLT on the remaining £125,000, which would be £6,250.

Generally speaking, the first-time buyer mortgage rates on offer will be the same as those on standard mortgages. However, it’s common for first-time buyers to receive added incentives or are able to benefit from various first-time buyer schemes designed to help them get onto the property ladder. 

There may be lenders offering 100% mortgages, however, these are likely to have additional conditions to minimise the risk to the lender. Springboard mortgages and guarantor mortgages are the most common types of no-deposit mortgages.

Mortgages with longer terms come with their advantages, such as lower monthly payments. However, longer mortgage terms do also come with disadvantages, such as taking longer to be mortgage free as well as being overall more expensive than shorter-term mortgages. 

Whether or not a longer-term mortgage is right for you will depend on your circumstances, and you’ll need to weigh up the pros and cons. 

LTV stands for loan-to-value ratio, and it’s the ratio of how much you’ve borrowed through your mortgage to the value of your property. For example, if you bought a home worth £300,000 with a deposit of £30,000 and a mortgage of £270,000, your LTV would be 90%. As you repay your mortgage, or the value of your property increases, your LTV will decrease.