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The Essential Guide to First Time Buyer Mortgages

Taking the first step towards home ownership can feel daunting, but for first-time buyers, it's the start of an exciting journey towards creating a place to call their own.

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It's time to fly the nest

We are here to help you get your first steps onto the property ladder, every step of the way. The mortgage process can be daunting for first time buyers with big decisions like; which type of deal should you go for and how big a mortgage will you be able to take out.

These aren’t the only issues first time buyers have to worry about. Steep property prices in many areas of the country mean some only manage to save a small deposit, restricting their mortgage options.

Therefore, first-time buyers should work with a broker they can trust. At Hello Mortgage we will take the time to fully understand your affordability and needs to ensure we find a mortgage that works for you.

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First time buyers - A basic overview

What is a mortgage?

It's a big loan used to purchase a property. The loan is secured against the property and tends to be offered by lenders such as banks or building societies. Challenger banks and specialist lenders also operate in this sector, with subprime lenders as an example.

You must have a deposit

A deposit is a large upfront payment, payable on completion of your purchase, and is held by your solicitor. Typically a lender will ask for a 5% deposit but this can be as high as 15% for bad credit mortgages. The larger the deposit the smaller the loan. The deposit is based on the purchase price, so if you want a £200,000 home and the loan to term (LTV) is 95% you would need to have cash of £10,000 being 5%.

The loan is long term

The number of years you choose to pay your mortgage over is known as the "term". Most lenders offer mortgage terms from 5 to 40 years, but this depends on your age, type of work, and expected retirement age.

Types of repayments

You can take a mortgage that’s interest only or capital and interest. With an interest-only mortgage, you pay the interest only monthly and make NO contribution to the loan capital. This means you only ever pay the interest and must pay the total loan upfront. With a repayment mortgage, or interest and capital, you pay off the loan and interest monthly. At the end of the repayment term, you would have paid the loan and interest in full and have nothing more to pay.

A repayment mortgage does cost more monthly than an interest-only one but lenders will expect you to have a repayment vehicle with an interest-only mortgage. Depending on the investment this could make your payments the same as or more than a repayment mortgage.

Types of rates

Fixed or variable? A fixed-rate mortgage guarantees your mortgage payments over the product term (a 3-year fixed deal for example). Regardless of what happens with the Bank of England's base rate, your mortgage repayments are fixed for the term. With a variable-rate mortgage, your repayments can be less predictable. There are many variations of a variable rate mortgage such as capped, tracker, cap, and collar, it is worth discussing the risks with your Mortgage Broker.

You are a first time buyer if:

  1. Never owned a UK residential property.
  2. Not having a share of ownership in another property (For example Commercial property with no living space attached to it)

You are not a first time buyer if:

  1. Have owned a share of another property in the past. This could be with your parent, spouse, or partner as joint ownership
  2. Are purchasing an additional/extra home as a second residence
  3. Inherited a property

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What type of mortgage is best for first time buyers?

For many first-time buyers, there is no one mortgage solution that fits all circumstances. The best option for a first time buyer may vary depending on their personal requirements and budget.

The most important thing to consider when looking for a mortgage as a first-time buyer is to find one with suitable features, such as:

  1. Fixed-rate mortgages
    Fixed-rate mortgages guarantee your monthly payments for a set period of time, usually up to five years. This gives you the security of knowing exactly how much you will pay each month during the fixed period. Once the fixed period ends, it may revert to the lender's standard variable rate.
  2. Tracker Mortgages
    A tracker mortgage follows the Bank of England base rate and is a type of variable-rate mortgage. It tracks the base rate plus a certain percentage above, so when the base rate goes up or down your payments will increase or decrease accordingly.
  3. Discounted Rate Mortgages
    Discounted rate mortgages offer an initial discount on the lender's mortgage rate. This means that for a set period of time your monthly payments are lower than the standard variable rate, but it will go back to this once the discounted period ends.
  4. Capped Mortgages
    Capped mortgages guarantee your payments will never go beyond a certain amount during an agreed period of time, usually two or five years. This means that if interest rates go up, your payments will not be affected more than the agreed amount.
  5. Offset Mortgages
    An offset mortgage links your savings account to your current mortgage. This means that any money you have in savings can be used to reduce your overall mortgage borrowing and makes it easier for you to pay off your mortgage faster.
  6. Standard Variable Rate Mortgages
    Standard variable rate mortgages, or SVRs, are the most common type of mortgage and will usually revert to a lender's standard interest rate when a fixed-rate or tracker deal ends. This means that your payments may increase as the bank’s base rate changes.

It is important for first-time buyers to shop around and compare different types of mortgages before making a decision.

It is also beneficial to speak with one of our advisors who can help guide you through the process and provide advice tailored to your individual needs.  With the right advice, you can find a mortgage that fits your budget and gives

How much can I borrow as a first-time buyer?

The amount you can borrow will depend on a variety of factors, including your credit rating and income, as well as the type of mortgage you wish to take out. Generally speaking, first-time buyers can typically borrow between 3.5 and 5 times their annual salary or joint combined salary when taking out a mortgage, depending on their credit score and lenders' criteria.

It is important to bear in mind that this amount may differ depending on your personal circumstances and the type of mortgage you take out. It is recommended to speak with one of our advisors who can provide tailored advice for first-time buyers in order to find the right mortgage solution for their needs.

Freehold or leasehold?

There are three ways to own a property, however, we are Mortgage Brokers and not Solicitors.  We'd always recommend you speak with your conveyancer if you have any property ownership questions.

  1. Freehold
    You own the land and everything on it.
  2. Leasehold
    You own the property but not the land it sits on.  You lease the land from a freeholder and pay them ground rent.  Lenders don't tend to offer mortgages on leases with 85 years or less left on them.
  3. Share of freehold
    Much more common within a block of flats. You will be the leaseholder but will be part of a group of leaseholders who control the freehold.

What happens if I cannot pay my mortgage?

At Hello Mortgage we will always talk to you about protection.  This isn't a sales tack-tick but an integral part of our advice journey to protect you, your family and your home.

If you are unable to pay your mortgage payments due to an accident, sickness, unemployment or death of the main breadwinner the lender can repossess your property.

If you are struggling to pay your mortgage or any other loan secured against your property you MUST speak to the lender in the first instance.

The Benefits of Working with a Mortgage Broker

Delving into the world of mortgages can be an overwhelming experience, especially if you're a first-time homebuyer. This is where a mortgage broker can come to your rescue, helping you navigate the complexities of the mortgage process, save time, and potentially save you money as well. Acting as a liaison between you and the mortgage lenders, these professionals use their in-depth industry knowledge and connections to find the most suitable deal for your needs. As they have access to a wide range of lenders and products, they can provide you with more options than a single bank would, increasing the chances of securing a favourable mortgage rate. Additionally, working with a mortgage broker can significantly alleviate the administrative burden; they'll guide you through the application, handle necessary documentation and manage communications on your behalf. In essence, they're your personal mortgage concierge, supporting you throughout this vital financial decision, ensuring it is tailored to your unique circumstances, and simplifying the entire process.

Why should you use Hello Mortgage as your mortgage broker?

If you are looking to secure the best mortgage deal, Hello Mortgage is the go-to broker for all your needs. With their wealth of experience and knowledge, they cover the entire market, ensuring they find the most suitable mortgage product for you. As a client, you can breathe easy knowing that they are directly authorised by the Financial Conduct Authority (FCA). Furthermore, Hello Mortgage is dedicated to offering you top-notch service by providing free initial advice, granting you access to intermediary-only mortgage deals, as well as customising weekend and out-of-hours appointments to fit your schedule. Their certified advisers, with a minimum qualification of CeMAP III and CeRER, make sure that you fully understand the process and receive the best possible guidance. And for those in need of a conveyancing firm, Hello Mortgage partners with an exclusive discounted firm, saving you even more money and stress. Make the right choice by choosing Hello Mortgage as your broker, and leave your mortgage concerns to the experts.