You've spent several years saving up for a deposit and probably even started house hunting. The next step is to see how much you can borrow. Each mortgage lender has its own lending criteria and affordability calculations which is why it's often beneficial to seek the advice of a mortgage broker, especially if you've never applied for a mortgage before.
In this article
- What is a mortgage?
- How do first time buyer mortgages work?
- What documents do I need for a mortgage?
- How much deposit do I need for a mortgage?
- How does the Help to Buy ISA work?
- How much can I borrow?
- How long can I take a mortgage out for?
- What fees will I need to pay?
- How much stamp duty do first time buyers pay?
- Should I write a will?
What is a mortgage?
A mortgage is a loan offered by a bank or financial institution that allows you to buy a property. The mortgage is secured against your property and is repaid on average, over 25 years. With your property as security, mortgage lenders are usually able to offer you lower rates of interest than with other types of loans.
How do first time buyer mortgages work?
First time buyers are usually expected to put down a minimum 5% deposit although some lenders have schemes where a 100% mortgage may be considered. In order to be considered a first time buyer, one or more applicants must never have owned a property before and all applicants need to be over 18 to apply for a mortgage.
What documents do I need for a mortgage?
Requirements vary lender to lender but typically, first time buyers will be asked to provide:
- ID e.g. passport or driving licence
- Address verification documents e.g. utility bills
- Bank statements
- Rental history if you're currently renting
- Mortgage valuation. The mortgage valuation is carried out by a lender appointed surveyor
- Gifted deposit letter if some or all of the deposit has been gifted by a family member.
How much deposit do I need for a mortgage?
Most lenders insist on at least 5% deposit which on a £200,000 house equates to £10,000. Lenders will calculate the loan to value (or LTV) based on your deposit and the value of the property you are looking to buy and is expressed as a percentage of the property's value. Each lender's criteria will dictate the maximum loan to value they will allow and your individual circumstances may exclude you from some lenders that offer higher LTV mortgages.
Government led initiatives including the Help to Buy ISA can also help to boost your savings pot for a deposit.
How does the Help to Buy ISA work?
If you're saving to buy your first home, the Government backed Help to Buy ISA can boost your savings by 25% up to a maximum of £3,000. In order to realise the full bonus, you will need to have saved £12,000 with a maximum monthly allowance of £200.
How much can I borrow?
Lenders take a number of factors into consideration when calculating how much you can borrow. Your income, outgoings, credit commitments and number of financial dependents can all impact affordability and the amount a lender is willing to lend.
First time buyers also need to consider ongoing household expenditure including council tax, utility bills and insurances that they may not be used to accounting for which will also be taken into consideration during affordability assessments.
How long can I take a mortgage out for?
Mortgages are typically taken out for 25 years but can be shorter or longer. Some lenders will consider a term of up to 40 years but this will depend on your age at time of application and whether it's taking you into retirement. A longer term will benefit from reduced monthly repayments whilst a shorter term will repay the mortgage off quicker and save thousands of pounds in interest.
What fees will I need to pay?
Fees you may incur when buying your first home include:
- Lender arrangement fee
- Valuation fee
- Mortgage broker fee
- Completion fee
- Stamp duty land tax (SDLT)
- Solicitor and other legal fees.
Other fees may be payable depending on the lender and property you want to buy.
How much stamp duty do first time buyers pay?
For first time buyers in England and Northern Ireland, properties up to £300,000 are exempt from stamp duty entirely. For properties up to £500,000, stamp duty is payable on the amount above the first £300,000. Properties over £500,000 are not eligible for stamp duty relief.
Should I write a will?
Whilst a will is not a legal or lender imposed requirement, it is often a good idea to write a will when you buy your first home. A will is a legally-binding document which outlines how your property, financial assets and personal posessions (known as your 'estate') should be distributed when you die. For specialist advice, we recommend you contact a solicitor or for a basic DIY will, a will writing service such as Beyond.
Need further advice?
Our whole of market mortgage brokers have helped thousands of first time buyers get onto the property ladder. Get in touch for impartial advice today.