All You Need To Know About First-Time Buyer Mortgages

Securing your first mortgage is one of the biggest financial commitments of your life so it’s important to get it right. There are lots of offers open to first-time buyers but what are the key things you need to know before you apply for your very first mortgage?

Here at VA Mortgages it is our mission to help you find the best mortgage for your personal circumstances. To help you out, we’ve compiled this guide: All you need to know about First-Time Buyer Mortgages.

What is a First-Time Buyer?

A first-time buyer is anyone who has never owned a property before and is now buying their first home.

The definition of a first-time buyer can vary from lender to lender, scheme to scheme so it is always best to check the details before you apply.

First-time buyers are generally an attractive prospect to sellers because they will not need to sell a home before they commit to buying. This can put you in a good position in the race to secure the home of your dreams.

You Will Probably Qualify as a First-Time Buyer If…

  • You have never owned (or part-owned) your own home before, or
  • You have never owned a home in another country, or
  • You have owned a shop or commercial premises but it had no living space attached.

You Will Probably Not Qualify as a First-Time Buyer If…

  • The property you want to buy is being bought for you by a relative who already owns a property and the property will be in their name.
  • You want to buy a house with someone who has already owned a property.
  • You have inherited a property in the past (even if you never lived in it and have now sold it).

Can I be a First-Time Buyer Again?

No, you cannot be a first-time buyer again. If you have ever owned a property then you will be unlikely to qualify for first-time buyer status.

For couples this can be complicated because although one of you may have never owned a property before, if the other one has, then together you will not qualify as first-time buyers.

For the government’s Help to Buy Scheme (see below) if you are married, in a civil partnership, or living together with your partner (and you plan on continuing to do so), you must make a joint application.

All of the applicants must meet the eligibility criteria, meaning that if either of you have owned property before you will not be eligible for the scheme.

Types of First-Time Buyer Mortgage

There are a number of different types of mortgage products and the same can be said for first-time buyer mortgages. The three main types are:

Fixed-Rate Mortgages

A fixed-rate mortgage is when you commit to an interest rate offered by the lender which is then set for a period of time. Fixed rates are usually set for between 2 and 5 years. Fixed-rate mortgages are good for those who like to know exactly how much they are going to pay on their mortgage each month.

Tracker or Variable Rate Mortgages

Tracker mortgages are usually linked to the Bank of England Bank Rate but they can also be pegged to other rates such as LIBOR. This means that if the rate they are tracking goes up or down, so too will your monthly mortgage payments. Trackers currently offer favourable rates but borrowers should be aware that interest rates can go up as well as down. Variable rate mortgages tend to be linked to the lender’s Standard Variable Rate so can go up or down at the lender’s discretion.

Interest-Only Mortgages

An interest-only mortgage means that you will only pay the interest on your mortgage loan each month so you will need to have a demonstrable method to pay off the mortgage at the end of its term.

A good mortgage advisor can search through all the mortgage deals open to first-time buyers and help you to identify the right deal for you.

What Are The Steps to Getting a First-Time Buyer Mortgage?

When first thinking about buying a home you need to work out what you can afford to pay each month on a mortgage, how much you’ll need to save up for a deposit, how long it’ll take you to save your deposit and how much a mortgage lender will realistically let you borrow.

A good mortgage advisor can help you to navigate your way through these sums. Contact us today for a no obligation chat about how much you might be able to borrow.

Once you have established how much you can afford to borrow it is a good idea to secure an Agreement in Principle from a mortgage lender. This basically shows that a lender has looked at your credit score and income and ascertained that provided you keep to the agreed criteria then they will give you a mortgage of the agreed amount.

An Agreement in Principle (also known as a Decision in Principle) is not binding. The lender could withdraw their offer if you cannot provide the information, such as proof of your income, which they require. However, it is useful to have an Agreement in Principle as it makes you more attractive to sellers.

Once you have an Agreement in Principle you can start house hunting and hopefully soon will have an offer accepted on your first home!

After your offer has been accepted you can start the mortgage application process for real. This may be different from your agreement in principle as the amount a lender agreed to loan you and the amount of your accepted offer may be quite different.

Mortgage deals can change from day-to-day so it is worth finding an advisor who can help you look at the whole market and find the best deal for you.

How Much Deposit Do I Need to Save for a First-Time Buyer Mortgage?

Many first-time buyer mortgages require a minimum deposit of 10% of the total amount of the property, so for a £150,000 house the deposit would be £15,000.

However, the new government mortgage guarantee scheme has made it possible to find a mortgage with a 5% deposit (a 95% mortgage).

For lots more on deposits see our blog post ‘Everything you need to know about mortgage deposits’.

What Schemes are Available to Help First-Time Buyers?

Getting a foot on the housing ladder is increasingly difficult and as a result in recent years a number of different schemes have been set up to help first-time buyers secure their first property.

Help to Buy Scheme

The help-to-buy scheme (HTB) is based on an equity loan and can only be used if you are purchasing a new-build property.

For the scheme you must have at least a 5% deposit. You can then get an equity loan from the government for between 5 and 20% (or 40% in London) and take out a mortgage on the rest.

You won’t have to pay interest on the equity loan for the first five years. After that you will have to pay interest of 1.75% on the equity loan (on top of your monthly mortgage payments). Every April after that the interest rate will increase, by adding the Consumer Price Index (CPI) plus 2%.

You can pay off the equity loan at any time with no penalty and must pay it off by the end of the term (usually 25 years).

The requirements or eligibility criteria for the Help to Buy Scheme are quite specific. To qualify you must:

  • Be over 18 years of age
  • Have never owned a property before
  • Be buying a new-build property from a company registered with the scheme
  • Be able to prove you can afford the repayments

The property you’re planning to buy must not have been lived in by anyone before you buy it.

There are also maximum property price limits which vary by region. At time of writing these are:

North East: £186,100

North West: £224,400

Yorkshire and the Humber: £228,100

East Midlands: £261,900

West Midlands: £255,600

East of England: £407,400

London: £600,000

South East: £437,600

South West: £349,000

You can read more on this or to check the regional limits on the website.

The government previously had a Help to Buy ISA scheme but that closed to new accounts in November 2019.

Mortgage Guarantee Scheme

The mortgage guarantee scheme launched in April 2021 and is designed to help make mortgages available for those with only a 5% deposit.

The scheme encourages lenders to offer more 95% mortgages by guaranteeing the portion of the mortgage over 80%. This means that if the homeowner defaults on their loan then the government will compensate the lender.

To qualify you must:

  • Never have owned a property before.
  • Be buying the property to live in (buy-to-lets and second homes are not eligible).
  • Be buying a new or existing home up to the value of £600,000.
  • The mortgage you are applying for needs to be for between 91 and 95% of the value of the property you are buying.

Joint Ownership Schemes

Another way that first-time buyers can be helped to get onto the property ladder is through a joint ownership scheme.

This allows you to buy a share of a property (usually between 25 and 75%) and pay rent on the rest. The rules for joint ownership vary across England, Scotland, Northern Ireland and Wales so do check the details before you apply.

To qualify:

  • Your household must earn £80,000 a year or less (or £90,000 in London).
  • You must be a first-time buyer or if you have previously owned a home you can apply if you can no longer afford to buy a new home.

Can I Use Help to Buy for a Buy-to-Let Property?

No. The property you are intending to buy must be for you to live in yourself and needs to be your only property.

Will I Have to Pay Stamp Duty on a First-Time Buyer Mortgage?

In recent years there have been a number of ‘stamp duty holidays’ for first-time buyers which have meant that first-time buyers have paid either reduced rates or no stamp duty.

However, the rules regularly change so it is a good idea to discuss current stamp duty rules with your mortgage advisor.

The rules on stamp duty (also known as stamp duty land tax (SDLT) or Land and Buildings Transaction Tax (LBTT) in Scotland) also vary in England, Wales and Scotland so always check the rules local to you.

What is a Lifetime ISA for First-Time Buyers?

A Lifetime ISA (LISA) is a special type of savings account which many people use to save up for the deposit on their first house. Anyone aged between 18 and 39 can open a LISA (with as little as £1) and you can save up to £4,000 a year. The government will then give you a 25% bonus on top of what you save.

For example, if you save the maximum £4,000 then the government will give you another £1,000.

If you are using your Lifetime ISA to save for the deposit on your first house then to be eligible:

  • You must have never have owned a property before
  • The property you are buying must be worth £450,000 or less
  • The property should be a home you are going to live in (not a buy-to-let)
  • You need to have had the LISA for at least a year

One of the great things about LISAs is that if you are a couple you can both open one, meaning that you can get twice the benefit of the government top-ups.

Talk to an advisor

Here at VA Mortgages we would be happy to discuss your individual circumstances and help you to find the best first-time buyer mortgage to help you to take your first steps on the property ladder.

Fill out the form below for a no obligation discussion about your circumstances.

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