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For first time buyers, the process of getting on the property ladder can be overwhelming. From finding the right property to securing a mortgage and dealing with solicitors, there is a lot to consider! While friends and family can offer some support and guidance, it's important to get expert advice to ensure you're getting the best deal for your circumstances and ensure the process runs as smoothly as possible.
A mortgage broker will be able to search the market for the best mortgage deals and guide you through the application process, helping to make it as stress-free as possible. They will also be able to offer advice on things like how much you can afford to borrow and what kind of deposit you'll need, as well as answer any questions you have about the process.
At Echo Finance, our team of mortgage advisers have years of experience helping first-time buyers through the process of securing a mortgage. We'll take the time to understand your circumstances and find the best mortgage deal for you, whether you're a first-time buyer with a small deposit or you're looking to buy your first home with help from the Bank of Mum and Dad.
We know that every customer is different, so we'll always offer impartial and tailored advice to help you make the right decision for your needs.
If you're ready to start your journey onto the property ladder, get in touch with our team. We can help make your dream of owning your own home a reality.
Which mortgage is best for first-time buyers?
One of the biggest decisions you'll make as a first-time buyer is choosing the right mortgage. With so many different products on the market, it can be tricky to know where to start.
There is no one size fits all answer to this question, as the best mortgage for first-time buyers will depend on your individual circumstances. However, there are a few things that all first-time buyers should consider when looking for a mortgage:
The amount you can afford to borrow - This will be based on your income, outgoings, and the deposit you have saved.
The type of first time buyer mortgage you want - When choosing a mortgage, you'll need to decide whether you want a fixed or variable rate. A fixed-rate mortgage offers security and peace of mind as the interest rate won't change for the duration of the mortgage. This can be a good option if you want to be sure of your monthly repayments.
A variable rate mortgage, on the other hand, is more flexible as the interest rate can go up or down depending on the market conditions. This could be a good option if you think interest rates are likely to drop in the future.
Most residential mortgages are repayment mortgages, which means you'll need to repay the full amount borrowed plus interest over the mortgage term. However, there are also interest-only mortgages available, where you only need to repay the interest on the loan each month. The full amount borrowed will need to be repaid at the end of the mortgage term.
The length of the mortgage term - The shorter the term, the higher your monthly payments will be but you will pay off your debt quicker. The longer the term, the lower your monthly payments will be but you will be paying off your debt for longer.
The interest rate - This is the amount of interest you will be charged on your first-time buyer mortgage. The lower the interest rate, the cheaper your monthly payments will be.
What is a mortgage in principle?
A mortgage in principle is an agreement from a lender that they could give you a mortgage for a certain amount, based on a number of factors including your income and credit history. It’s important to remember that a mortgage in principle is not the same as a formal offer of a mortgage, and is not a guarantee that you will be accepted for a mortgage.
A mortgage in principle can be useful when you’re looking to buy a property as it gives you an indication of how much you could borrow and can make the house-hunting process easier as agents and sellers will know that you’re serious about buying.
How much deposit do first-time buyers need for a mortgage?
Before looking at properties, you'll need to save for a deposit.
Generally, you need to try to save at least 5% to 20% of the cost of the home you would like.
For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500 (5%).
Saving more than 5% will give you access to a wider range of cheaper mortgages available on the market.
Saving for a deposit can be a challenge, but there are a few things you can do to make it easier:
Start saving as soon as possible - The sooner you start saving, the more time you will have to reach your goal.
Set up a budget - Work out how much money you have coming in each month and how much you need to spend on your essential outgoings. This will help you to work out how much you can afford to put towards savings each month.
Save regularly - Try to make regular payments into your savings account, even if it’s just a small amount. This will help you to build up your savings over time.
Make use of tax-efficient accounts - If you’re a UK taxpayer, you can make use of tax-efficient accounts such as ISAs and Lifetime ISAs to boost your savings.
Can I get a mortgage with a 5% deposit?
Yes, it is possible to get a mortgage with a 5% deposit, however, you may find you're not offered the most competitive interest rates or terms if you only have a small deposit. The larger your deposit, the lower the Loan to Value (LTV) ratio of your mortgage will be, and the more attractive you will be to lenders.
The LTV ratio is the amount you borrow as a percentage of the value of the property. For example, if you have a deposit of £7,500 and you're buying a property worth £150,000, your LTV ratio would be 5% (£7,500 divided by £150,000).
If you have a small deposit, you may find that the only first time buyer mortgages available to you are ones with higher interest rates or less favourable terms. You may also be restricted in terms of which properties you can buy, as some lenders may be hesitant to lend on properties that could reduce in value and leave you in negative equity.
Government Schemes for First Time Buyers
The biggest obstacle for first-time buyers is saving for a deposit. The average deposit for first-time buyer mortgages is now over £50,000.
There are a number of government schemes that can help you to save for a deposit. These include:
Lifetime ISA
With a Lifetime ISA, you can save up to £4,000 per year and the government will add an extra 25% on top (up to a maximum of £1,000 per year).
Help to Buy Equity Loan (ending to new applicants on 31st October 2022)
The government will lend you up to 20% of the cost of your new-build home, so you’ll only need a 5% deposit.
Help to Buy: Mortgage guarantee scheme
The mortgage guarantee scheme offers lenders the option to purchase a guarantee on mortgages where a borrower has a deposit of only 5%.
Shared Ownership scheme
The Shared Ownership scheme allows you to buy a share of your home (between 25% and 75%) and pay rent on the remaining share. You can then buy further shares in your home as and when you can afford to do so.
Right to Buy scheme
The Right to Buy scheme allows you to buy your council house at a discount.
How much can I borrow for a first-time mortgage?
The amount you can borrow for a mortgage will depend on your income, outgoings, and the deposit you have saved.
Generally, you will be able to borrow between 3 to 5 times your annual income. For example, if you earn £30,000 per year, you could potentially borrow between £90,000 and £150,000. If you're applying for a joint mortgage, both applicants' incomes will be taken into account.
Lenders will also take your monthly outgoings into account to ensure that you can afford the repayments on your mortgage. They will usually ask for proof of your income and outgoings in the form of payslips, bank statements, and utility bills.
If you're applying as a joint mortgage, each applicant will need to pass the lender's affordability and credit checks. If one applicant has a poor credit history, this could affect your chances of being accepted for a mortgage.
To get an idea of how much you could borrow, you can use a mortgage calculator. This will give you an estimate of how much you could borrow based on your income and outgoings.
Costs of buying a home
Aside from your deposit and monthly mortgage payments, there are others costs when buying a home. These include:
Stamp Duty - Stamp duty is a tax that is payable on properties over a certain price. For first-time buyers, stamp duty is only payable on properties over £300,000.
Conveyancing Fees - Conveyancing fees are the legal fees associated with buying a property.
Survey Fee - A survey is an inspection of the property that is carried out by a professional. This is to assess the condition of the property and to identify any potential problems.
Valuation Fee - A valuation is an estimation of the value of the property. Lenders will require a valuation to be carried out before they will offer a mortgage.
Mortgage Arrangement Fee - Some lenders will charge a fee to arrange your mortgage.
Removal costs - The cost of hiring a removal company to move your belongings to your new home can vary depending on the value of belongings you have. It is worth getting quotes from a few different companies before deciding who to use.
Buildings insurance - Buildings insurance is a policy that covers the cost of repairing or rebuilding your home if it is damaged by fire, flood, or other disasters. Buildings insurance is typically required by lenders as a condition of your mortgage.
Contents insurance - Contents insurance is a policy that covers the cost of replacing your belongings if they are lost, stolen, or damaged. This is not typically required by lenders but is something you may want to consider.
Initial furnishing and decorating costs - Once you move into your new home, you will need to buy furniture and decorate it to your taste. This can be a significant cost depending on the size of your home and your personal style.
Now that you know how much you can borrow and the costs involved in buying a property, you can start looking for your first home!
Make sure you can afford your monthly payments
As a first-time home buyer, the most important thing to bear in mind is whether you can really afford to take this step. It’s not just about being able to afford the monthly mortgage repayments – you need to think about all the other associated costs too (as listed above).
Mortgage lenders check that you can afford the repayments by looking at your income and outgoings. They will also 'stress test' your ability to afford the repayments in the future should interest rates rise or your circumstances change, such as if you start a family or lose your job.
It’s important to be honest with yourself and make sure you can really afford the mortgage repayments, both now and in the future.
Stamp duty for first-time buyers
Stamp duty is a buildings transaction tax that is payable on properties over a certain price. For first-time buyers, stamp duty is only payable on properties over £300,000. For properties of between £300,000 and £500,000, first-time buyers will pay stamp duty at a rate of 5% on the value in excess of £300,000. For properties over £500,000, there is no Stamp Duty relief for first-time buyers.
For example, if you bought a property for £350,000 as a first-time buyer, your stamp duty bill would be:
5% of (£350,000 - £300,000) = £2,500
If you are buying with someone who is not a first-time buyer, then the threshold is £125,000 and stamp duty is payable on properties over that price at the standard rates.
Speak to an expert
If you’re a first-time buyer, the process of buying a property can be daunting. From mortgage rates to your credit rating, there’s a lot to think about. That’s why it’s always worth speaking to an expert for advice.
At Echo Finance, we compare mortgages from over 90 lenders to find the perfect deal for you. We have access to first time buyer mortgage deals not available on the high street, and our brokers will guide you through the process from start to finish.
Get in touch with us today to see how we can help you find your first home!
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
