Understanding First Time Buyer Mortgages

As a first time buyer, you’ll often be quoted a figure of 10% when you ask about deposits, but there are schemes such as the new build first time buyer mortgage that only require a 5% deposit. The truth is, the bigger your deposit, the better the deals you’ll have access to.

That’s because you represent less of a risk to any lender. The more of your property you own outright, the smaller the loan you need. However, you’ll also need to factor in additional costs such as mortgage arrangement fees, Stamp Duty if the property you’re buying costs over £300,000, and solicitors or conveyancer's fees and disbursements.

If saving for a deposit seems to be an impossible task then there is help available. You can take out a Help to Buy Isa or a Lifetime ISA where the Government will top up your savings with a 25% bonus to help you get on the property ladder.

The mortgage products available to you as a first time buyer will depend on your priorities and circumstances.

Most first time buyer mortgages are straight repayment loans, where all your payments go to paying down the debt until you eventually own your home outright. Interest only mortgages aren’t generally offered to first time buyers despite their low up front costs. That’s because you only pay off the interest on the loan, meaning that when the 25 year term ends you’ll still owe the original amount.

When it comes to mortgage types, you’ll generally be offered a fixed rate, variable rate or offset mortgage. A fixed rate mortgage is ideal for first time buyers as you’ll pay the same amount every month for the length of the deal. You will pay penalties if you exit early or overpay but the rates are usually lower than a variable rate deal and you can shop around for a remortgage when the fixed term period is up.

Variable rate deals include tracker mortgages and discounted rate mortgages. While the base rate is low, these mortgages can be economical but your repayments can go up as well as down. You can also choose an offset mortgage where interest on your savings is offset against your mortgage but you’ll need to calculate whether this is better than simply paying down your mortgage.

There are a couple of mortgage options that can help you get on the ladder if you’re struggling to save for a deposit. These are a joint mortgage and a guarantor mortgage.

A joint mortgage involves you buying a property with a friend, family member or partner. The benefits are obvious - you’ll have a larger deposit and your joint incomes may let you look at much larger properties than you could afford alone. You have the option to be joint tenants where you both own an equal share of the property, or tenants in common which means you may own differing amounts.

Talk to your mortgage adviser before taking out a joint mortgage and seek independent legal advice. This gives you the opportunity to agree on the precise kind of financial relationship you want to have and establishes what happens if one or the other of you wishes to sell or rent their share.

A guarantor mortgage, on the other hand, means that a third party - usually a family member - guarantees to cover your mortgage payments if you can’t. Again, this kind of mortgage can be a great way to get help to buy your first home but everyone involved needs to be clear on their legal rights and expectations.

Finding the best first time buyer deals is a snap when you talk to us at The Mortgage Hut. We are ideally positioned to identify the best deal whatever your circumstances because we have access to deals that aren’t available on the high street. If you’d like to talk to one of our highly trained and knowledgeable advisers then why not call The Mortgage Hut today on 02380 980304 or make an enquiry here.