Choosing your first-time buyer mortgage and taking the initial steps toward buying your first home is an exciting milestone. At the same time, understanding mortgages and knowing how the process works can also be overwhelming if you don’t have the proper advice.
Our first-time buyer mortgage guide is here to help you navigate the mortgage process with confidence and give you the essential knowledge you need to make informed decisions. We’ll cover what a mortgage is, the different types of mortgages, how much you can borrow, how repayments work, what interest rates are and the steps you can take to get a mortgage.
What is a mortgage?
A mortgage is a specific type of loan designed to help you buy a house, flat or other type of commercial, industrial or agricultural property. When you get a mortgage from a building society, bank or specialist lender, you’ll pay a deposit. Your deposit is a sum of money you pay upfront to secure the property and the mortgage.
Typically, you’ll pay a deposit that equates to 5%, 10% or 20% of the property’s value. However much your deposit is, you’ll borrow the remaining money from the lender. The money you borrow is what’s called your mortgage.
Over a pre-determined time, you’ll repay your mortgage loan in monthly instalments, with interest included. The time it takes you to pay off your mortgage is known as the ‘mortgage term’, which will vary depending on the size of the mortgage you’ve taken out and how much you can afford to repay each month. Historically, mortgage terms tended to be for around 25 years but now they are tailored to your monthly budget so can be longer or shorter than this.
The criteria for first-time buyer mortgage loans are based on:
- How much you can realistically afford to repay each month
- The value of the property you’re buying
- The size of the deposit you can put down
There are various types of mortgages available, and the one you choose will affect how you repay what you’ve borrowed.
What types of mortgages are there?
Mortgages come in different forms, with different terms and different rates. It’s important to know how each one works so you can choose the best first-time buyer mortgage for you.
Let’s explore the main types of mortgages.
Fixed-Rate Mortgages
By choosing a fixed-rate mortgage, your interest rate will stay the same for a set period, typically between 2, 5 and 10 years. With a fixed-rate mortgage, you’ll pay the same each month for the set period. Once the set period ends, you’ll either switch to your lender's Standard Variable Rate (SVR), transfer to another fixed rate with them or remortgage to another lender.
Fixed-rate mortgages can make budgeting easier as you’ll be paying the same toward your mortgage each month, giving you peace of mind against fluctuating interest rates. We’ll explore mortgage rates later in this guide.
Variable-Rate Mortgages
Variable-rate mortgages have interest rates that can go up or down. As the rates of these types of mortgages can change, it can affect how much you pay each month. There are several kinds of variable-rate mortgages:
- Standard Variable Rate (SVR): Your lender will set a rate which they can increase or decrease as and when they choose.
- Tracker Mortgages: These types of mortgages follow a nominated base rate, typically the Bank of England base rate. The interest rate you pay will be a set percentage above or below the rate it tracks. As the base rate goes up and down, so does your mortgage rate. Your lender may offer a tracker deal, which could limit how low the rate can fall.
- Discounted Rate Mortgages: The lender will offer you a discount on their SVR for a set period, typically 2 years. Your payments will still go up and down with the SVR but at a lower rate.
- Capped Rate Mortgages: Lenders will still set a variable rate but will put a cap on how high their rate can go – even if the interest rates rapidly increase. Choosing this type of mortgage deal offers a safety net so your payments don’t exceed a certain level you can’t afford.
Offset Mortgages
An offset mortgage will link your mortgage to a savings account held by the same lender. Rather than earning interest on your savings, the interest is offset against your mortgage, allowing you to reduce the interest you pay each month. Offset mortgages can come with fixed or variable interest rates.
Flexible Mortgages
These types of mortgages can come with slightly higher interest rates but can give you more control over how much you repay each month. Flexible mortgages often allow you to:
- make overpayments to pay off your mortgage faster.
- make underpayments on your loan during months when you want to reduce your outgoings temporarily.
Having a flexible first-time buyer mortgage can help you better manage your finances month-by-month.
Shared Ownership Mortgages
A shared ownership mortgage is a scheme backed by the government to help first-time buyers get onto the property ladder. Often referred to as ‘part rent, part buy’, this type of mortgage allows you to buy a share of the property, typically between 10% and 75%. A housing association, property developer or other provider will own the rest of the property and act as a type of landlord.
You’ll pay a mortgage for the share of the property you own and rent on the portion you don’t. If the property is a flat or leasehold, you may pay a service charge to support the maintenance of the property and communal areas.
As shared ownership mortgages are designed to support first-time buyers, you’ll typically pay a slightly lower deposit.
There are other types of mortgages available, including buy-to-let and let-to-buy. If you’re looking to secure your first home with a first-time buyer mortgage, then you don’t need to worry about these options. However, if you’re interested in learning more about these types of mortgages, click here.
Ultimately, choosing the best first-time buyer mortgage for you will depend on the type of property you’re looking to buy, your financial circumstances and your long-term goals.
How much can you borrow for a mortgage?
Knowing how much you can borrow for your first-time buyer mortgage is a great question to ask yourself. Doing so will give you an idea of the type of property you buy and how much you can realistically afford to pay towards it each month. The truth is there’s no one-size-fits-all answer to the amount you can borrow – it varies for all first-time buyers.
Here are the key factors to consider when working out how much you can borrow for your first-time buyer mortgage:
- Income: Your lender will assess your salary and other forms of income, including pensions, work bonuses, benefits, or child maintenance, to calculate what you can afford to repay each month.
- Outgoings: Lenders will look at your regular expenses, such as:
- Utility bills
- Loans
- Credit card repayments
- Insurance
- Subscription fees
- Other regular monthly outgoings
- Living Situation: If you’re self-employed, on maternity leave, or have an irregular income, lenders may apply stricter checks or ask you to provide more documentation. Don’t worry. This doesn’t mean you won’t secure a mortgage.
- Mortgage Term: The time you choose to repay your mortgage can affect your monthly repayments. In turn, this can affect how much you can borrow.
- Property Value: Lenders will assess the value of the property you’re looking to buy as part of your application.
- Deposit Size: As mentioned, the typical deposit you’ll need to put down will be 5%, 10% or 20% of the property’s value. So, the bigger your deposit, the smaller your mortgage loan will be.
Having a higher deposit will improve your loan-to-value (LTV) ratio, which can boost your chances of securing a lower interest rate on your mortgage. For example, if you provide a deposit of £20,000 for a property valued at £200,000, your LTV will be 90%, and you’ll receive a mortgage of £180,000. Interest rates on 90% LTV mortgages are likely to be lower than 95% LTV mortgages.
To get an idea of how much you can borrow, call us on 0808 169 6680.
How do mortgage repayments work?
A major factor in understanding mortgages is to know how repayments work. Once your lender gives you the go-ahead on your first-time buyer mortgage, you’ll receive a full breakdown of how much you’ll repay each month.
You’ll typically start paying off your mortgage one month after you’ve completed the purchase of the property.
The first mortgage payment is often higher than usual because it includes:
- Interest from the day the lender released the funds until the end of that month.
- Your regular mortgage payment for the following month.
For example, if your funds are released on 18th March, you’ll make your first payment in April. This first payment will include interest from 18th – 31st March, plus your full mortgage payment for April.
Your future repayments will come out of your chosen account each month. As discussed in our previous section, ‘What types of mortgages are there?’, the amount you pay will depend on the type of mortgage you’ve taken out and how long the mortgage term is.
Speak to your lender about which day you’d like to make your monthly mortgage repayments. Most lenders are flexible and will allow you to make the repayments on a date of the month that best suits you. If you ever decide to change this date, your lender will most likely allow you to. Most lenders charge interest daily, so paying earlier in the month would mean you’ll pay less interest in the long run.
Overpayments and Underpayments
Many first-time buyer mortgages give you flexibility in how you repay:
- Overpayments: You can repay your mortgage faster and reduce the interest you pay by making overpayments on your mortgage. You can make an overpayment in a one-off lump sum or by increasing your monthly repayments. Most mortgage products have a limit as to how much you can overpay by and this is usually around 10% of the amount you’ve borrowed.
- Underpayments: You may have the opportunity to underpay on your mortgage if you’ve previously overpaid and built-up credit. This option will also depend on your mortgage agreement and the terms of your lender so it’s important to check this carefully to ensure you don’t inadvertently find yourself in an arrears situation.
Speak to your lender about the terms of making overpayments and underpayments.
What happens if you miss a mortgage payment?
Missing mortgage payments will impact your finances and could affect your ability to get credit in the future. If you repeatedly miss your payments, it may lead to legal action or even repossession of your property. This is why it’s essential to ensure you can afford your mortgage before you commit to anything.
If you're ever struggling to pay your mortgage, speak to your lender as soon as possible. They’ll be able to offer the help and support you need.
What are mortgage rates?
Mortgage rates, also known as interest rates, is how the lender calculates how much they will charge you for borrowing the money for the property. Understanding how these rates work is crucial when choosing a first-time buyer mortgage as it will affect your monthly repayments.
Your mortgage rate is shown as a percentage. For example, if your rate is 3.90%, that’s the amount of interest you’ll be charged each year on the loan.
Mortgage rates vary on the type of mortgage you have. Unless you’re on a fixed-rate mortgage, these rates can go up and down.
There are several factors impacting the mortgage rate you’re offered:
- The amount you borrow: Larger loans can come with higher rates.
- Your deposit size: If you put down a bigger deposit, you’ll typically have access to lower rates. Why? Because you’re borrowing less in relation to the property’s value.
- Your mortgage type: Fixed, tracker or variable rate deals all work differently and offer various rates.
- What your lender offers: Rates vary between building societies and banks depending on factors such as:
- Changes to the Bank of England base rate.
- Special promotions from lenders competing with one another.
- Economic climates, such as property demand and inflation.
- Loan risk – if you put down a smaller deposit or have an irregular income, they may consider a mortgage loan to be a risk. This means they may offer a higher rate.
A Mortgage Adviser will help you understand the best rates available. They’ll be able to guide you through the different mortgage deals and determine how much you can afford to repay without falling into financial difficulty. They’ll also have a detailed conversation with you about your needs and priorities and go on to recommend the most suitable mortgage for you.
Repayment methods
Capital and Interest Repayment
This is where the interest charged is paid monthly along with a small proportion of the amount you’ve borrowed, called repaying the ‘capital’. The amount of capital you repay in addition to the interest charged depends on the overall mortgage term and is set to ensure the mortgage is fully repaid at the end of the term. This is called a Capital and Interest Repayment mortgage.
Interest Only
Some lenders will allow you to repay just the interest on the amount borrowed. This means that you won’t be repaying any of the ‘capital’ you’ve borrowed each month and is called an Interest Only mortgage. For these types of mortgage you will need to ensure you have a plan to repay the capital at the end of the mortgage term. This can be from a savings or investment plan you’ve built up for example.
How do you get a mortgage?
Securing your first-time buyer mortgage is a huge step in the process of buying your first home. We also appreciate that understanding mortgages can feel overwhelming.
That’s why we’ve created an overview to help you navigate the mortgage process.
- Evaluate Your Financial Position
Assess your income, expenses, and savings to determine how much you can realistically afford for monthly repayments. Consider additional costs like legal fees, utility bills and moving expenses. If you can afford to put down a larger deposit, you could receive better mortgage deals.
Lenders will check your credit history, including your income and outgoings to assess your reliability for a mortgage. Ensure your finances are accurate and take steps to reduce your spending on unnecessary outgoings.
- Get a Decision in Principle (DIP)
A DIP, also known as an Agreement in Principle or Mortgage in Principle, will give you an idea of how much you can borrow. This estimate will help show lenders and sellers you're a serious buyer.
- Find Your Property and Make an Offer
Once you have a DIP, you can start house hunting. When you find your ideal property, make an offer through the estate agent or seller. If your offer is accepted, you can submit a mortgage application to the lender.
Here you’ll provide the following financial information:
- Proof of income, such as payslips and utility bills.
- Bank statements.
- Identification documents, such as driver’s license and passport.
- Details of the property you’re looking to buy.
Your lender will assess your application and conduct a valuation of the property to ensure it’s suitable and worth their investment.
- Receive a Mortgage Offer
If your mortgage application is approved, you'll receive a formal offer outlining the mortgage terms. Review the offer carefully and consult with your solicitor or mortgage adviser if needed.
- Exchange Contracts and Complete the Purchase
Once all legal checks and necessary surveys are complete, you'll exchange contracts with the seller and set a completion date. This is the point at which you are legally bound to buy the property and the seller is legally bound to sell the property to you. On completion, the mortgage funds are transferred, and you become the property's owner.
As you look to secure your first-time buyer mortgage, it’s best to seek guidance from qualified mortgage advisers or brokers.
Discover more advice on navigating the mortgage process by reading our blog: 10 First-Time Buyer Tips for Getting on the Property Ladder.
Summarising our first-time buyer mortgage guide
Securing your first-time buyer mortgage can feel complex, but with the right information and support, it becomes a manageable process and an exciting step toward homeownership. By understanding the types of mortgages available, how much you can borrow, and how repayments work, you’ll be better prepared to make informed decisions about finding the best deal for you.
Remember, every first-time buyer’s situation is different. So, take your time, assess your options, and seek professional advice when needed. Understanding mortgages can be challenging, but with the right guidance, the journey you take to buying your first home can be a smooth and confident one.
Explore our Mortgage FAQs page to learn more about mortgages and find the answers to the most commonly asked questions.
Looking for a first-time buyer mortgage?
If you need support finding the best first-time mortgage for you, we can help. As the UK’s Best Specialist Mortgage Provider, with over 160 years of experience, we have the knowledge and expertise to guide you through each stage of the mortgage and home-buying process.
Discover our range of award-winning mortgage products or contact our specialist team to get the advice you need to secure your first-time buyer mortgage.
