Mortgage Information for First Time Home Buyers in the UK
Buying a house is one of the most important purchases you will make, and buying a home for the first time will be an even more daunting prospect.
Add to this the vast array of mortgage products available from a wide range of sources, and you are left with a high-stress, confusing decision.
This site is intended to help you get to grips with how you go about searching for the right home, and how you can finance it.
To assist you, this section of the site has been broken down into a step-by-step guide, and should prove to be of great assistance as you decide on the correct choice of property and mortgage.
- A Guide to Property Chain – A broken chain is one of the phrases guaranteed to terrify anyone selling their home. But what is a broken chain? What is a chain in the first place? And how do you go about fixing a broken property chain?
- Buying a House vs Renting – Is purchasing a house the right decision for you?
- Borrowing Capacity – Before looking for a house, you have to understand how much you can spend on it. We begin by helping you work out how much you can afford.
- Searching for a House – We explain how you go about finding the right house, and what factors you should consider when deciding on a property.
- Paying for it! – As an independent mortgage broker, we can compare the range of mortgage products available from high street banks and financial institutions and find the best borrowing option for you.
- 10 Tips for the first time buyer – A few things to consider
- How do interest rates affect mortgage repayments? – As a first-time buyer, knowing as much as possible about interest rates and how they affect your mortgage repayments could help in securing the most competitive deal.
- Interest only or repayment mortgage? – First time buyers should be aware of the two types of repayments they can make on their mortgage.
- First time buyers – mortgage planning – It is essential that there is forward planning to ensure first time buyers can save enough for a deposit and meet mortgage repayments.
- First time buyer shared mortgages – With house prices increasing year on year, first time buyers are turning to shared mortgages to set foot on the property ladder.
- First Time Buyer FAQs – Common queries from first time buyers answered.
Mortgage Types
There are a variety of different mortgage types on the market. The following guides may help first-time buyers to choose the most suitable type of mortgage loan for their purposes. Mortgage types for first-time buyers:
- Fixed-rate mortgages
- Tracker mortgages
- Capped rate mortgages
- Variable rate mortgages
- Discount variable rate mortgages
- Offset mortgages
- Self certification mortgages
- Graduate mortgages
- Getting a mortgage with friends
Mortgage Costs and Expenses
To work out how much mortgage you can afford, please use our mortgage calculator.
As a first-time buyer, it is always essential to bear in mind that a mortgage loan comes with a variety of other costs. These can include mortgage fees, as well as any of the following:
- Stamp Duty
- Legal fees
- Land registry
- Mortgage indemnity guarantee
- Lender’s valuation
- Survey fee
- Buildings insurance
- Removal firm
Please see our PDF of additional first-time buyer extra mortgage costs.
Another important thing to remember when choosing a mortgage loan is the interest rate at which the lender will give you a mortgage. This will vary depending on the types of mortgage you choose. For instance, a fixed-rate mortgage will be set at a certain level of interest for a certain amount of time, whilst a tracker mortgage will go up and down with the Bank of England base interest rate.
First-time buyers often don’t consider having mortgage life insurance, home insurance or mortgage payment protection insurance an essential extra costs. However, insurance does provide peace of mind, and some mortgage lenders will insist that borrowers have certain types of insurance, including:
- Life insurance
- Home insurance
- Mortgage payment protection insurance
Remortgage
When you remortgage, you are switching your mortgage to another deal, and frequently another lender.
Remortgages can be used for various reasons, most people simply switch mortgage because it will work out cheaper for them.
For example, the introductory discounted interest rate may have finished with your current lender; therefore you could get a discount, or a lower APR, with another lender.
Other individuals may use a re-mortgage to consolidate their debts, if they take out their remortgage for a larger amount than owed on the existing mortgage.
If you are looking to replace your existing mortgage for one with lower repayments please fill out our quick enquiry form.
It is possible to remortgage up to 95% of your property. If you have already paid off a large proportion of your mortgage, it may be better for you to consider an Equity Release Plan rather than a re-mortgage.
Buy to Let Mortgages
A buy-to-let mortgage, also known as an investment mortgage, is designed for borrowers who want to buy a property to let out to a third party (e.g. tenants). The amount that the buy to let landlord receives in rent may be over and above the mortgage payments and will help to offset the management and maintenance costs of the property.
Over the past few years, more and more people have taken to investing in buy to let property as a long-term opportunity to make profitable returns, as well as a way of securing finance for their retirement plans.
Within this buy to let mortgage guide, you will find information on:
- Popularity of buy to let mortgages
- Buy to let mortgage criteria
- Future of buy to let
- Buy to let FAQs
- Buy to let mortgage glossary
- Managing a buy to let portfolio
- Landlords insurance (for buy to let landlords)
There are currently plenty of competitive buy to let mortgage deals on the market that are specifically aimed at the buy-to-let sector. These range from special offer buy to let mortgage deals to variable and fixed and rate options.
It is imperative to find the best buy-to-let mortgage rates as this may determine whether you can afford the buy-to-let investment.
UK mortgage lenders will often assess buy-to-let mortgages on the earning potential of the property (i.e. the rental income) rather than affordability. However in more recent times the decision is based on the estimate given by the surveyor as to what the rental might be.
Popularity of Buy to Let Mortgages
In 2006, 10% of all mortgages taken out by UK homeowners (a record £17.5 billion) were buy-to-let mortgages – highlighting growing popularity. In fact, over 152,000 buy-to-let mortgages were issued in the just the first six months of 2006.
The main reasons behind the growing popularity of buy-to-let mortgages include:
- The attraction of having a property as great long-term investment
- Low interest rates – buy to let mortgages offer an attractive alternative investment
- High demand for rental accommodation due to a rise in the overall UK population, high divorce rate, and a growing number of higher education students
- The offering of competitive, specifically-designed, accessible buy to let mortgages by lenders to make life simple for the landlord.
Frequently Asked Questions
Buying a property to let can benefit the private landlord in two ways. Firstly, it can provide a stream of income. Secondly, many Buy to Let landlords purchase property because of the potential for long-term accumulation of capital growth. This section provides guidance about how to take out a successful buy to let mortgage, the pitfalls that may occur and the knowledge needed to avoid them. Click here for more buy-to-let FAQs.
There are 3 main differences in buy to let mortgages:
- Rent Potential – the decision as to whether or not a mortgage will be offered is usually based on the rent you will earn as well as your income. In some cases your income is not ever considered.
- Interest Rate – buy to let mortgages have slightly higher interest rates.
- Larger Deposit – typically a minimum of 20% or 25% of the property’s value is required as a deposit.
Becoming a private landlord should not be seen as an easy way of making easy money. It can be riskier and more complicated. It can also be very time consuming, more than most forms of investment, and there is no guarantee that house prices will continue to rise. That said, having a second property to let to tenants could reap considerable financial rewards over time. Click here to find buy to let mortgage deals.
When buying a second property to let you will need to decide whether your primary objective is income or capital growth. In other words, are you looking to make a profit month on month or are you looking to make a profit through increased equity from the second property as it increases in value over time? The decision may affect the type of property you purchase, and the location.
When you manage a property there are many costs involved in addition to the monthly mortgage repayments. As a guide, you should be aiming to achieve a gross rent of about 135% of the rental property’s interest only mortgage repayments in order to cover your costs should anything go wrong.
These additional costs include:
- Property upkeep – maintenance costs for the property.
- Letting agent’s fees – letting agents charge around 10% of the monthly rent for finding and vetting tenants with an additional cost of around 5% if you require a full management service.
- Ground rent / service charges – applicable to leasehold properties.
- Legal insurance – to cover costs from evicting tenants in the event of non-payment, very important, as this can be very expensive.
- Insurance – building insurance and contents insurance for the items provided as part of the rental agreement.
- Furnishings – the purchase of any furniture. If the property is to be let furnished, make sure you are covered for this by your home insurance.
- Gas / electrical appliances – cost of maintaining appliances and ensuring they comply with any regulations such as safety tests.
- Decorating costs – the property may require work ranging from painting, to a new bathroom suite before it is suitable for letting to tenants.
When choosing a property to let it is wise to take advice from local letting agents to determine; what type of properties are in need, and in which parts of the town is best or most wanted. They can tell you if there is a University in the town, and if students are looking for somewhere to live. The Association of Residential Letting Agents (ARLA) state that a property needs to be in the right area, close to transport and other facilities, and in good condition.
When choosing a letting agent to act on your behalf it is very sensible to choose one that is a member of the ARLA. The reason being, all members of the ARLA must join in a bonding scheme to protect rent and tenant’s deposits. The bond provides total compensation of up to £2 million a year.
There are a number of tax issues that need to be looked at in order to maximise your tax position, such as being able to offset your maintenance costs, letting agent fees etc as well as any interest paid on a buy to let mortgage against your tax.
Commercial and Business Mortgages
Commercial mortgage guide
A commercial mortgage is probably the best way to finance the purchase of buildings and land for business purposes, it provides the most flexible and affordable finance solution.
Commercial mortgages are specialised due to the fact that the lender has a legal claim over the property until the loan has been repaid in full.
Mortgage loans of this type are tailor made for purchasing any commercial property used for business purposes including shops, factories, offices and warehouses. Commercial mortgages can also be used for taking over an existing business, purchasing a brand new building or buying land.
Although they often come with higher interest rates and more variables than residential mortgages, commercial mortgages are more flexible and can carry extra incentives for borrowers. With commercial mortgages, the lender has a legal claim over the property until the loan has been fully repaid.
Overseas Mortgage Enquiry Form
If you are interested in an overseas mortgage, you may find our holiday homes section particularly useful. We have country guides, mortgage information and local tips for buying in a variety of countries, including Spain, France, Portugal, Austrailia and the USA.
Equity Release Mortgage
Equity release mortgage guide
Equity Release is a means of using the value of your home to receive either a lump sum of cash or regular monthly instalments. In all instances, age is the primary factor in determining the percentage of the value of your home that can be released.
A person of an older age can release a higher percentage of the value of their home, than a person of a younger age, as they are not expected to live as long.
There is no maximum age limit for equity release, although applications are not usually granted for anyone under the age of sixty.
