Buying your first home can be a daunting process. With so much information abound about First Time Buyer Mortgages, it’s no surprise that some people end up feeling confused about what they are, how to acquire one, and how it would benefit them in the application and buying process. To help those looking to join the property market, our Somerset mortgage advisors explain what first time buyer mortgages are all about and how you might go about getting one for yourself.
What Is A First Time Buyer Mortgage & What Are The Benefits?
When looking to purchase a first home, getting a mortgage is, for many, the most worrying step in the process. Not only that, with 2022’s base rate rises making interest rates less affordable, many may be even more intimidated by the prospect than before. So, to cut through the confusion, our mortgage advisors in Somerset will explain first time buyer mortgages as simply as possible.#
What Is A First Time Buyer Mortgage?
A first time buyer mortgage is a mortgage product specifically tailored for people who are new to the housing market. A first time buyer mortgage will often have specific incentives or benefits to help people overcome the hurdles of joining the housing market. One of these is the government’s 95% mortgage scheme, where the buyer will only need a 5% deposit to purchase a house up to £600,000. There is also a first homes scheme, which can offer a 30% discount on the market value of new build homes to first time buyers.
What Are Other Benefits Of Being A First Time Buyer?
In addition to the above schemes, there are a number of other perks that can come with being a first time buyer. One of these is a relief on stamp duty. For those who are not first time buyers, you have to pay stamp duty on any part of your property that’s over £125,000. However, if you are purchasing your first home, this increased to £300,000. For a house costing £400,000, that would mean a saving of £17,000. To get a sense of how much you could save on stamp duty, take a look at our stamp duty calculator.
Another positive of being a first time buyer comes from having no previous home you need to sell. Housing chains can cause no end of hassle for those in the property market, a delayed or cancelled sale could cause an individual to lose out on their dream home. Not having this burden means that you can focus on the property you are buying without having to worry about the legal process involved with selling a property at the same time.
Who Qualifies As A First Time Buyer?
These incentives and benefits are all well and good, but if you don’t qualify for them, then they aren’t going to mean much when it comes to home-buying. Fortunately, the guidelines on this are clear.
In the UK, a first time buyer is an individual who has never owned residential property anywhere in the world. This means you can’t have owned any buy-to-let property, inherited any property, or acquired residential property by any other means. If none of that applies to you, then great! You are officially a first time buyer.
Moreover, it’s also worth noting that owning commercial property doesn’t void your first time buyer status. If you happen to own a shop, warehouse, office space or anything else, then you can still qualify as a first time buyer when purchasing your first residential home.
Lastly, it must be pointed out that these first time buyer benefits only apply to those who are looking to live in the property themselves. If you’re planning on buying to let, then you will not qualify. Similarly, if you are purchasing a home together with someone who isn’t a first time buyer, then you also may not qualify for some of these benefits either.
Help To Buy Mortgages
Help to buy mortgages are another option available to first time buyers. The help to buy mortgage scheme allows first time home buyers to combine 5% home deposit with a government equity loan of up to 20% of the property price. This means you only need a mortgage for the remaining 75% of the property value. While the initial deposit you need to come up with is still 5%, much like the 95% mortgage scheme mentioned above, the key difference with a help to buy mortgage is that you would only need to pay back a loan on 75% of the property value, rather than 95% with the latter scheme.
Are Help To Buy Mortgages The Best Option?
While on paper it seems clear that a help to buy mortgage would be preferable for first time buyers, there are a few caveats. The key factor is that the interest costs of a help to buy loan increase after the first five years. The loan is interest free for this initial five-year period, but on year six a fee of 1.75% is incurred, and this continues to rise annually with the Retail Prices Index measure of inflation + 1% (Which). This is certainly worth keeping in mind, particularly considering ITV is already reporting the Bank of England expects inflation to go as high as 13%. With a 95% mortgage, you borrow a set sum, so your amount of equity within the property will always continue to grow as long as the value of your home remains the same or rises.
It is worth mentioning however, the help to buy scheme is due to come to an end on the 31st of March 2023, so if you’re considering this option for your first time buyer mortgage, it’s best to get in touch with our Somerset mortgage advisors as soon as possible.
How Can You Get A First Time Buyer Mortgage?
Before applying for a first time buyer mortgage, there are a number of steps to take in advance. Typically, our Somerset mortgage advisors can help work with you to find the right course of action for your financial situation. However, in general terms, the steps that you will want to take are as follows:
1. Work Out How Much Deposit You Need
This is often one of the more difficult obstacles to overcome for first time buyers. Saving up enough of a lump sum to cover a housing deposit isn’t easy. When starting on this journey, working out how much you need to save to cover a deposit is key, as otherwise you won’t know how much money you need to prepare in advance before borrowing. Don’t forget that with the government’s 95% mortgage scheme, this may only need to be 5% of the house price.
2. Figure Out How Much You Can Afford
While this will vary based on the lender and the surrounding circumstances, this is usually calculated using three key factors: your outgoing payments, your salary, and your credit history. Lenders may typically load 4 to 4.5 times your salary, depending on the other two factors. Outgoing payments will include dependents, loans, bills, insurance etc, and your credit history will of course be impacted by any unpaid debts or bankruptcy in your financial past.
3. Approach A Lender For A Mortgage In Principle
This is an official estimate of how much you would be able to borrow on a mortgage. Getting this figure and comparing it with how much you think you can afford to repay each month, should give you a good idea of what home price you should be looking for.
4. Find Your Ideal Home And Make An Offer
Provided that you’re working within your budget, this will primarily depend on your preferences. Our team of advisors has a wealth of knowledge and experience in the local property market, and this can be invaluable when it comes to putting in an offer. Your advisor can even call the estate agent to make the offer on your behalf, so that your situation can be presented in the best light.
5. Apply For Your Mortgage
A mortgage application can take at least three weeks, and sometimes much longer than this. As such, once your home offer has been accepted, it’s best to apply for your first time buyer mortgage right away. As part of this process, the lender will often assess the property to determine that it both exists and that it is worth the value you are paying for it.
What Our Somerset Mortgage Advisors Recommend For First Time Buyers
While you could run through all of these steps and acquire a first time buyer mortgage for yourself, it’s unlikely that you’ll be able to find the right deal for your situation working this way. That’s why our Somerset mortgage advisors at The Levels Financial recommend you take one first step above all others, get in touch with our advisors.
With access to a range of lenders and considerable expertise in first time buyer mortgages, we will be able to advise you from the very beginning of the process right the way through to when you receive the keys to your new home. So, to find the right first time buyer mortgage, or any other, similar product, such as a help to buy or shared ownership mortgage, save yourself the financial stress and contact our advisors as a first step when you’re looking to purchase your first home.
We Think You Should Know…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
