Couple in their new home.

A mortgage guide for first time buyers

Buy your first home with the right facts and the right mortgage for you.

We understand that if you’re a first-time home buyer you don’t have the luxury of time or money to choose the wrong mortgage, so we’ve saved you the trouble and distilled our knowledge into a guide which goes through how to compare and apply for a mortgage.

How do I compare mortgages?

Once you’ve found the home you would like to purchase, you’ll need to obtain financial support from a lender in the form of a mortgage (if you cannot afford to pay for it outright). You’ll apply for your desired loan amount, and your lender will decide to grant you the loan or reject your application.

Because of the competition in the market, there are thousands of different mortgage products available. So deciding which one to apply for can be tricky unless you follow a procedure like the one below.

A good baseline way to compare the various types of mortgages is to compare the key facts which lenders are required by law to provide, these would be:

  • The basic features of the loan such as interest and comparison rates, interest type, term of the mortgage, mortgage amount and repayment frequency.
  • The total amount you’ll pay back over the course of the loan.
  • The establishment and ongoing fees applicable to the loan.
  • How much you’ll repay each month and each year.
  • How much extra you’d pay if your rates increased by a 1% p.a.
  • The difference putting an extra £200 a month towards your mortgage would make on the mortgage term.

These key points of comparison can help you sort through the advertising and get through to the bare essentials a loan has. It doesn’t explain all of the major features a mortgage might come with, so be sure to also get acquainted with these further below.

What is Stamp Duty?

Stamp Duty is a land tax that applies if you buy a property or land over a certain price in England, Wales and Northern Ireland. The current threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. Stamp duty is set as a percentage of the property price.

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The finder.com mortgage service is provided by London & Country Mortgages (L&C). Beazer House, Lower Bristol Road, Bath BA2 3BA.
L&C are authorised and regulated by the Financial Conduct Authority (reg no. 143002). Please note the FCA does not regulate most Buy to Let mortgages.
warning iconWarning: Your home may be repossessed if you do not keep up repayments on your mortgage.

What types of mortgages are available for first-time buyers?

There are a number of different types of mortgages out there for first-time buyers, the right one for you depends on your personal circumstances.

Fixed rate

This option is popular with many first-time buyers as it means your interest rates would be fixed for the term of the deal which can be between 2 and 10 years. With fixed rate mortgages your repayments will also stay the same each month, which might appeal to those who like to budget and know how much they’re spending each month.

Capped rate

This is a type of variable mortgage, meaning your interest rate and repayments can go up or down depending on the lender or market. A cap simply allows you to only pay up to a certain amount each month but you also receive the advantages of low interest rates.

Discount mortgages

This is another type of variable mortgage where the interest rate you will be charged is discounted on the lenders standard variable rate. For example, if your lender has a SVR set at 4% and you have a discount of 1% you will pay 3% interest.

The interest rate can change overtime if the standard variable rate goes up and down.

Tracker mortgages

This type of mortgage ‘tracks’ the interest rate of the Bank of England to then set margin above or below it. It is a type of variable mortgage as the interest you will be required to pay on your mortgage will rise and fall in line with this base line interest rate.

Interest-only home loans

Interest-only loans will see none of your repayments go towards the capital you owe the lender, but rather completely to the interest that’s due. This means your loan will never get smaller, but also means your repayments will be smaller than with an equivalent capital and interest loan.

If paying off a home is your aim, interest-only loans may see the process lengthened, and may see you pay more interest than with an equivalent principal and interest loan.

Common loan features

Even once you’ve chosen what loan type you’re after, there are a number of features in addition to the interest rate and fees you’ll pay which will complete the comparison phase. Some of the more common features offered on a home loan are explained below:

  • Offset. An offset feature wrks by linking your savings accounts to your mortgage and allows any funds in the account to cancel out, or ‘offset’ some of the interest due on the outstanding mortgage amount.
  • Additional repayments. Many loans offer the option to put extra money towards paying off your mortgage, and extra repayments can help to reduce the loan term quicker and the interest you pay. Some variable rate loans and most fixed rate loans will have a maximum amount of extra funds you can put towards your loan each year, while others may not allow any amount of additional repayments to be made.
  • Borrow back. If you have overpaid on your mortgage you can borrow back and withdraw the money previously overpaid to use for whatever you like. This allows for flexibility to get access to funds in the event you need them but make sure you read the fine print, as some mortgages will have a minimum amount you can redraw at any one time.
  • Mortgage portability. Selling a property and then buying another usually requires the closing of one mortgage and the opening of a new one. mortgage portability is an option that allows you to keep your loan and simply transfer it over to the new property, meaning you can avoid paying fees such as application fees or cancellation costs. This option typically has a number of requirements, such as keeping the mortgage amount the same and carrying out the exchange and settlement of both properties on the same day and same time.
  • Repayment frequency. Each repayment you make will get you closer to paying off your mortgage, and the frequency at which you make them is another choice you can make with most mortgages. Most allow for weekly, fortnightly and monthly repayments, so you can choose to pay it off in a way that suits your income.

What is the best mortgage for me as a first-time buyer?

With property being so expensive in many parts of the UK, it’s no wonder this is a popular question. While there’s no one ‘best’ type of mortgage for first-time buyers, there are a couple of features which might be more appealing to borrowers trying to get into the market.

  • A high maximum LVR. An LVR simply refers to the amount you can borrow as a percentage of the property value, and is usually limited at 80%, or as much as 95%. A 95% LVR means you can borrow 95% of the value of the property, requiring you to come up with at least a 5% deposit. An LVR of 80% would see you require a deposit of 20%.
  • Guarantor options. Some providers offer first-time buyers the chance to secure their mortgage by getting a parent or family member to act as a guarantee against the property. This might be a good option for you if you only have a small deposit or even no deposit at all but have a family member who is able and willing to meet your monthly mortgage repayments if you are unable to do so.
  • Minimal fees and low rates. If you’re struggling to afford a property, you might want to keep costs down as low as possible. This means mortgages with minimal upfront or ongoing fees, and one with a low interest rate.
  • Good customer service. If this is your first property and first home loan, you might want some expert advice to help you manage your loan better and be there in times of stress or emergency. For this reason you might want to select a lender with a proven track record of having great customer service.

First-time buyer schemes

There are shared ownership schemes available to those who are struggling to become homeowners. These allow you to buy a share in a property through a housing association, and pay rent on the part of the property you don’t own.

The UK government have initiated help to buy schemes which allows you to borrow up to 20% of the value of your home (40% in London) interest free for five years.

The finder.com mortgage service is provided by London & Country Mortgages (L&C). Beazer House, Lower Bristol Road, Bath BA2 3BA. L&C are authorised and regulated by the Financial Conduct Authority (reg no. 143002). Please note the FCA does not regulate most Buy to Let mortgages.
*Disclaimer: The offers compared on this page are chosen from a range of products Finder has access to track details from and are not representative of all the products available in the market. Unless indicated otherwise, products are displayed in no particular order or ranking. The use of terms ‘Best’, ‘Top’, ‘Cheap’ including variations, are not product ratings and are subject to our terms of use. You should consider seeking independent financial advice and consider your personal financial circumstances when comparing products.
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