First-time buyers guide: Find the best mortgage

How do I get approved?

Save a larger deposit

For some first-time buyer schemes, you’ll be eligible to apply with a deposit worth just 5% of your property’s value.

However, if you can save a larger deposit, you’ll improve your chances of being approved for a mortgage and may even be able to access better interest rates.

Here are some ideas to help you save a bigger mortgage deposit.

• Help to Buy Isa. If you transfer savings in this account and put the money towards a mortgage deposit, the government will top up your funds by 25%. You can make an initial contribution of £1,200, then £200 a month, up to a maximum of £12,000.
• Lifetime Isa. The government will also pay a top-up on savings stored in this account. You’ll get a 25% bonus on a maximum of £1,000 per year, available every year until you turn 50. The bonus is paid when the money is put towards a mortgage deposit or your retirement fund. If it’s withdrawn for any other reason, you’ll pay a penalty charge.
• Gifted deposit. You might roll your eyes if you’re not lucky enough to have anyone willing to help fund your mortgage deposit, but the fact remains that a lot of first-time buyers are receiving financial assistance from family members. Many see it as an intelligent investment. After all, it stops their children wasting money on rent and potentially reduces their own inheritance tax bill (provided they live for seven years after making the gift).

Joint applications

You can apply jointly for a mortgage with up to three other applicants.

When you do this, the income of all applicants is considered jointly, meaning you’ll be eligible to borrow a larger amount for a property. Assuming everyone is pitching in, you’ll find it easier to save a larger deposit too.

Your credit scores will also be considered jointly. This could improve your chances of being approved for a mortgage, provided your co-applicants have a better credit score than you. If they have bad credit, it could harm your application.

There are some downsides to a joint application. For starters, you’ll all have to agree when you want to sell the property. Also, if a co-applicant stops making mortgage repayments, you’ll be equally responsible for the shortfall.

As such, you should only jointly apply for a property with someone you trust.

Learn more about joint mortgages.

Improve your credit score

Even after saving a suitable deposit, a lot of first-time buyers are still denied a mortgage because of a bad credit score.

It’s important to start working to build your credit score now so it’s in a good state when the time comes to make your mortgage application.

Your credit score improves when you make timely repayments on your debts and bills. If you’re not already paying bills by direct debit, it’s worth setting a couple up. Consider applying for a credit-builder credit card, making small purchases on it and paying if off in full every month.

More importantly, ensure that no repayments are missed and that none of your financial accounts go overdrawn. This can decimate your credit score and ruin your chances of being approved for a mortgage.

If your credit score is looking worse for wear, explore the options for first-time buyers with bad credit.

Reduce your outgoings

Lenders will check your recent bank statements to ensure you’ll be able to comfortably afford your mortgage repayments. The bigger the gap between your income and your regular outgoings, the more eligible you’ll appear.

For this reason, it’s worth seeing what you can do to reduce your outgoings.

Cancel unnecessary direct debits and standing orders. Pay off as many debts as you can, especially those you’re paying interest on. Haggle over the cost of your utility bills.

It’s also worth closing any accounts that give you access to additional credit you’re not using. Many lenders perceive this additional credit as an additional opportunity for you to get into unsustainable debt and this could count against you when making a mortgage application.

Make corrections to your credit report and the electoral role

Make sure your correct name and address is registered on the electoral role. This is a quick task, which can have a significant impact on your mortgage application.

Check your credit report for errors too. You can view your report and amend errors by contacting any of the UK’s three major credit reference agencies.

Make intelligent decisions regarding your property and mortgage lender

The cheaper the property and the less you’ll have to borrow from a lender, the easier you’ll find it to be approved for a mortgage.

Most mortgage lenders will let you borrow a maximum of 4.5 times your annual income for a mortgage, provided you can comfortably afford to make the monthly repayments.

When hunting for a property, consider what you need and what you’re likely to be approved for. We’d all like a guest bedroom, but many first-time buyers would find it far easier to be approved for a mortgage if they sacrificed this.

If you enlist expert help when choosing a mortgage provider, this will make it easier to be approved.

A professional mortgage adviser will not only be able to point out the best available deals, but also recommend the lenders most likely to work with someone in your situation.

This will save you from making multiple applications to multiple lenders, only to be rejected. Doing this will harm your credit score, making it tougher to be approved by other lenders in the future.

Best lenders for first-time buyers

If you’ve never taken out a mortgage before, you may be feeling overwhelmed by the amount of choice available, with hundreds of lenders offering thousands of different deals. Although this highly competitive mortgage market is good for borrowers, it means that narrowing down your options isn’t always straightforward.

House prices have grown rapidly over the last 20 years so it’s become increasingly harder to get onto the property ladder. The average first-time buyer deposit was 23% of the purchase price in February 2019, according to trade body UK Finance. This equates to nearly £49,000 based on the average loan size.

If you’re lucky enough to be able to save up a big enough deposit and afford the mortgage repayments there are plenty of mortgage lenders who will consider lending to you. But, if not, there are a number of specialist mortgage types offered by a more limited number of lenders that are designed to help.

Below, we’ve highlighted some of the lenders offering the best options we found at the time of writing but the best mortgage deal for you will depend on your circumstances and what’s available at the time. It’s a good idea to speak to a mortgage broker who can look at the whole market to help you find the best deal. Some products are also only available through brokers.

• Best lenders for standard first-time buyer mortgages

  As lenders tend to offer initial deals over a number of years before moving you onto their higher standard variable rate for the rest of the mortgage term, you should switch to a new deal – either from the same lender or a different one – at the end of the initial period. For this reason, to find the cheapest deal you should look at the total cost (including fees, which can bump up the cost significantly) over this period rather than the whole term.

  The more deposit you have, the cheaper the deals you can generally get.
  If you had a 23% deposit of £49,000 and borrowed £164,000 to buy a £213,000 property (77% loan-to-value) over 25 years using a two-year fixed-rate deal, your initial rate could be as low as 1.55% to 1.7% with the total cost from around £17,050 over the two years. Using this scenario, the cheapest lenders we found were Halifax, HSBC, NatWest, Nottingham Building Society and Post Office Money.

  But if you borrowed the same amount with a loan-to-value of 90%, the best equivalent deals would have initial rates of 2.59% to 2.89% and the total cost of the deal would start from almost £18,400 – a difference of around £1,350. The lenders we found offering the cheapest deals using this scenario were Barclays, Clydesdale Bank, HSBC, Post Office Money and Progressive Building Society.

• Best lenders for first-time buyer Help to Buy mortgages

  The Help to Buy equity loan scheme was launched by the government in 2013 to make buying a newbuild home in England and Wales more affordable. It’s currently open to all buyers, although from 2021 it will only be available to first timers. There’s a similar scheme in Scotland.

  You pay a minimum deposit of 5% of the value of the property and the government gives you a loan for up to 20% (40% in London). This means you only need to take out a mortgage for the remaining 75% so will have access to the cheapest deals. You don’t have to pay interest on the 20% loan for the first five years, which makes your repayments more affordable during this period. When you sell the property you pay 20% of the sale price back to the government.

  Not all lenders offer mortgages for Help to Buy but big names that do include Barclays, Halifax, HSBC, Lloyds Bank, NatWest/Royal Bank of Scotland, Post Office Money and Santander.

  According to Moneyfacts.co.uk, Barclays, Leeds Building Society, Santander, Skipton Building Society and Virgin Money are offering some of the cheapest two-year fixed-rate deals with initial interest rates of 1.59% to 1.83% and product fees of £749 to £999.

• Best lenders for first-time buyer shared ownership mortgages

  With shared ownership you buy a share of a property through a housing association and pay rent on the rest. You can either buy a newly built home or one that is being resold.

  It makes buying the property more affordable because you only need a deposit of 5% of the share you are buying to put towards the mortgage, and the rent you pay on the rest is lower than the usual market rate. You can start by owning just a 25% share but increase it as you can afford to if you wish.

  There’s a Help to Buy shared ownership scheme in England and other schemes throughout the UK. You need to be a first-time buyer or a previous property owner who can’t afford to buy a home outright now.

  Lenders offering good shared ownership mortgage deals include Barclays, HSBC, Hanley Economic Building Society, Nationwide and Santander with rates from 2.85% to 2.99%, according to Moneyfacts. Most of these don’t have product fees.

• Best lenders for first-time buyer guarantor mortgages

  A guarantor mortgage lets you borrow up to 100% of the property price with a family member, such as parents, using their savings or equity in their property as security for the loan. They will usually be released from this arrangement once certain criteria are met.

  Interest rates range from 2.64% to 5.28% for fixed and variable-rate deals according to Moneyfacts. Marsden Building Society is currently offering the lowest two-year fixed rates with its Family Step mortgage (although product fees apply), which is only available through brokers. Barclays (with no product fees), Buckinghamshire Building Society, Loughborough Building Society and Mansfield Building Society are also worth a look.

  Marsden is offering the lowest two-year variable rates too. Bath, Buckinghamshire, Loughborough, Mansfield and Tipton & Coseley Building Societies are others to consider. Once again, make sure you take product fees into account when looking at which are the cheapest deals over the initial period.

Application process

Research

Before you apply for a mortgage, it’s important that you understand the different types available and how interest on them is calculated. From this, you can work out how much you can borrow based on your savings and your income, using online affordability tools.

Speak to a mortgage broker

Speak to a mortgage broker, who will search the market for a deal that is best suited to your situation. But make sure you check that they are on the Financial Services Register first, which will ensure they are properly authorised.

Find your property

The next important step is to find a property within the budget you have set out. Once you’ve found this perfect home, go back to the lender and begin the mortgage application. This will involve detailed research into your finances, including earnings, expenditure and a full credit check with a credit reference agency.

After the mortgage: your surveys and conveyancing

Once you’ve had a mortgage offer accepted, you’ll need to do two things:

• Get a property survey sorted
• Hire a solicitor or conveyancer

Property survey

A property survey is an inspection of your property that shows you any problems with it – before you move in. The idea is you face no nasty surprises when you actually buy the place, like finding out you have to do extensive repairs or that there’s damp.

It’s different from a lender’s valuation survey, which your lender uses to check they’re not lending you more money than the property is worth. The lender’s valuation survey is super basic and doesn’t look at potential defects in the property.

If you want an independent check – designed to reassure you, rather than the lender – it’s worth doing your own survey.

The different types of property survey

There are a few different types of survey – here they are ordered from most basic to the deepest inspection.

• Condition Report: a basic survey that’s best for new builds and homes in good condition. Gives you no advice about what repairs you might want to do. Costs around £250.
• Homebuyer’s Report: this one looks for structural problems, like damp, though it doesn’t look beyond the walls or floorboards. Some homebuyer’s reports come with a property valuation that gives you an independant idea of the property price. But not all of them do. This one comes with advice on repairs and maintenance too. Costs start at £400.
• Building Survey: the most comprehensive type of survey, usually for older homes or homes that need repairs. This looks even more closely at the structure of your property and gives you detailed advice on the kinds of repairs it needs. Costs around £400–£500.

If your survey does find problems, don’t panic. That usually happens. You’ll have a number of options for how to proceed. You can get a quote for repairs and see if you feel it’s worth it. Or you could make a lower offer on the property price. If it all feels like too much, you’re still allowed to just walk away – you haven’t signed anything yet!

Conveyancing

The legal side of buying a property is called conveyancing. You’ll need to hire either a solicitor or a conveyancer to handle this for you. It doesn’t matter which!

In Scotland, you’ll need to think about it earlier, because you can only make a formal offer on a property through a solicitor. So you’ll need to hire one before you even start looking at houses.

What does a conveyancer do?

You conveyancer or solicitor will do all the work you need to buy legally and safely. Here are some of the things they’ll do:

• Draw up the contract between you and the seller to actually buy the property
• Comprehensive checks on the property you want to buy – these are called ‘property searches’. They check things like the risk of flooding in your area, and whether your council is planning to build anything major nearby
• Exchange contracts between you and the seller (by talking to the seller’s solicitor)
• Transfer the money to the seller
• Pay your Stamp Duty on your behalf (using your money of course, but making the transfer themselves)

Where to find a conveyancer

You can search local firms in your area, or compare quotes online. You can also check out our friends at Habito Plus, for a complete home-buying service that includes all your conveyancing.

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Frequently asked questions

• What documentation will I need?

  What is required will vary between lenders, and may also vary depending on your personal circumstances but the points below are a good starting point:

  • Utility bills.
  • Proof of benefits received.
  • P60 form from your employer.
  • Paylsips for the last three months.
  • Passport or driving licence (to prove your identity).
  • Bank statements of your current account for the last three to six months.
  • Statement of two to three years’ accounts from an accountant if self-employed.
  • Tax return form SA302 if you have earnings from more than one source or are self-employed.
  • Self-employed people should look to provide information alongside their tax return, which supports what the SA302 says about their income, such as bank statements.

• What if my mortgage application is declined?

  There may be a few reasons the lender has declined your application. Firstly, it’s a good idea to check that all the information you provided is correct and that you’ve reviewed everything carefully.

  If you’re not earning enough or you’re spending too much, the lender might have decided that you would not be able to afford your repayments. In this case, it’s wise to rethink the size of the mortgage you are applying for and how to budget your spending.

  One major barrier for getting a mortgage can be your credit history, particularly if you have a history of missed payments, defaults or insolvency. Checking your credit report thoroughly before you apply can help spot any problems that might concern a lender.

  If you do have credit issues, it’s a good idea to ensure all your debts are cleared and try to re-build your credit history by making reliable and regular repayments before applying again.

  It’s also possible to get something called a guarantor mortgage if you cannot secure a mortgage on your own. This is when another person, usually a relative or close friend, agrees to accept responsibility for the debt in the event that you are unable to keep up repayments. Learn more about what to do if your mortgage application is declined.

• Can I get a buy-to-let mortgage?

  Put simply, yes, but you may be limited when it comes to getting a mortgage. The first question to ask is, are you a first-time landlord or a first-time buyer?

  This is key as a large percentage of lenders need you to have owned your own residential property for at least six months before they will offer you a buy-to-let mortgage. Others will only ask that you own a property, so you could have another buy-to-let property while living in rented accommodation.

  However, if you’re a first-time buyer or don’t currently own a property, your mortgage options will be limited.

• What deposit do I need?

  Before looking at properties, you need to save for a deposit. Generally, this should be at least 5–20% of the cost of the home you would like to buy. For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500. We recommend saving more than 5% if possible, which will give you access to a wider range of cheaper mortgages available on the market.

• How long does it take to get a mortgage?

  The entire mortgage process has several parts, including getting pre-approved, getting the home appraised and getting the actual loan. In a normal market, this process takes about 30 days on average.

  During high-volume months, it can take longer, somewhere between 45 to 60 days, depending on the lender. If any financial issues are discovered in your record such as a low credit score, previous foreclosure or overwhelming debt, getting a mortgage may be a much slower process.

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