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FAQMYMORTGAGE.CO.UK > MORTGAGE GUIDES > FIRST TIME BUYER

First Time Buyer Mortgages

Recently things have got quite difficult for first time buyers. The main problem is that mortgage lenders have started to ask to higher deposits. This means that you will now need a substantail sum in order to get a mortgage.

But on the up-side, property prices have reduced recently and you might find that more attractive houses or flats will be in your budget.

I have detailed below some important points to note/understand if you are look to buy your first home.

Lack of Credit History

The main issue that lenders have to consider when deciding on lending to a first time buyer is that you have no track record of paying a mortgage.

If the applicant already has a mortgage then the lender can look at the credit file or mortgage statements to see if they have managed to keep up their monthly payments (they take this as avidence of the likelyhood that future payments will be made on time).

If you have never had a mortgage then they cannot do this and have to make more of a 'guess' at how you might perform.

In this case, it is very important to have other lines of credit, such as credit cards or loans. The lender can then look at your payment history on these credit cards or loans as evidence that you will make your mortgage payments on time.

If you do not have (and have not had over the last 12 months) any credit cards or loans then the maximum loan to value you are able to get is likely to be reduced.

Low or No Deposit

Often much of the deposit for a house purchase comes from the equity released from the sale of the current house. Most First time buyers can't usually do this and so the deposit has to be saved up (unless a relative can gift some money!).

This can mean that there is little or no deposit.

At the moment the maximum loan to value that you will be able to get as a first time buyer is 90%.

High Income Multiple

Many first time buyers find that they are stretching to the upper limits, the amount of money they need to borrow to buy the property they want. Some lenders will lend up to a little over 5 times income even to first time buyers. but remember to be careful that you have considered what will happen as interest rates rise in the future

Choices You Need to Make

There are a number of things you can do to improve your chances of getting a mortgage, or to lower the cost of the mortgage during the early years or overall. Some of them include:

  • Larger Deposit. If you have a larger deposit then the mortgage is likely to have lower costs. Also you will need to borrow less and so the income multiple will be lower.
  • Get Credit Cards. You should try to have at least 2 lines of credit that have been running for close to 12 months. If you have more then it will help your credit score. But remember, you must make all the monthly payments on time. Also if you have an outstanding balance then it will reduce the amount you can borrow on your mortgage.

    • If you don't have any credit then it will still be possible to get a mortgage but the number of lenders will be reduced and the loan to value may be lower.
  • Stepped Rates. You can reduce your monthly cost in the early part of your mortgage by taking a stepped rate (you might do this if you expect your income to go up significantly). But this will mean that your payments will go up over time and the overall cost is usually higher. Also remember interest rates are at a historic low at the moment and will rise.
  • Buy Jointly. If you can't borrow enough on your own you might consider joining up with a relative or friend to buy together. This will mean that you can jointly borrow more but you should make sure that you have both understand what 'the deal' is and preferably have an agreement drawn up by a solicitor.
  • Guarantor. If you cannot get a high enough loan based on your income then some lenders have mortgages where your parents may be able to act as 'Guarantor' to your mortgage. Their income, after paying any mortgage they have on their own home, will need to be high enough cover the new mortgage on their own.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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