How First-Time Buyers Can Get Mortgage-ReadyThe lure of first-time homeownership is powerful. Whether you finally want a place to call your own or are focused on creating generational wealth, there are quite a few steps from where you are now to the moment you can kick back and enjoy it. And while 1 in 4 homebuyers rely on the Bank of Mum and Dad to buy their first house, a mortgage is likely needed to support the purchase.
Along with first-time buyer tips, here’s how you can prepare to step onto the property ladder with a mortgage in tow.
The no. 1 tip for first-time home buyers that we can offer is to be sure you’re ready. Sounds easy? Not quite! The average mortgage term is 25 years, and although you don’t need to stay in that one home for a quarter of a century, buying a property is still a major commitment.
Consider your financial future and whether you have any events on the horizon that could affect your location, income or expenses. If you see world-travelling or a career hiatus on the horizon, it might be worth reconsidering. These could be reasons to apply the brakes.
This is a key part of life admin as it’s one way in which banks check your address. Also, make sure at least one utility bill at your current address is in your name.
Wondering ‘How much mortgage can I get?’? It can be tempting to jump right into hunting for the perfect house, especially if it’s your first time. However, viewing homes without first determining your budget only leads to heartbreak.
Most mortgage lenders will cap the loan-to-income ratio at 4½ times your income. That means if you earn an annual salary of £30,000, you could be offered a loan of £135,000.
Most mortgages are repaid over 25 to 40 years in monthly instalments. The bank charges you interest on your loan, so you’ll pay back more than you borrowed. Keep an eye out for interest rates as some mortgage lenders offer better deals than others.
Get some quick figures with our online mortgage calculator.
Now is not the time to open a new line of credit, buy a car or miss monthly debt payments. When you apply for a mortgage, lenders will pull your credit report. If they see that your debt has increased or you’ve started to make late payments, it could risk your approval. Your lender will perform what’s known as a ‘stress test’ before deciding on your application. They’ll analyse your income and regular outgoings to work out how much you can afford to borrow.
Check there aren’t any errors on your credit report. If there are any mistakes or anomalies, make sure you find them and correct them before the lender sees.
Most lenders will ask you to have at least a 10% deposit (with a 90% mortgage). Generally, the larger your deposit, the better deals are available to you. With a larger deposit, you may be offered lower interest rates and longer-lasting deals.
However, there are some mortgage schemes that will accept as low as a 5% deposit.
You may need to show the following outgoings:
Gather the following documents:
Don’t assume that your deposit is the only thing you need to hop onto the property ladder. You’ll also need to cover the upfront costs of buying a house, from survey fees to solicitor expenses to stamp duty (only over properties costing more than £450,000 for your first purchase).
Passport or driving license
Your last 3 – 12 months of payslips
Your most recent P60
Bank statements of your current account for the last 3 – 6 months
Proof of any other income
Proof of your deposit
Proof of any benefits received
Statement of 2 – 3 years of accounts from an accountant if you’re self-employed
Tax return SA302 if you have earnings from multiple sources or are self-employed
Additional financial documentation if self-employed
Buying a home is no small feat, but our buying guides are here to help you navigate your first – and, likely, largest – purchase that will leave you feeling content in your new abode. You can get expert mortgage advice, just when you need it. To kickstart your journey, start looking for the right mortgage deal and get to grips with figures from a mortgage calculator to prepare for your upcoming purchase.
Who qualifies as a first-time buyer?
In the UK, a first-time buyer is considered someone who hasn’t owned any residential property anywhere in the world. This means you won’t have owned your own home, a buy-to-let property or inherited a property either. The good news is that commercial property doesn’t count, so even if you’ve owned a shop, warehouse or office, you still qualify as a first-time home buyer.
When should I apply for a mortgage as a first-time buyer?
You can apply for a mortgage at any time during the home-buying process – before or after you’ve viewed homes. Some estate agents will prefer you to have an agreement in principle showing that you can afford the house you’re viewing – they should let you know when you contact them to book a viewing. Generally, it’s good practice to sort the mortgage affordability first before searching for homes for sale.
Do first-time buyers pay stamp duty?
A great perk of buying your first home is that you’re exempt from paying stamp duty. Sort of. You only pay stamp duty when the property price exceeds £450,000.
For property purchases over £450,000, you can work out what you’ll have to pay with a stamp duty calculator.
Should I use a mortgage broker?
A mortgage broker is a person (or company) with an in-depth knowledge of the market. They seek out the best deals for you (so you don’t have to trawl through comparison figures) and help arrange a mortgage between you and the lender. When thinking about how to get a mortgage as a first-time buyer, it’s wise to enlist the help of a broker.
If you find the many types of mortgages difficult to understand or are self-employed with more hoops to jump through, a broker may offer peace of mind.
Just a word of advice – don’t risk losing your home. Keep up those mortgage repayments.