The ultimate mortgage guide for first time buyers

MortgageGym 11/11/2018

So, you're ready to take the plunge and buy your first home - but you don't know where to start. Buying a home is a big decision, after all. And, as a first-time homebuyer, your new house is likely to be the largest purchase of your lifetime. But don't panic - with the right advice and some research of your own, buying your first property will be an exciting and rewarding experience.

This guide is designed to help you become a confident home buyer and make hunting for your perfect first new house something you can enjoy.

Where Do I Start Looking for My First Home?

MortgageGym Blog

As a first time buyer, searching property portals and house hunting can be exciting, but also time consuming and overwhelming. Finding the perfect new house can be exhausting, before you've even thought about your finances. But finances are not something you can ignore if you want a great result - which means landing yourself the perfect property and moving into your dream home. To get started, you'll need to prove that you have a regular income and make sure your savings cover your deposit and other costs, such as the valuation fee and arrangement fee. You'll also need to keep an eye on your credit score and credit file, to make sure they're in order for when they are checked by your mortgage lender. You'll then need to prove that you can afford the monthly payment for your new house, which is determined partly by the interest rate. And you'll need to make sure you're able to pay for everything without over stretching yourself.

That's a lot to think about before you make your mortgage application, especially as a first time buyer. But don't worry, that's exactly why we're here to help you. This guide is designed to take some of the stress away. Our Ultimate Guide for First Time Buyers is a step-by-step guide to make your house hunting more enjoyable by helping you find your way to your first mortgage offer and, of course, owning your new house.

What is a mortgage, anyway?

MortgageGym Blog

So, first things first - what actually is a mortgage? Put simply, a mortgage is a type of loan taken out to buy a property or sometimes land. The lender, normally a bank, agrees to secure the loan against your new house until it is paid off. If you fall behind with your monthly payment, the lender can repossess the property and sell it to pay back their loan. So it's really important to make sure you're comfortable with the monthly repayment and interest rate you commit to. Remember, you'll be paying off your mortgage for a long time, so you need to be certain that your monthly repayment is something you can afford for years to come.

A typical loan will run for around 30 years, but you can decide if you want your loan term to be longer or shorter. As a rule of thumb, the younger you are the longer a lender will allow you to repay the loan. So as a first time buyer, you are likely to have the most flexibility. You may even be able to pay off the loan over 40 years, which can help reduce your repayments and make them more manageable. This can be especially useful when you are a first time buyer, but as a home buyer it's worth remembering that as the term of your loan increases, so does the overall cost of repayment. As a second rule of thumb, the higher your income, the more you will be able to borrow. However, under the strict regulations that govern this type of lending, your income is not the only factor that will be used to decide how much you can afford.

Applying for Mortgage as a First Time Buyer

As a first time buyer, your best bet is to seek advice from a qualified mortgage adviser, who will guide you and recommend the right product. They will also make recommendations on other decisions such as your initial term and overall term. Your adviser will help you decide on your initial term, but is normally a fixed term of either two, three or five years, during which time you have certainty of how much you are required to pay on a monthly basis. You will normally have to agree to pay an early repayment charge if you decide to sell or remortgage your new house during that period. Once your initial term has expired, you are then free to remortgage to a different interest rate without paying a penalty. However, even if you approach a lender directly as a first-time buyer, you'll typically still need to receive advice from a qualified mortgage adviser.

As a first time home-buyer, an online mortgage calculator can be a very helpful tool when you're house hunting. You can use a mortgage calculator to find out how much you can borrow, which bank will lend to you, and the interest rate you might pay. This will help you narrow down the price range for your new house. A qualified adviser will then guide you and make the final recommendation for a suitable repayment amount based on factors including your income and how much you can afford to spend on monthly repayments. Before you speak to a professional adviser, MortgageGym's online mortgage calculator will help with everything you need to know as a first time buyer. Our mortgage calculator is the only one that will match you to the right lenders based on your credit score and credit history. It will also let you see the overall cost, arrangement fee, valuation fee and help you feel more confident when you are house hunting. As a first time buyer, you might discover that you need to save up enough for a deposit for some time, including allowing extra money to pay other costs including Stamp Duty, which can sometimes come as another unexpected cost if you haven't done your research in advance. A mortgage calculator will help you to see how much you'll need to save up and prevent any surprises when you least need them.

What is Stamp Duty?

Stamp Duty is a tax that you're liable to pay as a first time buyer in England and Northern Ireland when you buy a residential property, or a piece of land, costing more than £300,000. That means that you won't pay stamp duty on any purchase below £300,000. This tax applies to both freehold and leasehold properties - that is, whether you're buying outright or with a mortgage. If you're buying a property in Scotland, you will pay Land and Buildings Transaction Tax (LBTT), and in Wales you'll pay Land Transaction Tax (LTT) instead of Stamp Duty.

The more you can save for your deposit the better: a higher deposit will lower the loan you'll need to take out and will mean you'll have more equity in your new home on day one. The average first-time buyer puts down a 20% deposit on their first home, which could mean finding a daunting £20,000 or more. However, don't panic - you may actually only need a 5% deposit to get your first foot on the property ladder and buy your new house. Also, your deposit does not need to come from savings; parents might help with cash gifts or informal loans. You'll need to declare where the money came from, but an estimated 8 out of 10 under-30s rely on help from parents to buy their first home.

As a top tip, remember that when it comes to making your application, your current account statements will be used by the bank to assess how much you spend on a regular basis. So keep an eye on your spending if you're planning to make an application in the next six months or so, and be sure to keep your savings and spending under control by using your current account carefully whilst you are house hunting!

And, finally, it will all be worth it in the end: Enjoying your first night and your first morning in your new home; then relaxing as you build up your equity by making your payments and seeing the valuation of your new home steadily increase over time.

If you're ready to take the first step towards owning your first property, it's useful to have a clear idea of the kind of mortgage you can afford, and the monthly repayments you'll need to make your home owning dream a reality. Check out our mortgage calculator to get started - it's easy to use and won't affect your credit score. And, of course, happy house hunting!