First-Time Buyer Mortgages

A Simple Guide to Buying Your First Home

Buying your first home is exciting.

However, it can also feel overwhelming.

There are mortgages, deposits, surveys, solicitors, interest rates, legal costs and many other things to think about.

The good news is that you do not need to understand everything at once.

Instead, take the process step by step.

This guide explains how first-time buyer mortgages work, what you may need to prepare and some of the costs you should consider.

What Is a First-Time Buyer Mortgage?

A first-time buyer mortgage is simply a mortgage designed for someone buying their first home.

The basic mortgage works in the same way as any other residential mortgage.

You:

Put down a deposit

Then:

Borrow the rest from a lender

After that, you repay the mortgage over an agreed period.

You will also usually pay interest on the money you borrow.

Some lenders offer products aimed specifically at first-time buyers.

However, you should still compare the full range of mortgages available to you.

How Much Deposit Do You Need?

The deposit is the money you contribute towards the property.

For example, imagine you want to buy a home costing:

£200,000

If you have a 10% deposit:

£20,000

you would need to borrow:

£180,000

So:

£200,000 − £20,000 = £180,000

Some mortgages may be available with a smaller deposit.

For example, you may find mortgages at:

  • 95% loan-to-value
  • 90% loan-to-value
  • 85% loan-to-value

A 95% mortgage means you provide a 5% deposit.

However, a larger deposit can give you access to more mortgage options.

It may also reduce the amount you need to borrow.

What Is Loan-to-Value?

Loan-to-value is usually called:

LTV

It shows how much of the property’s value you are borrowing.

For example:

Property price: £200,000

Mortgage: £180,000

The calculation is:

£180,000 ÷ £200,000 × 100 = 90%

Therefore, the mortgage has a:

90% LTV

The remaining 10% is your deposit.

Generally, a lower LTV means you are borrowing less compared with the property’s value.

Saving for Your Deposit

Saving a deposit can take time.

Therefore, it can help to set a clear target.

For example:

Target deposit: £15,000

Already saved: £5,000

This means you still need:

£10,000

If you save:

£500 per month

then:

£10,000 ÷ £500 = 20 months

This is only a simple example.

However, breaking a large target into smaller steps can make it feel more manageable.

Do Not Forget the Other Costs

The deposit is not the only cost of buying a home.

You may also need money for:

  • Solicitor or conveyancing fees
  • Property surveys
  • Mortgage fees
  • Valuation fees
  • Removal costs
  • Buildings insurance
  • Furniture
  • Repairs
  • Decorating

In some cases, tax may also be payable.

However, the rules can depend on where you live, the property price and your circumstances.

Therefore, check the current rules before making your final budget.

The key point is simple:

Do not spend every penny of your savings on the deposit if you still have other costs to pay.

How Much Can You Borrow?

Lenders usually look at several things.

These can include:

  • Your income
  • Your regular spending
  • Existing loans
  • Credit commitments
  • Credit history
  • Deposit
  • Employment situation
  • Household costs

They will also consider whether you could continue making your mortgage payments if your circumstances changed.

Therefore, the amount you can borrow is not based on your income alone.

Your Own Budget Matters Too

A lender may tell you the maximum amount it is willing to lend.

However, that does not necessarily mean you should borrow the full amount.

You should also ask:

What monthly payment would I feel comfortable making?

Think about your wider costs too.

For example:

  • Council tax
  • Energy
  • Water
  • Broadband
  • Mobile phone
  • Insurance
  • Food
  • Travel
  • Repairs
  • Savings

Owning a home can bring costs that you did not have while renting.

Therefore, build these into your budget from the start.

Getting a Mortgage in Principle

Before you start making offers on properties, you may want to get a Mortgage in Principle.

This gives you an indication of how much a lender may be prepared to lend.

It can help you understand your budget.

In some cases, estate agents or sellers may also want to see that you are in a position to obtain a mortgage.

However, a Mortgage in Principle is not a final mortgage offer.

The lender will still need to carry out further checks.

It will also need to consider the property you want to buy.

Finding the Right Property

Once you have an idea of your budget, you can start looking at properties.

However, the asking price is only part of the picture.

Also think about:

  • Location
  • Transport
  • Local services
  • Energy efficiency
  • Council tax
  • Property condition
  • Likely repair costs
  • Future plans

A cheaper property may sometimes need expensive work.

On the other hand, a more expensive property may be in better condition and cost less to maintain.

Therefore, look at the overall cost, not just the purchase price.

Making an Offer

Once you find a property you want to buy, you can make an offer.

If the seller accepts, the buying process begins.

However, an accepted offer does not normally mean the purchase is complete.

There will still be several important steps.

For example:

  • Mortgage application
  • Property valuation
  • Legal work
  • Searches
  • Survey, if required
  • Exchange of contracts
  • Completion

So, there is still work to do after your offer is accepted.

Applying for Your Mortgage

Once you are ready, you can make a full mortgage application.

The lender will normally carry out more detailed checks.

You may need to provide information about:

  • Income
  • Employment
  • Bank statements
  • Regular spending
  • Existing borrowing
  • Deposit
  • Identity

The lender may also check your credit history.

Therefore, it can help to have your paperwork organised before you apply.

The Property Valuation

Your mortgage lender will usually want to assess the property.

This helps it decide whether the property is suitable security for the mortgage.

However, a mortgage valuation is mainly for the lender.

It is not necessarily a detailed check of the property’s condition.

Therefore, you may want to arrange your own survey.

This can help you understand whether there are problems that could lead to expensive repairs.

Should You Get a Survey?

A survey can provide more information about the property’s condition.

The right type of survey depends on the property.

For example, an older property may need a more detailed inspection.

A newer home in good condition may require something different.

A survey can cost money.

However, it may identify issues that would otherwise be expensive surprises.

Therefore, consider the age, condition and type of property before deciding.

Fixed or Variable Mortgage?

One of the main choices is the type of interest rate.

Fixed Rate

With a fixed-rate mortgage, your interest rate stays the same for an agreed period.

For example:

  • Two years
  • Five years

This can make budgeting easier.

Variable Rate

With a variable mortgage, the interest rate can change.

Therefore, your monthly payments may go up or down.

There are several types of variable mortgage.

So, check exactly how the rate works before choosing.

The best option depends on your circumstances and how much certainty you want over your payments.

How Long Should Your Mortgage Last?

Mortgage terms can vary.

For example:

  • 25 years
  • 30 years
  • 35 years

A longer term can reduce the monthly payment.

However, you may pay interest for longer.

Therefore, the total amount repaid may be higher.

A shorter term can reduce the total interest.

However, the monthly payment may be higher.

So, the aim is to find a balance between:

A payment you can comfortably afford

and:

A term that works for your long-term plans

Understanding Your Monthly Payment

Your mortgage payment depends mainly on:

  • The amount you borrow
  • The interest rate
  • The mortgage term
  • The type of repayment

For example, borrowing more will usually increase the monthly payment.

Likewise, a higher interest rate can increase it.

A longer term, however, can reduce the monthly amount.

Therefore, before buying, try different examples.

Ask yourself:

Could I still afford the payment if interest rates increased?

That question is especially important if you are considering a variable-rate mortgage.

A Simple Example

Imagine you buy a property for:

£180,000

You have a deposit of:

£18,000

Therefore, you need to borrow:

£162,000

Your mortgage payment will then depend on the interest rate and the mortgage term.

For example, changing the term from 25 years to 35 years could reduce the monthly payment.

However, you may pay interest for an extra 10 years.

Therefore, always compare:

The monthly payment

and:

The total amount you may repay

What Is a Repayment Mortgage?

Most first-time buyers use a repayment mortgage.

Your monthly payment usually covers:

Interest

and:

Part of the amount you borrowed

As you continue making payments, the mortgage balance gradually falls.

By the end of the mortgage term, the loan should normally be repaid in full.

This means you will no longer owe the mortgage lender.

What Is Equity?

Equity is the part of the property that belongs to you rather than the mortgage lender.

For example:

Property value: £250,000

Mortgage remaining: £200,000

Your equity is:

£50,000

As you repay your mortgage, your equity can increase.

It may also increase if the property’s value rises.

However, property prices can fall as well.

Therefore, equity is not guaranteed to increase.

What Happens When Your Initial Deal Ends?

Many mortgage deals have an introductory period.

For example, you may have a fixed rate for two or five years.

When that period ends, your mortgage may move to another rate.

This could be your lender’s standard variable rate.

Therefore, it is a good idea to know when your current deal ends.

Before that date, you may want to review your options.

Can You Overpay Your Mortgage?

Some mortgages allow you to make overpayments.

This means paying more than your normal monthly amount.

Over time, overpayments may help you:

  • Reduce the mortgage balance faster
  • Pay less interest
  • Shorten the mortgage term

However, some mortgages limit the amount you can overpay.

There may also be charges if you go above the limit.

Therefore, always check the mortgage terms first.

Shared Ownership

Shared ownership can help some people buy a home with a smaller deposit and mortgage.

Instead of buying the whole property, you buy a share.

You then usually pay rent on the remaining share.

Over time, you may be able to buy more of the property.

This is sometimes called staircasing.

However, shared ownership has its own rules and costs.

Therefore, understand:

  • The share you are buying
  • The rent you will pay
  • Service charges
  • How future purchases work
  • The rules for selling

before making a decision.

First Homes and Other Schemes

There may also be schemes designed to help eligible buyers.

However, availability and rules can change.

Some schemes may also depend on:

  • Where you live
  • Your income
  • The type of property
  • The property’s price
  • Whether you meet other eligibility rules

Therefore, always check the latest information from official sources before relying on a particular scheme.

Buying With Someone Else

Buying with another person may allow you to combine incomes.

This could increase the amount you are able to borrow.

However, both buyers may have important responsibilities for the mortgage.

Therefore, discuss things openly before buying.

For example:

  • How will the deposit be shared?
  • How will the mortgage be paid?
  • What happens if one person wants to sell?
  • How will the property be owned?

It may also be sensible to obtain legal advice about the ownership arrangement.

Check Your Credit Information

Before applying for a mortgage, it can be useful to check your credit information.

Make sure that:

  • Your name is correct
  • Your address history is correct
  • Old accounts are shown accurately
  • You understand any missed payments
  • There are no obvious errors

If you find something incorrect, contact the organisation responsible for the information.

It is better to understand any issues before making a mortgage application.

Avoid Making Major Financial Changes

When you are preparing to apply for a mortgage, stability can be helpful.

Therefore, before and during the application process, think carefully before:

  • Taking out new borrowing
  • Buying an expensive item on credit
  • Missing payments
  • Changing jobs without considering the impact
  • Making other major changes to your finances

This does not mean you cannot make changes.

However, it is worth understanding how they could affect your mortgage application.

What Happens After the Mortgage Offer?

If the lender agrees to provide the mortgage, it will normally issue a formal mortgage offer.

Your solicitor or conveyancer will continue with the legal work.

The next stages may include:

Searches

Final legal checks

Agreeing a completion date

Eventually, contracts are exchanged.

Then, on completion day, the legal process finishes and the property becomes yours.

Insurance and Your First Home

When buying a property, you may need to think about insurance.

Buildings insurance is normally important because it covers the structure of the property against certain risks.

Your lender may require appropriate buildings insurance to be in place.

You may also choose to consider other protection.

For example:

  • Contents insurance
  • Life insurance
  • Income protection
  • Critical illness cover

However, these products are different.

So, take time to understand what each one does before making a decision.

The First Few Months of Homeownership

Buying the property is only the beginning.

Once you move in, you may need to manage:

  • Energy bills
  • Water
  • Council tax
  • Broadband
  • Insurance
  • Maintenance
  • Repairs

Therefore, it can help to create a simple household budget.

Set aside money where possible for unexpected costs.

Even small repairs can become expensive if you are not prepared.

A Simple First-Time Buyer Checklist

Before you start viewing properties, ask:

Your Money

  • How much have I saved?
  • How much can I use for a deposit?
  • How much should I keep for other costs?
  • What monthly payment feels comfortable?

Your Mortgage

  • How much might I be able to borrow?
  • What LTV would I have?
  • Do I prefer a fixed or variable rate?
  • How long should my mortgage term be?
  • What fees are involved?
  • Are there early repayment charges?

The Property

  • Is the location right for me?
  • What is the council tax?
  • How energy efficient is the property?
  • Does it need repairs?
  • Should I arrange a survey?
  • What will the property cost to run?

Your Future

  • Could I still afford the mortgage if my costs increased?
  • Do I have an emergency fund?
  • Am I planning any major changes in the next few years?
  • Does the property suit my likely future needs?

Compare First-Time Buyer Mortgages With Energility

Energility is currently developing its future mortgage comparison service.

Our aim is to make comparing mortgages easier to understand.

Over the coming months, we plan to expand our mortgage services.

In the meantime, you can use our free guides to learn more about:

  • How mortgages work
  • Saving for a deposit
  • Loan-to-value
  • Mortgage affordability
  • Fixed and variable rates
  • Mortgage fees
  • Buying your first home
  • Shared ownership
  • The costs of homeownership

We believe comparison is more useful when you understand what you are comparing.

Therefore, our aim is to combine useful comparison tools with clear, practical guidance.

Quick Summary

Buying your first home can feel complicated.

However, you can make the process easier by taking it one step at a time.

First: work out what you can comfortably afford.

Next: save your deposit and budget for the other costs.

Then: explore how much you may be able to borrow.

After that: find a suitable property and arrange your mortgage.

Finally, remember that the mortgage payment is only one part of the cost of owning a home.

You will also need to budget for bills, insurance, maintenance and unexpected repairs.

Most importantly:

Do not rush because you feel that you need to buy immediately.

Take the time to understand the mortgage, the property and the full cost of homeownership.

A first home is a major financial decision.

However, with good planning and clear information, the process can become much easier to manage.

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