First Time Buyers
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First Time Buyer Mortgage
Explaining the mortgage process for First Time Buyers with Graeme and Ross from Envoy Financial.
What are the typical requirements to apply for a mortgage as a First Time Buyer?
There’s really only one – a source of income. There are lots of different government schemes available to First Time Buyers and lots of different lender options available, with little or no deposit. We’ll cover off a few of them later on, but the only thing a First Time Buyer really needs is to get a mortgage is a regular income. From there we can work out what you can afford to borrow.
I would always encourage any First Time Buyer, regardless of the position you think you’re in, to speak to a mortgage broker. It costs nothing to have a chat and from there you’ll find out your options.
Even if you’re not in a position to buy right now, we will let you know what steps you need to take to get into a place where you are mortgage- and property-ready.
What is the maximum amount that can be borrowed for a mortgage as a First Time Buyer?
There’s no black and white answer to that – I wish there was. But as brokers we can liaise with multiple different lenders. Ultimately no lender will assess your circumstances quite the same.
Whether it’s the term of the mortgage, the deposit you’re putting down, what you can borrow depending on your income, or what outgoings you’ve got, there are many different criteria on how lenders assess affordability. We have access to a comprehensive panel of lenders, so if there is a figure that you’re trying to get to, we have the highest probability of being able to achieve that figure.
There’s no specific amount. Historically, it used to be four and a half times or five times your salary, but it’s definitely not like that now. It’s a bespoke assessment of each person’s specific circumstances, income and outgoings.
So speak to us at Envoy, and we will confirm how much you can borrow and how much it’s going to cost you on a monthly basis. We speak with many First Time Buyers that want to borrow a certain amount of money, and potentially they can, but they also need to know what that is in monthly payments.
What’s the minimum deposit required for a First Time Buyer?
This is going to sound crazy, but it’s potentially zero. There are lots of schemes, particularly in Scotland, where the Lift scheme has just relaunched last week [podcast recorded in June 2024].
There are lenders that can get 40% from the government and you can get 60% from the lender – they don’t actually require a deposit at all. If you’re renting, there are lenders that look at your track record of rental payments with the potential to borrow 100% on the mortgage.
That won’t be right for everybody, but there are lenders that don’t require a deposit. Generally speaking, 5% is the standard for most lenders. So you are not too far away from your home-buying journey, and you’re listening and wondering if you have enough deposit to potentially buy a house, pick up the phone and speak to us.
We’ll tell you exactly what’s going to be right for you to do from there – potentially what money you need to continue to save, or perhaps you’ve actually got enough to go ahead right now.
There are obviously other costs that need to be considered with buying, like solicitor’s fees and potentially stamp duty, depending on the purchase price. But there’s a mortgage for everybody. So give us a call to see what that means for you.
What are the types of interest rates available on a mortgage for a First Time Buyer?
Typically a First Time Buyer will want security of payments, as it’s typically a big step from being in a rented home or staying with family. A fixed rate scenario allows you to budget for a certain period of time – two years, five years, three years or 10 years; whatever’s pertinent to that client.
Variable rate products are also available. It’s very much dependent on the person’s circumstances. Sometimes people like the peace of mind and the confidence of knowing what they’re going to pay for a certain period of time. Other people have different attitudes to risk and are more speculative – they don’t mind that rates could go up as well as down.
With a broker you have access to all those options, whether it is a fixed rate for two years or a tracker rate or variable rate product that has a wee bit of extra flexibility. Our advice would be aligned to that person’s circumstances.
What are the pros and cons of fixed versus variable interest rate mortgages for First Time Buyers?
In the climate we live in, interest rates are now much more forefront in people’s minds [podcast recorded in June 2024]. Fixed rates generally allow you to have certainty in your costs so you’ll know exactly how much you’re going to pay for a predefined period of time.
Particularly for First Time Buyers, that’s quite reassuring. Maybe they’ve been in rented accommodation, but often First Time Buyers are moving from the family home and budgeting for council tax, electricity, mortgage payments and everything else that goes along with running a household.
A big pro of a fixed mortgage is knowing exactly what they’re going to be paying for a set period of time. On the other side are variable rate products such as tracker mortgages. If interest rates were to come down – which obviously is a big if – a tracker product allows you to take advantage of those decreases. With rates a bit higher than where they have been historically, a tracker rate lets you benefit if rates do come down.
But similarly, if interest rates go up, you’re exposed to that. It’s all about people’s individual attitudes towards risk, budgeting and how much they have spare per month. Our job as a broker is to talk you through the pros and cons and make them relevant to your real life situation.
What government schemes are available to help First Time Buyers?
The government in Scotland has just reintroduced the Lift scheme, an open market shared equity scheme that was previously available, but the funds were exhausted [podcast recorded in June 2024].
Funds are now available again for this fiscal year. It’s a brilliant initiative by the government which offers between a 10% and 40% deposit towards the purchase of your new property. You must be a First Time Buyer, and that deposit can go directly to the purchase of your new home.
There are conditions around your personal circumstances, where you’re buying and the size of the property. There are price thresholds. But in principle, you could look at having a shared equity proposition from the Scottish government. If you sell in the future, they would get that percentage back, but you would own 100% of that property.
Typically lenders assess your application based on Loan to Value with the government giving you a 40% deposit. That’s lower risk to lenders, so you get access to lower rate products. It’s a fantastic scheme that really supports clients who have a limited deposit.
Potentially, you could look at no deposit options and the option to only put down 5% of your share of the property. If you want to know more, speak to a broker to explore what options are available to you as a First Time Buyer and if the Lift scheme works for you.
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What documents do I need to get pre-approved for a mortgage as a First Time Buyer?
Three months’ pay slips, three months’ bank statements and a copy of your ID. As a broker, our job is to get those documents at the forefront. Then we can look at it and give you the right advice.
There’s nothing worse than thinking you’re approved and then something changes once more documents are received. We get everything up front to be clear about your options.
What are the steps to follow when applying for mortgages as a First Time Buyer?
The biggest decision is whether to engage with your bank or a broker. With Envoy, it’s quite simple. At the point where you’ve found a property, we’ve already got you ready, which typically means you’ve got an Agreement in Principle in place.
We then arrange a telephone conversation, a Teams call or a face-to-face meeting to agree the next steps. Once we’ve agreed on a product and lender to proceed with, we basically take over everything.
We make the physical application to the lender and provide them with all the documents required to assess the application. We’ll also liaise with everybody involved in the transaction – the solicitor, the valuer, your employer or, if you’re self-employed, the accountant.
We’re available to answer any questions and it’s typically seamless and stress-free. The timeline in applying for a mortgage from start to finish is probably two to three weeks to obtain a mortgage offer. At that point it would go to your solicitor to progress towards completion.
What are the common mistakes to avoid when applying for a mortgage as a First Time Buyer?
The biggest mistake people make is thinking they need to deal with these things themselves. Being a First Time Buyer is daunting – you’re speaking to estate agents where ultimately you want to buy a property they’re selling. Very few First Time Buyers are confident enough to admit that they don’t know what they’re doing.
For example, offers over home reports, closing dates, what happens if you pay above the home report? The truth is most people don’t know – and you’re not meant to know, because it’s the first time you’re buying a house.
As a broker we’re here to help with that side of things. Very often we speak to clients and potentially they’ve already agreed a price on a property, then they’ll phone us to have a chat about the mortgage.
One of the first questions we ask is what they have paid, and what’s the home report value. Often First Time Buyers don’t realise that if you pay above the home report value, it has to be funded separately to your mortgage deposit at 5%. It could lead to a really disappointing conversation – where actually they’re not in a position to proceed with the house they’ve already bought.
So the biggest mistake is thinking that you have to deal with this on your own – you don’t. There are lots of brokers out there who are available to help and we would encourage anyone listening to speak to us for advice. We will guide you on the pitfalls, the process and when to engage a solicitor – all these different bits of the buying process beyond the mortgage side of things.
What happens if I miss a payment on a mortgage as a First Time Buyer?
What we would hope is that if we’ve assessed somebody’s affordability when buying a property, the chances of a mortgage payment being missed is slim. But in life, circumstances change and things happen.
If you do miss a mortgage payment, it does impact your credit file. It will show as a missed payment and that could have implications further down the line for refinancing or moving home.
The key thing at that stage is to engage with your mortgage broker. Pick up the phone and let’s understand how it’s happened, and whether we need to reassess your budget and look at the income, outgoings to ensure it doesn’t happen in the future.
Lenders have a duty of care to their clients and, if something happens, they’re there to support you. The biggest implication would be not doing anything about it. Don’t allow multiple payments to be missed. If there is a missed mortgage payment, speak with your broker, speak with your lender and let’s see what we can do to support you.
Can I get a Buy to Let mortgage as a First Time Buyer?
Yes, it’s possible. Buy to Let is a massive marketplace. All lenders again have different criteria, so certain lenders won’t allow you to get a Buy to Let if you’re not a homeowner.
One of the benefits of speaking to a mortgage broker is our comprehensive panel of lenders means we know who will accept a First Time Buyer for a Buy to Let mortgage.
Typically it is assessed differently from a standard Buy to Let. The lender will look at your income, outgoings and assess affordability. We’ve had multiple clients over the years who are happy to stay with family, but want to get on the property ladder or get a better return on investment with a First Time Buyer Buy to Let.
How can a mortgage broker help me with my First Time Buyer mortgage application?
It’s our job to answer all the important questions. For First Time Buyers it tends to be around how this works, the offer process, the home report and how much they can borrow. How much is it going to be per month and what else do they need to be thinking about?
When you have that first conversation with us, your questions will be answered. You will understand the journey that’s ahead of you, and what you need to do and when. We answer those questions and take care of everything that goes along with buying a property.
You identify the house, we’ll take care of everything else…other than packing the boxes – that would have to come at an extra charge! That’s not the best job in the world, but it’s exciting getting those keys and moving in.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.