Mortgage rates for first-time buyers

First time buyers looking for a mortgage will have a choice of many different deals, depending on how much deposit they put down.

If you’re a first-time buyer looking to get on to the property ladder then you’ll probably be looking to apply for a mortgage. We will guide you through the different types of mortgage rates offered to first time buyers.

Are you a first-time buyer?

A person is considered to be a first-time buyer if they have never owned a freehold or had a leasehold interest in a residential property in the UK or abroad.

First-time buyer mortgage rates

The interest you pay on a mortgage is the amount you pay in addition to the amount you want to borrow. So, if you want to borrow £150,000, your interest payments will be in addition to this.

Interest payments will determine the eventual cost of your mortgage, so it’s important you are aware there are lots deals around for first-time buyers who are looking to buy a home and that you understand exactly how mortgages for first time buyers work

Getting the best interest rate if you are a first-time buyer

Before you apply for a mortgage you may already have saved up some money as a deposit, and the larger the deposit the cheaper the interest rate will be.

  • On very rare occasions, a lender will allow first-time buyers to borrow with no deposit, but this will limit the type of mortgage you can get, and means you will pay a higher rate of interest

  • These no deposit mortgages are known as 100% loan to value (LTV) mortgages

  • Most lenders will only lend to first-time buyers who have a deposit

Cheapest rates for first-time buyers

The rate you will pay on your mortgage depends on:

  • The Bank of England’s interest rate

  • The lender you choose

  • The size of deposit you put down

  • The type of repayment you choose

  • The way you pay back your interest

All of these will together determine the total you pay back, also known as the annual percentage rate charge or APRC.

Interest rates and first-time buyers

The UK’s interest rates are set by the Monetary Policy Committee (MPC) of the Bank of England (BoE). 

This sets the Bank of England base rate, which is the interest rate at which banks borrow from the BoE. 

This in turn affects the interest rate banks charge borrowers, also known as an annual percentage rate or APR

  • If the economy’s slowing down, the MPC might reduce interest rates to help encourage growth

  • On the other hand, the MPC might decide to raise interest rates if inflation becomes a problem

Lenders and first-time buyer interest rates

Mortgage lenders are normally banks or building societies. There are some specialist lenders but generally first-time buyers will borrow their mortgage from a bank or building society.

Banks and building societies are regulated by the Prudential Regulatory Authority (the Bank of England) and mortgages are regulated by the Financial Conduct Authority (FCA)

If you get advice from an independent financial adviser when taking out your mortgage, that may also be regulated by the FCA

Type of repayment – first time buyers

There are 2 ways you can pay back interest to your mortgage lender – you can choose a variable rate or a fixed rate mortgage.

Variable rate mortgages

A variable rate mortgage is one which is subject to change on a monthly basis, although it’s not normally as frequent as that. 

Each lender will have their own variable rate, and they will be based on the Bank of England’s base rate; this rate has not changed since March 2020.

Fixed-rate mortgages

A fixed-rate mortgage will mean your mortgage repayments are fixed for the term of your fixed rate deal. 

You can choose to fix your mortgage rate for 2 years, 3 years, 5 years, or 10 years

If you want to come out of your fixed-rate early, then you may be charged exit fees by your lender.

Early fixed rate exit fees

Mortgage lenders borrow money via the money markets largely with a lending product known as a Swap. A Swap means the bank can borrow the money it lends to you at a fixed rate, hence the bank will charge you more if you come out of the fixed rate early.

Fixed or variable rate – which is the cheapest?

It depends what you think the Bank of England is going to do, which also depends on the state of the UK economy.

A variable rate may be cheaper when rates are low, but a fixed rate mortgage will give you the security of knowing exactly what your monthly repayment is going to be.

Find out how much you will pay on your mortgage using a mortgage repayment calculator 

First-time buyer interest rates

Banks are not obliged to follow the Bank of England’s interest rate decision, but they are likely to pass on a rise because it impacts on the rate they are able to borrow. 

Before deciding on a fixed or variable rate bear in mind:

  • If you switch to a fixed-rate deal just before interest rates fall, you will not benefit from a fall in interest rates

  • If your fixed rate deal is coming to an end, you may be able to remortgage to a cheaper rate

  • If you are on a variable rate, your mortgage repayments are likely to fall

What happens if interest rates rise 

If you are on a fixed rate deal your monthly repayments will not rise but if you are on a variable interest rate it is likely your repayments will go up.

Repayment and interest-only mortgages

You can choose to pay your interest each month alongside the original amount you borrow – this is a repayment mortgage. It means you pay off the entire amount as you go along.

At the end of the mortgage - normally 25 years - you will own the property

Or you can pay off the interest only, this is an interest-only mortgage and it means your repayments will be cheaper.

WARNING  - if you take out an interest-only mortgage you will need to find an alternative way of paying back the capital - or value of the house when the mortgage ends otherwise you will not own the property.

Not all lenders allow first-time buyers to take out an interest-only mortgage. You may need to have a larger deposit or have built up some equity in your property.

What is equity?

Equity is the value of your home you own after you’ve paid off your mortgage so if you have a home worth £300,000 and a mortgage of £150,000 you have equity worth £150,000.

How cheap is it for a first-time buyer to get a mortgage?

Mortgage rates have fallen in the last few years, as a result of both Brexit and the Covid-19 pandemic.

For example:

Typical rates for first time buyers

First time buyers will pay less if they can put down a deposit of least 5% to 20% of the cost of the home they want to buy.

For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500 – 5%.

Saving more than 5% will give you access to a wider range of cheaper mortgages available on the market.

Apart from your monthly mortgage payments, you need to take into account other costs when buying a home.

These include:

  • Survey costs

  • Solicitor’s fee

  • Removal costs

  • Buildings insurance

  • Initial furnishing and decorating costs

  • Mortgage arrangement and valuation fees; and

  • Stamp Duty (Land and buildings Transaction Tax in Scotland, or Land Transaction Tax in Wales)

First-time buyers and Stamp Duty

Ordinarily, first time buyers are relieved from paying stamp duty for properties up to £300,000. However, the Government introduced a Stamp Duty holiday in 2020. This meant anyone buying a property worth £500,000 or less do not have to pay Stamp Duty. After 30 June 2021 Stamp Duty relief may be scrapped.

When is scrapped homeowners buying a property worth £125,000 or more will pay Stamp Duty, which is charged at 5% on properties up to £500,000. First time buyers will not have to pay stamp duty unless their property price exceeds £300,000.

What is Stamp Duty?

Stamp Duty is a tax you pay if you buy a property or land over a certain price in England and Northern Ireland. It’s also known as Stamp Duty Land Tax or SDLT.

The tax does apply throughout the UK:

How much is Stamp Duty?

You only pay SDLT if you buy a property that is more than the Stamp Duty threshold. The rates during the stamp duty relief period are as follows:

Property purchase priceStamp Duty rate
Up to £500,000 (£125,000 from 1 April 2021)0%
The next £425,000 (the portion from £500,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

You can use HM Revenue and Customs’ (HMRC) Stamp Duty Land Tax calculator to work out how much tax you’ll pay.

Can I afford my mortgage?

As a first-time home buyer, you will need to make sure you can afford to pay back your mortgage.

  • There are now strict checks when you apply for a mortgage.

  • Lenders will want to ‘stress test’ your finances to see if you can afford to pay back your mortgage if your rate rises

Other ways of getting a mortgage if you are a first-time buyer

Guarantor mortgages

Someone else can guarantee your mortgage, this is known as a guarantor mortgage and means a parent, guardian or close relative agrees to be responsible for paying the mortgage if you can’t.

Guarantor mortgages are legally binding and your guarantor needs to be able to afford to pay your mortgage if you cannot afford it.

You may need to go to a mortgage broker to find out more about which lenders offer guarantor mortgages. 

Help to Buy

This is a government scheme which helps with the cost of a deposit and anyone who is buying their one and only main residence can use the scheme.

Find out more about the Help to Buy scheme and use our Help to Buy calculator. You can also find out how to choose the right mortgage.