Compare first time buyer mortgage deals

If you’re a first time buyer, one of the main steps towards owning your first home is getting a mortgage. Mortgages can seem overwhelming so if you’re ready to buy your first home, explore our guide to find out more about the different types of mortgage, how much you need for a deposit and what mortgage you could afford. Use our calculator to compare the best first time buyer mortgages.

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Buying your first home is a big deal and likely to be one of the largest financial decisions you ever make, so it is crucial that you research everything thoroughly and understand all your options before leaping in. The good news is that if you’re a first-time buyer, there are special first-time buyer mortgages, and Help to Buy schemes are tailored to help get you on to the property ladder.

Who is a first time buyer?

You are a first-time buyer if you have never owned a home before. So despite the word ‘buyer’, you are not a first-time buyer if you have previously inherited a home.

And if you’re jointly buying a home with someone else, you are not a first-time buyer if either if you have owned a home before.

How does a mortgage work for a first time buyer?

Knowing how much money you can borrow is one of the first things to investigate. Only once you know what your budget is, can you start to seriously house-hunt. As well as knowing how much you can borrow, the size of your deposit will play a part in this. The larger the deposit, the more likely your lender will be to consider increasing the amount you can borrow.

But whereas lenders used to look mainly at your income, nowadays they look at the wider issue of affordability. This means they pay as much attention to your outgoings as to your income.

As a rule of thumb, start on the basis that you’ll be eligible for between 3 and 4.5 times your pre-tax annual income. But if you have large regular outgoings – a couple of club and gym memberships, an expensive car to run and significant credit card repayments, for example – lenders might be a little more restrictive on how much they will advance.

Lenders also take into account how you would cope if there were a series of interest rate increases. Although rates have been very low for more than a decade, and the covid-19 pandemic means most observers think they will remain low for the foreseeable future, it’s important that you don’t find yourself unable to meet higher monthly repayments if a series of rate hikes suddenly happen. This is called affordability stress testing.

Your credit score and history will also have an impact on how much you can borrow. As a first-time buyer, you won’t have any mortgage history that lenders can look at, but if you have struggled with other credit – credit cards, car loans and so on – in the past, it could impact the deals you are eligible for.

If things are really bad, you might have to look at a bad credit mortgage. But you can boost your chances of getting a competitive deal by trying to sort out any existing debts, making monthly minimum payments on time and checking your credit report for any errors.

Sometimes, it’s not a case of bad credit but a case of no credit – if you’ve never had credit before, potential lenders have no benchmark to measure you against. If that’s the case with you, one option is to speak to your existing bank: if they already know you, they might be able to help more than a lender who has no access to your history as a customer.

How much deposit do I need?

There’s a difference between what you need and what you should aim for. There are some 100% mortgages which don’t require a deposit (although they do require a third party to act as a guarantor) but most mortgages do need you to put down a deposit. The required deposit is usually at least 5% of the property’s value, although many lenders will reserve the most competitive rates for customers who have far higher deposits available.

Another option is to consider the Help to Buy: Equity Loan scheme or Shared Ownership.

Should I use a mortgage broker as a first time buyer?

The process of getting your first mortgage can be challenging, so a mortgage broker can be helpful for offering advice and finding the best deals on the market. Mortgage brokers can help you to navigate different offers available and explain how to get the best available offers.

Lenders classify their products by the loan to value (LTV) ratio, which is the ratio of the mortgage against the value of the property. So the bigger your deposit, the lower the LTV – and this could make you eligible for a more competitive rate, because you are a lower-risk customer and you will have more equity in your home.

To work out your LTV, divide the amount you need to borrow by the value of the property and multiply the result by 100.

For instance, if your first home has a value of £200,000, and your deposit is £10,000, you’ll need a mortgage of £190,000. Divide £190,000 by £200,000 (which comes to 0.95) and multiply that by 100 (95). The LTV is therefore 95%, a value that more and more lenders now offer. If you increased your deposit to £20,000, the LTV would go down to 90%.

A lower rate could see you save thousands of pounds over the duration of your mortgage, so the more you can put down as a deposit, the better.

Mortgage types for first time buyers

There are many different mortgage types but most fall into one of two categories: repayment and interest-only.

Repayment mortgages

Most mortgages are repayment mortgages. You make a payment each month, clearing the interest that has been added to the loan and some of the capital.

At the end of the mortgage term, you will have cleared the loan and all the interest. You will own your home outright and you’ll have 100% equity.

For a first-time buyer, this is the most usual type of mortgage. You can use a comparison table to look for the best repayment mortgage rates on the market.

Interest-only mortgages

An interest-only mortgage requires you to pay off only the interest during the mortgage term. This makes it cheaper in terms of your monthly repayments, but you don’t make any inroads into the mortgage debt itself.

At the end of the mortgage term, you will still have the original loan to pay off, and you’ll be expected to have raised the money to pay it off at that point.

Interest-only mortgages used to be very popular because of the low monthly costs, but many over-55s who are nearing the end of their term are now finding themselves unable to pay off their mortgage debt. Interest-only mortgages are very rarely offered to first time buyers, but it’s worth being aware of them.

You can use the mortgage comparison table at the top of this page to find the best interest-only mortgage rates.

Interest Rates

There are also options when it comes to interest rates. You can plump for a fixed rate or choose a variable rate.

Fixed-rate mortgages

With a fixed rate mortgage, you know exactly what you are going to be charged over the term of the fix (which is typically for 2, 5 or 10 years). The main benefit of a fixed rate is that you know exactly what you will be repaying each month, and this can help you budget.

The downside of a fixed rate mortgage is that you are restricted on making overpayments, and you can be charged if you want to end the deal early.

If you do go for a fixed rate, you’ll need to make sure that you start looking around for a remortgage deal a few months before your existing deal comes to an end.

Use the mortgage comparison table at the top of the page to look for fixed-rate mortgage deals.

Variable-rate mortgages

With a variable rate mortgage, you generally get greater flexibility and you’ll have more freedom to overpay if you find yourself with some spare cash. But you don’t get the same certainty with your budgeting because if interest rates go up, so do your monthly repayments.

If rates move lower, you could find your monthly repayments fall, but as rates remain at historically low levels, most observers believe that future changes will be upwards.

There are several types of variable-rate mortgages.

  • Standard variable rate (SVR) mortgages fluctuate at the discretion of the lender – although you will be given some notice of any change, your lender doesn’t have to justify its decision. In practice, SVRs usually move in tandem with Bank of England base rate changes, but this is not always the case.
  • Tracker mortgages are directly linked to base rate. If the Bank of England puts the base rate up by 0.25%, the interest on your mortgage will go up by the same amount.
  • Discounted rate mortgages are based on your lender’s SVR but with a discount applied for a fixed period of time.

Help to Buy and other government schemes

There are 3 government Help to Buy schemes aimed at helping first-time buyers.

Help to Buy: Equity Loan

The Help to Buy: Equity Loan is for first-time buyers and home movers with a minimum 5% deposit. The government can lend up to 20% of the property value, which is fee-free for the first five years.

Your 5% deposit combined with the 20% loan means you can apply for a 75% LTV mortgage, which will typically be more competitive than the 95% mortgages deals you would otherwise have been looking at.

The maximum property price you can get with an Equity Loan depends on which region of England you are house hunting in. Here is a list of the regional price caps from highest to lowest:

  • London: £600,000
  • South East: £437,600
  • East of England: £407,400
  • South West: £349,000
  • East Midlands: £261,900
  • West Midlands: £255,600
  • Yorkshire and The Humber: £228,100
  • North West: £224,400
  • North East: £186,100

The scheme is available on new-build properties until March 2023.

Help to Buy: Shared Ownership

With the Shared Ownership scheme, you have the option to buy between 25% and 75% of a property and pay rent on the remaining share. With new-builds, you pay rent to the developer; with social housing, you pay rent to the housing association.

You can purchase the remainder of the property at a later date for its market value at the time of purchase.

Lifetime ISA

The Lifetime ISA allows you to deposit up to £4000 a year to save towards buying a first home or retirement. The government will boost your savings by 25%.

Stamp duty for first-time buyers

Stamp duty land tax, to give it its full name, is the tax collected by the government on both leasehold and freehold property sales. First time buyers have to pay stamp duty on a residential property or piece of land over £300,000.

The rules are slightly different in Scotland and Wales.

When should I buy my first home?

Should you buy or should you rent? Some people consider renting to be a waste of money but it has its positives. You get more freedom to move, you are not tied down by a mortgage and you won’t foot the bill for home improvements.

But rents are normally more expensive than mortgages, and a lot of people like the idea of owning their own home rather than paying someone else to live in theirs. See our full guide on renting vs. buying.

To give you an idea of how rates compare, according to rental referencing firm HomeLet, the average monthly rent is now £918. Data from Halifax shows the average monthly mortgage payment is £669. That’s a difference of £249 per month and £2,988 per year.

Of course, the primary problem for renters is being able to scrape together a deposit in the first place: according to financial publisher Moneywise, the average UK deposit for a first-time buyer is around £33,400 – which is a lot of money when we spend on average 27% of our gross salary on rent.

That said, more and more lenders are now offering 95% loan-to-value (LTV) mortgages, stamp duty has been cut for first-time buyers on the first £300,000 of properties worth up to £500,000, and the government has extended its Help to Buy scheme beyond the original 2021 end date (albeit with greater limitations such as regional price caps).

Mortgage tips and tricks for first time buyers

Here are some other tips, tricks, and things to watch out for when getting a mortgage as a first time buyer.

First, be warned that there are a few other fees and charges when you first take out a mortgage:

  • Arrangement, set-up or completion fees. A charge from your lender to set up the mortgage, these range from £0 to £2,000. Often, mortgages with the lowest interest rates come with hefty fees, so keep an eye out.
  • Booking or application fees. Intended to secure your mortgage funds, these are usually a few hundred pounds and won’t be refunded even if the home purchase falls through. They can be rolled into your mortgage, so you don’t have to pay it immediately – though of course you then have to pay the interest on that extra capital.
  • Mortgage valuation fees. When you apply for a mortgage, your lender will need to verify the property is worth the price you’re paying. That’s what this fee is for, though how much it costs depends on the lender (sometimes it’s free!)

Other fees to consider outside of the mortgage itself are the home-buyer’s survey (a few hundred pounds) and the legal fees for conveyancing. Conveyancing is the process carried out by solicitors, to legally transfer ownership from the seller to the buyer. These are based on the value of the home, but usually cost upwards of £500.

Here are some additional tips on how to get the best mortgage deal as a first time buyer, and how to reduce your total interest payments over the full mortgage term:

  • Save up a large deposit. Most banks and building societies will offer first-time buyers a 95% LTV mortgage. That is, you only need a 5% deposit and they’ll provide the rest, but a larger deposit will give you access to mortgages with lower interest rates.
  • Don’t spend more than you can afford. It goes without saying, but you shouldn’t bite off more than you can chew. UK banks and building societies carry out affordability checks before offering you a mortgage to ensure you can comfortably keep up repayments.
  • Research thoroughly. That means more than trawling through Zoopla and Rightmove until the early hours. If you spot a mortgage with an incredibly low interest rate, keep an eye on the fees. If you’ve not lived in the area in which you want to buy, check commuting time and costs and local crime stats.
  • Read the small print and think long term. Bagged a mortgage with a great rate? Have a look at overpayment charges and early exit fees which could sting you later on. The same goes for Help to Buy schemes, they may help you get onto the property ladder in the short term, but will you be able to afford the loan repayments later on?

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Last updated: 7 January, 2022