How to get your first mortgage

Despite the current uncertainty surrounding the property market, 29,400 new first-time buyer mortgages were completed in December 2018 alone, according to banking and finance representative UK Finance.

So, even though securing your first mortgage and buying your first home is a huge undertaking, it’s still doable.

UK Finance also revealed, however, 4.5% fewer first-time buyer transactions took place this December than in the same month last year, though the amount of new lending (£5.0bn) was the same year-on-year.

The same data showed the average first-time buyer is 30 years old and has a gross household income of £42,000 – but that doesn’t mean you can’t get a mortgage if your personal situation is different.

How do I apply for my first mortgage?

No mortgage lender wants to lend money to someone if they think there’s a high chance they won’t get their money back, so the key to getting your first mortgage is to prove you’re a reliable investment. Here’s how:

  1. Save up as much of a deposit as you can – the bigger the deposit, the better the rates. Not got much? Look into the government’s Help to Buy schemes
  2. Check your credit score – you can do this for free with all three credit reference agencies (Experian, Equifax and TransUnion)
  3. Scrutinise whether you can really afford a mortgage – does your incoming salary cover all payments with enough left over to live on? Could you still pay if rates went up?
  4. Find a property – this is the fun part! Look online and visit properties you like multiple times in person
  5. Look for a mortgage – speak to your bank first and use unbiased best-buy tables to get an idea of the market
  6. Speak to a broker – they can help you navigate the market and may be able to give you access to exclusive deals
  7. Choose a mortgage and apply!

Who can get a mortgage?

You’re most likely to get a mortgage if:

  • You’re in full-time employment
  • You’re sensible with your money
  • You’ve saved enough of a deposit
  • You’ve got a good credit score

But not everyone who wants a mortgage can get one and as a first-time buyer it can be trickier than for those who are remortgaging or have owned a property before.

One reason is that you have less of a credit history, so lenders have less evidence you can meet payments in full and on time. Similarly, you’ve not had a mortgage product before, which, to a lender, might make you look like a risky investment. Plus, many first-time buyers have small (or no) deposits, meaning you’ll need to borrow more money.

How much deposit do I need?

How much deposit you have determines how much you’ll need to borrow to buy the property you want. The ratio between your deposit and your mortgage is known as the loan-to-value (LTV) ratio and is given as a percentage.

For example, you want to buy a flat that costs £100,000 and you have a £5,000 deposit. As you only have 5% of the property’s value for your deposit, you’ll need to borrow the remaining 95% (in this case, £95,000). This means your LTV is 95%.

Though the number of lenders offering 95% LTV mortgages has increased over recent years to encourage more first-time buyers to enter the property market, the rates simply aren’t as competitive as 85 to 65% LTVs.

“The penalty for only having a 5% or 10% deposit is significantly less now than it was even a year or two ago,” senior mortgage manager at mortgage broker John Charcol, Ray Boulger, explains. “A 15% deposit is the point at which the interest rate falls.

“Whether you have a 5% or 25% deposit, the other factor which will affect whether or not your loan application is approved is affordability.”

What is mortgage affordability?

Banks and building societies have to adhere to strict new rules over how much they can lend to you, based on a number of factors, including your income, credit score, and affordability.

Affordability is a measure of how much money you have in the bank after your income and all your outgoings have been taken into account. Having a high salary will not be enough to make you pass a lender’s affordability test if you’re overspending or have a lot of debt.

“If you are first-time buyer your prospective lender will most likely want to see your bank statements,” says Boulger. “They will be checking to see that you don’t exceed your overdraft, or that you don’t go overdrawn. Lenders might be concerned if you are spending money on things that are not essential.”

Lenders need to ensure you can afford to pay back the debt (mortgage) you owe them.

The Money Advice Service has a good affordability calculator that you can use before you start applying for mortgages. It’s really important to use tools like this because being turned down for a mortgage will have a huge negative impact on your credit score. Having a bad credit score will then make it even harder to get credit products in the future.

Which type of mortgage is best for a first-time buyer?

The best type of mortgage anyone (not just first-time buyers) can get is one that costs as little as possible. This goes far beyond mortgages with the lowest interest rates because they often come with high set-up fees (some are as much as £2,000) to make up the difference. Low-rate mortgages may have more restrictions than those with slightly higher rates when it comes to overpayments and/or early exit charges.

There are some mortgages, however, that are specifically designed to help first-time buyers:

  • Help to Buy: Equity Loan mortgages – the government lends you up to 20% (up to 40% in London) of the cost of your new-build home, so you only need to provide a 5% cash deposit
  • Help to Buy: Shared Ownership mortgages – you buy between 25% to 75% of the property and the property developer/housing association owns the rest. Available on new builds and ex-council housing
  • Help to Buy ISAs – a tax-free savings account that allows you to save up to £2,400 per year. The government gives you a 25% bonus when you withdraw the money to buy a property
  • Guarantor mortgages – a family member puts up their own home and/or savings as security on your mortgage

For more detailed information, read our in-depth guide on Help to Buy mortgages.

Mortgages tend to fall into two camps: fixed or variable rates. Many first-time buyers opt for the safer fixed-rate kind because payments are set in stone for the duration of the offer (usually two, five or 10 years).

Can I get a mortgage without a deposit?

You can get a mortgage without a deposit but it’ll be a much more difficult journey and rates can be a lot higher. “Realistically, you are going to need some additional help, such as help from your family or buying with another person,” says Boulger.

There are some products, known as 100% mortgages that allow you to borrow 100% of the property’s value. However, there aren’t that many on the market and they still require capital from somewhere. Barclays’ Family Springboard Mortgage, for example, enables you to buy a home without a cash deposit, provided someone in your close family can stump up 10% of the property’s price as security.

Nevertheless, lenders offer preferential rates to customers who have saved up a large deposit, with the best rates going to those who have a deposit equal to 25% of the purchase price of the property – a loan-to-value ratio of 75%.

Edited by: Sarah Guershon

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Last updated: 8 August, 2019