2020 First-time Buyer Mortgage Guide
by Simon Marzell
With this mortgage guide for first-time buyers, I'm going to cover absolutely everything you could possibly want to know about mortgages.
How much can you borrow
As a rule of thumb, lenders will let you borrow 4.5x your annual salary. For a joint application most lenders will let your borrow 4x your combined annual salary.
This UK Mortgage Calculator will tell you how much you can borrow based on your income and deposit amount. The actual amount is going to depend on your circumstances, which is why it's a good idea to speak to a mortgage broker.
When you apply for a mortgage, the lender will assess your affordability. This means they want to know every source of income you have and how much you spend each month.
The lender will also check your credit history to see whether you’ve kept up payments in the past. If you have adverse credit history, don’t worry. You may still be able to get a mortgage, but it will reduce the number of lenders willing to let you borrow.
If you're unsure what your score looks like use a free credit score tool like Clearscore.
When should you apply?
2020 is a great time to be applying for a mortgage.
Before you start looking at properties, it’s a good idea to get a mortgage agreement in principle. This pre-qualifies you for a mortgage with a specific lender. And gives you an estimate of how much that lender may be willing to let you borrow.
It shows how much you can afford to pay for your new home and helps to show estate agents and sellers that you’re serious.
This is something we can do for you. Just drop us an email.
1. Help to Buy for First Time Buyers
Help to Buy is available to first-time buyers and existing homeowners who want to buy a new build. The purchase price cannot be more than £600,000. You can borrow 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit.
Londoners can borrow up to 40% of the purchase price.
Check out the government's help to buy website if this seems like its for you.
2. Joint Mortgage
A joint mortgage could be suitable for you if you want to buy a property with at least one other person. Some lenders will allow up to four people to share a joint mortgage.
Each owner is on the property deeds and will be responsible for making the mortgage repayments.
It’s vital that you trust the person (or people) you’re applying for a joint mortgage with.
3. Guarantor Mortgage
When you don't have enough deposit, or you have bad credit, you may be able to get a guarantor mortgage. It can also help you get a larger mortgage for your first home.
When someone agrees to act as your guarantor, they commit to covering the repayments if you fail to keep up. Their name won’t go on the mortgage. It’s still a good idea to seek independent legal advice before asking someone to be your guarantor.
4. Shared Ownership
For first time buyers earning less than £60,000 per year. Shared Ownership gives them the opportunity to buy a share in a new build.
The buyer pays a mortgage on the share they own, and pays rent to a housing association on the remaining share.
The buyer only needs a mortgage for their share. So the amount of money required for a deposit is a lot lower when compared to buying a property outright.
You'll have the option to increase your share during your time in the property. In most cases you will eventually be able to own the property outright.
Shared ownership properties are always leasehold.
It's part of the government's help to buy initiative and you can find out more here: shared ownership.
Main Mortgage Types
Fixed Rate Mortgage
The interest rate you pay will stay the same throughout the length of the deal.
If you see someone advertising a “two-year fix” that means the rate advertised is fixed for two years.
Variable Rate Mortgages
With a variable rate mortgage the interest rate can change at any time.
You'll need to factor this into your monthly budget. Make sure you can afford to make higher payments if interest rates rise.
Comparing Mortgage Rates
Best thing to do is contact your mortgage broker to ask them what rates are available to you. There are mortgage comparison tools, but these won't tell you if you're eligible for the rate. And unfortunately the majority of consumers aren't actually eligible for the rates shown.
It's also advisable to speak to a broker because mortgage products can be confusing. The lowest interest rate might not be the best. There are often upfront fees for mortgage products which you need to take into consideration when working out the total amount you'll pay for your mortgage.