First Time Home Buyer Mortgages

If you’re wondering if there are any differences between first time buyer mortgages and other types of mortgages, the answer is yes and no. While the basics are the same, first time buyers can access exclusive products, interest rates, and lending criteria that are tailored to their specific needs.

Certain lenders offer mortgage products and interest rates that include additional incentives to help with upfront costs. These can include free property valuations for mortgage purposes or cashback that can be directly paid to your solicitor upon completion to reduce their final fee.

Moreover, some lenders have lending criteria that favor first time buyers, enabling them to borrow more money.

When embarking on a property search, obtaining an AIP can provide you with the confidence and knowledge of your mortgage capabilities. This, in turn, helps to establish the maximum budget for buying a home.

Having an AIP in hand when offering on properties shows that you are an organised and serious buyer, potentially increasing your chances of having your offer accepted. However, it’s important to note that an AIP does not guarantee that you can secure the mortgage.

At A E Thomson, we take a proactive approach to ensure your mortgage readiness. By obtaining your key documents prior to arranging an AIP, we can identify and resolve any issues that may arise during the application process. This helps to ensure that your application is accepted the first time, making the entire process smoother and less stressful.

It’s worth noting that the most common reasons for mortgage application declines are non-disclosure of information, incorrect information provided, or issues with the property during the mortgage valuation stage. Therefore, our process of obtaining the key documents prior to an application and fully understanding you and your circumstances helps us ensure your application is accepted on the first attempt.

The amount that you can borrow as a first-time buyer varies from lender to lender, as each has their own criteria and unique methods of determining how much they will lend you. Generally, most lenders will consider up to 4.5 times your household income, subject to an affordability assessment. However, this evaluation may be influenced by variables such as your level of income and available deposit, commitments, credit history, dependents, property-related expenses, and the term of the mortgage, which may be influenced by your age.

It’s important to note that each lender has its own method of interpreting your income, the amount of income and the size of your deposit may give you access to lenders that consider more than 4.5 times your income. Some lenders are more favorable to first-time buyers than others, and if you’re a trainee or qualified professional some lenders can consider lending up to 6.5 times your income.

When seeking financial advice, it’s important to understand the difference between a lenders mortgage affordability assessment and a budget planner. The former involves reaching out to lenders to determine how much they would be willing to lend you based on your income, deposit, dependents, commitments, loan term and interest rate. Larger lenders often rely on data provided by the Office of National Statistics for your households living expenses and may not consider your actual living expenses.

While the borrowing amount indicated in the mortgage affordability assessment may seem reasonable, it’s critical to remember that everyone’s lifestyle is different. Therefore, it’s crucial to undertake a payment stress test to ensure that your mortgage is genuinely affordable. This involves assessing mortgage payments over the interest rate you’re paying for a specific period.

Budget planning is an important tool used by mortgage advisers to ensure you receive the right advice. It involves analysing whether the mortgage you want is compatible with your lifestyle and remains manageable even if interest rates rise or you experience significant life changes e.g. having a child / children. By conducting an in-depth budget planner, advisers can tailor their recommendations to your needs, including the maximum affordable mortgage, the type of interest rate (fixed, variable, or tracker), and the term of your mortgage.

In recent years, historically low interest rates have made mortgage affordability more accessible, and budget planners were often quite flexible. However, the cost-of-living crisis has led to a surge in mortgage interest rates, making budget planners more stringent. As a result, people have less disposable income, and buying property has become less affordable. Mortgage advisers play a critical role in helping people navigate these changes and make informed decisions about what they can genuinely afford.

Help to Buy ISA:

• Launched in December 2015, the HTB ISA permits a monthly deposit of £200, with interest earned on the savings.
• The government pays a 25% bonus – up to a maximum of £3,000 – when you purchase your first home in the UK.
• To claim the bonus, the purchase price must be £250,000 or less, or up to £450,000 if you’re buying in London.
• You must have opened an HTB ISA before November 2019 and can continue contributing to it until November 2029.
• You have until November 2030 to complete the purchase within the threshold and claim the bonus.
• £200 per month is a limited contribution, and the £250,000 purchase price may be quite restrictive depending on where you are in the UK.

Lifetime ISA:

• Introduced in April 2017, the LISA is designed for young people to save for their first home and retirement.
• You can contribute up to £4,000 per year, and there are no restrictions on how you make this total annual contribution.
• Your annual contributions receive a 25% government bonus, which is paid into your LISA and earns interest.
• If you’re buying your first home, you can use the LISA balance and bonus to purchase a property up to a limit of £450,000.
• If you have an HTB ISA but expect your first home to exceed £250,000, you should consider transferring your balance to an LISA.
• The LISA must be open for at least 12 months before claiming your balance and bonus on completion of a house purchase, so plan ahead.
• You can choose to use the full amount and close the account, or use some of the balance but keep the account open for retirement planning.
• If you’re likely to buy for less than £250,000, consider whether you intend to buy within the next 12 months or whether the HTB ISA bonus you expect to receive exceeds the LISA bonus.
• The maximum bonus eligible on the HTB ISA is £3,000, so it could take 1-3 years for the LISA to be worth switching to.
• If you haven’t started saving for your first home yet, consider opening a LISA as soon as possible.

Stamp Duty is a tax paid on property purchases upon completion. If you’re a first-time homebuyer in England, you may be eligible for a Stamp Duty relief which can help reduce your upfront costs.

For instance, first-time buyers aren’t required to pay Stamp Duty on properties valued up to £425,000, which can save you up to £8750. If the property you purchase is between £425,000 to £625,000, you’ll be exempt up to £425,000 but charged 5% on the calculated difference, up to a maximum purchase price of £625,000.

E.g. if you purchase for £500,000 you’d pay 5% of £75,000 = £3,750

If the purchase price is over £625,000 you will not benefit from First Time Buyer Stamp Duty Relief. For more information on Stamp Duty, visit https://www.gov.uk/stamp-duty-land-tax. If you’re a first-time buyer, your solicitor can provide confirmation. However, if your situation is more complex, it’s best to speak with a specialist tax advisor

If you’re a first-time homebuyer, it’s important to consider the fees that come along with the purchase. Here are the main fees you may encounter:

• Solicitor / Conveyancing Fees – The cost of a solicitor will vary based on factors such as level of expertise, type of service, and individual circumstances. Solicitors charge fees for their work, and the cost may be influenced by your source of deposit, type of purchase, or property. For example, if you have an LISA or HTB ISA, the solicitor will charge for their role in claiming bonuses. Similarly, if you’re receiving a gift, the solicitor will charge for their work in validating the source of the funds. If you’re buying a new build, the solicitor will charge for the extra validation of key legal documents, warranties, and other time constraints.

At A E Thomson, we have a national panel of solicitors that we can recommend based on the facts of your transaction. Our software can also help break down the potential costs.

• Stamp Duty – Depending on the purchase price, you may have to budget for a Stamp Duty Tax. During our meeting, when we review your borrowing capabilities and purchase budget, we can help outline whether you need to budget for stamp duty and how much.
• Lender Fees – The most common fees payable to lenders are the application fee, valuation fee, and product fee. We will outline the applicable fees when making a recommendation to you. Some lenders do not charge these fees, so we’ll recommend a lender based on your individual needs and preferences.
• Survey – It’s wise to pay for your own survey to understand any major issues or potential costs associated with the property. There are two main types of surveys – level 2 and level 3. We can help you determine which survey to consider based on the age and condition of the property. We work with The Moving Portal to find you a suitable surveyor in the area that you’re buying.
• Broker Fee – If you use a broker, you may be charged a fee depending on their fee model and service. We charge a fee for our service, and our fee structure is outlined in the first meeting. No applications will be submitted without your prior consent and signed fee agreement.

When it comes to obtaining a mortgage, understanding your credit profile – not just your score – is crucial. To help ensure your mortgage success, we ask our clients to download a copy of their credit report before arranging an Agreement in Principle and/or a full mortgage application.

It’s preferable to do this early in the process. By reviewing your credit report from Check My File, which collates information from Experian, Equifax and Transunion – the three main credit reference agencies that lenders use – we can determine any potential issues.

Our review of your credit report encompasses your overall commitments, score, address and electoral role history, and general credit history. The most common issue we identify is that the address or electoral role history is out of date. Updating this information can take up to 30 days, but it typically improves your score once everything is correct.

We advise our clients who have a bad credit history on how to improve it, whether any outstanding debt must be cleared, and which lenders to approach. This will save you time and prevent any further damage to your credit score by submitting an Agreement in Principle to lenders who won’t lend to you.