Buying your new home is an exciting time, but the process of getting a mortgage can be an intimidating prospect to first time buyers. In this guide, we’ll cut through the jargon and help you understand what a mortgage is and how to get one.
What is a mortgage, and how does it work?
A mortgage is a loan that allows you to borrow money from a lender to purchase a residential property or land. For most buyers, they will not have the full price of the property lying around, which is where a mortgage comes in to help buyers borrow the money to buy their home.
You’ll need 5%-10% of the purchase price to put towards the mortgage as a deposit. To visualise this, if you were buying a home for £250,000, you would need £12,500 as a deposit. You’ll need to make monthly mortgage payments, which include the principal amount borrowed and interest charges.
How much deposit do I need to buy a house?
Most mortgages require a 5%-10% deposit to be able to purchase. For most first time buyers, it’s easier to purchase 5% of the property as you’ll need less deposit on hand. However, note that the lower your deposit, the higher your monthly payments will be.
As you’re a first time buyer, there’s government schemes available to help you purchase your home. We’ve written a guide on our best tips for saving for your deposit and listed a range of helpful government schemes that can help first time buyers with a small deposit.
Loan to Value (LTV) in the UK
Loan to Value (LTV) is a way to measure how much of a property’s value you’re borrowing when getting a mortgage.
It’s calculated by taking the mortgage amount and dividing it by the property’s value. For example, if you’re buying a £300,000 house and borrowing £240,000, your LTV would be 80% (£240,000 / £300,000 x 100).
Lenders in the UK usually have limits on how high they’ll let the LTV be, often around 75-95%. The lower your LTV, the less risky you are to the lender. A lower LTV can get you better mortgage rates and terms.
How do I know if a property is within my budget?
We’ll calculate your mortgage affordability to understand exactly how much you can borrow based on your income, outgoings, and credit rating. Your mortgage adviser will get you a mortgage in principle before starting your property search to understand your budget better.
This is simply a statement or certificate that you can show estate agents or builders that you could acquire a mortgage for the property. Want to know how much you can borrow? Try our mortgage calculator.
What other upfront costs should I consider?
In addition to the deposit, you’ll need to budget for other expenses such as stamp duty, legal fees, surveyor fees, and moving costs. These can add up quickly, so it’s essential to factor them into your overall budget.
Workout how much you’ll pay in Stamp Duty with our calculator.
What should I look for when viewing properties?
When viewing properties, pay attention to the overall condition, potential repair costs, energy efficiency, and any potential for future renovations or extensions. It’s also crucial to consider the location, proximity to amenities, and transport links. It’s a good idea to take a look at house prices in the area your looking at to get an idea of what sort of asking price seems fair, and so you have the knowledge behind you to negoitate the cost.
The last thing you want to do is purchase a home and regret it pretty quickly when you realise there are issues you overlooked at the beginning of your journey.
Suppose you do want to get out of your mortgage early, and sell your property. In that case, you’ll potentially face hefty early repayment charges and exit fees, so it’s advisable to fully vet the property and the area out before committing to purchase.
What is the difference between a freehold and a leasehold property?
A freehold property means you own the property and the land it sits on outright. With a leasehold property, you own the property for a fixed period of time (usually long-term leases), but the land belongs to a third party, typically a freeholder or a landlord.
How would I know if my property is freehold or leasehold?
It’s made clear before you make a purchase if the property is freehold or leasehold.
To visualise the difference, a standard semi-detached house is most commonly a freehold – so you’ll own the land it sits on and are responsible for the maintenance of the grounds. Whereas if you’re buying an apartment you’ll typically be buying the property but the land will belong to a landlord, freeholder, or developer of the site – so you wouldn’t be able to start making changes to the land without permission.
Can I boost my chances of getting a mortgage?
You can certainly help your chances of getting a mortgage by ensuring you have the following items in a good position before you apply:
Improve Your Credit Score
Lenders look at your credit score to determine whether you’re a borrower they can trust to lend to.
Save for a Larger Down Payment
A bigger down payment reduces the amount you need to borrow.
Maintain Steady Employment and Income
Lenders want to see a stable job and consistent income.
Gather Required Documents
Have documents like government-issued ID, National Insurance number, and bank statements ready.
Consider a Co-signer or Co-borrower
If your credit score or income is not strong enough, you may add a co-signer or co-borrower with better credit and income to the application. However, both parties will be legally responsible for the mortgage.
How do I choose the right mortgage?
There are various mortgage types, such as fixed-rate, variable-rate, and tracker mortgages.
A fixed-rate mortgage is a type of mortgage which locks you in at the interest rate you acquired at the time of your mortgage application. You’ll repay a set amount of mortgage each month, giving you stability in your monthly repayments.
Whether interest rates rise or fall in this the period, it will not affect your repayments. For example, if you fixed your rate for 5 years at 4%, if rates increased to 5% within this period, you would not be affected till after your fixed period expired.
It’s a fantastic option for people who like to know exactly what they are paying each month, and it protects your repayments for the fixed period if rates increase. However, if rates decrease you’ll still pay whatever rate your mortgage was locked into until you remortgage. A fixed rate is the most popular type of mortgage in the UK.
A tracker rate follows the Bank of England’s base rate. So your rate has the potential to change every month. This can work in your favour if the time your looking for a mortgage the interest rate is high and you want your rate to remain flexible in case rates goes down. It’s essentially a way of hedging your bets against the base rate. A tracker rate is a great option for those who don’t mind seeing fluctuations in their repayments, knowing that their not tied to a set interest rate if rates decrease.
A variable rate mortgage is a type of mortgage of which the interest rate follows a rate set by the lender themselves. A standard variable rate (SVR) is typically more expensive than other rates out there. However, there are also discounted rate mortgages which is where a lender offers a discount on their standard variable rate for a set period.
What happens after my mortgage application is approved?
Once your mortgage is approved, you’ll need to instruct a conveyancer or solicitor to handle the legal aspects of the purchase. They will conduct searches, negotiate the contract, and ensure a smooth transfer of ownership.
Buying your first home is a significant investment, but with proper preparation and guidance, the process can be manageable and rewarding. At Newhomes, we understand the unique challenges faced by first-time buyers and are committed to providing the support and resources you need to make an informed decision.
How Can Newhomes Help?
Newhomes are expert mortgage brokers who have helped thousands of first time buyers get on the housing ladder. Our mortgage advisers are highly equipped to help you get your first mortgage, and help you find vital home insurance to protect all you’ve worked for.
Why choose us?
- Over 27 years helping homebuyers get their mortgage.
- Winner of the Platinum Trusted Service Award 2024.
- Winner of the Gold Trusted Service Award 2023.
- Barclays Winner – Best Diversity Initiative 2023.
- Hundreds of fantastic 5* reviews from happy customers.
We provide quality service to guide applicants through this first step. Get in touch today with one of our advisers. Call 01543 464 144 or email info@newhomesadvice.co.uk.
