First-time home buyer guide

A person is generally classified as a first-time-buyer if they’re buying their only or main residence, and have never owned a freehold or have a leasehold interest in a residential property in the UK or abroad.

A mortgage is a loan taken out to buy property or land. Most run for 25 years, but the term can be shorter or longer.

You’ll need a minimum 5% of the purchase price as a deposit, and borrow the rest of the money (the mortgage) from a lender such as a bank or building society.

The loan is ‘secured’ against the value of your home until it’s paid off.

If you can’t keep up your repayments, the lender can repossess (take back) your home and sell it so they get their money back.

Before looking at properties, you need to save for a deposit.

Generally, you need to try to save at least 5% of the cost of the home you’d like to buy.

For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500 (5%) for the deposit.

Saving more will give you access to a wider range of cheaper mortgages available on the market and a lower interest rate.

There are a range of schemes available to help first-time buyers get on the housing ladder, particularly if you only have a small deposit. 

When talking about mortgages, you might hear people mentioning ‘Loan to Value’ or LTV.

This is simply the amount you’ve borrowed to buy your home (the loan) compared with the mortgage lender valuation of the property.

For example, if you buy a home for £200,000, put down £20,000 as a deposit and have a mortgage of £180,000 – your LTV is 90%. This is because the amount you’ve borrowed (£180,000) is 90% of the home’s value (£200,000).

The lower the LTV, the lower your interest rate is likely to be. This is because the lender takes less risk with a smaller loan.

The cheapest rates are typically available for people with a 40% deposit, which is a 60% LTV.

As a first-time home buyer, the most important thing to bear in mind is whether you can really afford to take this step.

It’s a good idea to put together a budget before you start looking for a property. Think about how much you can afford to pay every month, remembering you’ll still have to cover everyday costs such as gas, electricity and food.

Apart from your monthly mortgage payments, there are others costs when buying a home.

These include:

• survey costs
• solicitor or conveyancer fees (this often includes extra costs, such as search and Land Registry fees)
• mortgage arrangement and valuation fees
• removal and moving in costs
• buildings insurance
• initial furnishing and decorating costs
• Stamp Duty (Land and Buildings Transaction Tax in Scotland, or Land Transaction Tax in Wales).

You can apply for mortgages directly from a bank or building society.

But you might also want to think about using a regulated mortgage adviser. Advisers know a lot about the mortgage market and can help you find the mortgage that best suits your needs.

This is particularly useful if:

• you only have a small deposit
• are self-employed
• there are other circumstances such as the type of property, for example you need a mortgage for a shared ownership scheme. 

Comparison websites are a good starting point for comparing mortgage interest rates. You can use these websites to compare mortgages:

• MoneySavingExpert
• MoneySupermarket
• Moneyfacts

There are many different types of mortgage on the market, and understanding these options will help you make the right choice.

The first thing to think about is the interest rate. You might start out on a fixed rate deal for a set number of years. After this, you will normally be moved to your lender’s standard variable rate. This is unless you transfer to another mortgage with your existing lender, or re-mortgage to a new lender.

Repayment mortgages are the most common, where you make monthly payments for the amount you borrowed and the interest.

The other type of mortgage is known as an ‘interest only’ mortgage. But these aren’t often available unless you’re looking for a buy-to-let mortgage.  

If you want to buy a house, it’s likely you’ll buy the freehold. This means you own the property and the land it sits on.

If you’re buying a flat, you’ll be buying leasehold, or buying into a share of the freehold.

Applying for a mortgage can seem like a long and confusing process, with a lot of forms to fill out.

You’ll need to provide evidence of your income, credit commitments and spending. If you’re self-employed, you’ll need to provide tax returns and business accounts for the last two or three years.

Lenders will carry out what’s called an affordability assessment. This is a detailed look at your finances, which lenders use to work out if you can afford your long-term repayments. 

If you’re struggling to save a large enough deposit, there are some options available to you.

This includes a range of family assist mortgages. This is where whoever is supporting you puts a percentage of the money you’re looking to borrow into a specific savings account, or secures the mortgage against a percentage of their own property.