Mortgage Advice for First-Time Buyers

Buying your first home is one of life's biggest financial decisions and can feel overwhelming in today's challenging property market. With rising house prices, changing mortgage rules, and various government schemes available, first-time buyers need expert guidance to navigate the process successfully and secure the best possible deal.

Understanding the Current Market

The UK property market in 2025 presents both challenges and opportunities for first-time buyers. While house prices remain elevated in many areas, mortgage rates have stabilized, and government initiatives continue to support new buyers.

Key Market Factors

• Interest Rates: Current rates remain higher than historic lows but have stabilized
• Lending Criteria: Affordability tests remain strict following regulatory changes
• Regional Variations: Significant price differences between regions and property types
• Government Support: Various schemes available to help first-time buyers

First-Time Buyer Government Schemes

The government offers several schemes to help first-time buyers get on the property ladder. Understanding these options is crucial for maximizing your purchasing power.

First Homes Scheme

Offers discounts of 30-50% on new build homes for first-time buyers, key workers, and local residents in specific areas:

• Available on homes up to £420,000 (£630,000 in London)
• Minimum 5% deposit still required
• Income cap of £80,000 (£90,000 in London)
• Must remain your main residence for at least 5 years

Shared Ownership

Buy a share (25-75%) of a property and pay rent on the remaining share:

• Available on new build and resale shared ownership properties
• Can "staircase" to increase your ownership share over time
• Income limits apply (typically £80,000-£90,000)
• Must be unable to afford suitable housing on the open market

Lifetime ISA (LISA)

Save up to £4,000 annually with a 25% government bonus for first-home purchases:

• Available to ages 18-39
• Maximum property value of £450,000
• Must be a first-time buyer
• Penalties apply for non-qualifying withdrawals

Mortgage Basics for First-Time Buyers

Understanding mortgage fundamentals helps you make informed decisions and secure the best deal for your circumstances.

Types of Mortgage

Repayment Mortgages

Each monthly payment covers both interest and capital repayment. The most straightforward and popular option for first-time buyers:

• Guarantees the mortgage will be paid off at the end of the term
• Builds equity from day one
• Higher monthly payments than interest-only

Interest-Only Mortgages

Monthly payments only cover interest, with the capital repaid at the end:

• Lower monthly payments
• Requires separate repayment vehicle
• Higher risk and less common for first-time buyers

Interest Rate Types

Fixed Rate Mortgages

Interest rate remains constant for a set period (typically 2-10 years):

• Advantages: Payment certainty, budgeting ease, protection from rate rises
• Disadvantages: May miss out on rate falls, early repayment charges
• Best for: Those wanting payment stability and predictable budgeting

Variable Rate Mortgages

Interest rate can change during the term:

• Standard Variable Rate (SVR): Lender's default rate, usually highest
• Discount Rate: Discount off the SVR for a set period
• Tracker Rate: Follows Bank of England base rate plus margin

Deposit Requirements and Sources

The deposit is typically the biggest hurdle for first-time buyers. Understanding minimum requirements and funding sources is essential.

Minimum Deposit Requirements

• 5% deposits: Available but limited lenders, higher rates
• 10% deposits: More choice, better rates than 5%
• 15%+ deposits: Best rates and widest choice of products

Building Your Deposit

Savings Strategies

• Regular Savings: Set up automatic monthly transfers
• High-Interest Accounts: Maximize returns while saving
• Reduce Expenses: Temporary lifestyle changes to boost savings
• Additional Income: Side hustles or overtime work

Family Support

• Gifted Deposits: Money given without expectation of repayment
• Family Guarantor Mortgages: Family member guarantees the loan
• Family Offset Mortgages: Family savings offset mortgage interest
• Joint Borrower Sole Proprietor: Family member on mortgage but not title

Affordability Assessment

Lenders use strict affordability criteria to determine how much you can borrow. Understanding these helps you prepare and improve your chances of approval.

Income Multiples

Most lenders offer 4-4.5 times annual salary, though some offer up to 5.5 times for certain professionals or circumstances:

• Joint applications combine both incomes
• Bonus and commission may be included (often at reduced rates)
• Self-employed income averaged over 2-3 years

Affordability Stress Testing

Lenders test your ability to afford payments if rates increase:

• Typically tested at current rate plus 3%
• Must demonstrate affordability throughout mortgage term
• Includes assessment of all monthly outgoings

Improving Affordability

• Increase Income: Salary rises, additional work, include overtime
• Reduce Commitments: Pay off loans, reduce credit card limits
• Improve Credit Score: Check and improve credit rating
• Choose Longer Term: Reduces monthly payments but increases total cost

The Mortgage Application Process

Understanding the application process helps you prepare effectively and avoid delays.

Pre-Application Preparation

Documentation Required

• Proof of income (payslips, P60, SA302 for self-employed)
• Bank statements (typically 3-6 months)
• Proof of deposit source
• Credit agreements and loan statements
• Photo ID and proof of address

Improve Your Application

• Check credit report and correct any errors
• Register on electoral roll at current address
• Maintain stable banking patterns
• Avoid new credit applications before applying

Application Timeline

1. Initial Application: 1-7 days for initial decision
2. Property Valuation: 1-2 weeks
3. Full Underwriting: 2-4 weeks
4. Mortgage Offer: Valid for 3-6 months
5. Exchange of Contracts: Legally binding commitment
6. Completion: Keys and property transfer

Additional Costs of Buying

Beyond the deposit, first-time buyers need to budget for various additional costs that can add thousands to the purchase price.

Legal and Survey Costs

• Solicitor/Conveyancer: £850-£1,500
• Property Survey: £400-£1,200 depending on type
• Local Authority Searches: £200-£400
• Land Registry Fee: £40-£910 depending on property value

Mortgage Costs

• Arrangement Fee: £0-£2,000+ (can often be added to mortgage)
• Valuation Fee: Often free with mortgage application
• Mortgage Broker Fee: Varies if using a broker

Stamp Duty

First-time buyers receive relief on properties up to £625,000:

• No stamp duty on properties up to £425,000
• 5% on portion between £425,000-£625,000
• Standard rates apply above £625,000

Moving and Setup Costs

• Removal Costs: £300-£1,500
• Home Insurance: £200-£600 annually
• Utilities Setup: Connection fees and deposits
• Council Tax: Annual charge varies by location and band

Choosing the Right Mortgage

With hundreds of mortgage products available, choosing the right one requires careful consideration of your circumstances and priorities.

Key Factors to Consider

• Interest Rate: Balance initial rate with overall term costs
• Fees: Include all costs in comparison
• Flexibility: Overpayments, payment holidays, portability
• Cashback: Some products offer cashback for moving costs

Using a Mortgage Broker

Professional mortgage brokers can offer significant advantages:

• Market Access: Whole-of-market search capabilities
• Expertise: Knowledge of lender criteria and application processes
• Application Support: Help with paperwork and communication
• Ongoing Service: Support throughout the process

Common First-Time Buyer Mistakes

Avoid these common pitfalls that can derail your home buying journey.

1. Focusing Only on Monthly Payments

While monthly affordability is crucial, consider the total cost over the entire term, including fees and what happens when initial deals end.

2. Insufficient Budget Planning

Many first-time buyers underestimate the total costs of buying and moving, leading to financial stress or failed purchases.

3. Skipping the Survey

Mortgage valuations are basic. A proper survey can identify costly problems before you commit to purchase.

4. Not Getting Pre-Approved

An Agreement in Principle shows sellers you're a serious buyer and can speed up the purchase process.

After Your Purchase

Your mortgage journey doesn't end at completion. Ongoing management can save money and help you build wealth.

Regular Mortgage Reviews

• Review before your current deal expires
• Consider remortgaging for better rates
• Look for opportunities to reduce the term
• Make overpayments when possible

Building Equity

• Regular Overpayments: Even £50/month makes a significant difference
• Lump Sum Payments: Use bonuses or inheritance wisely
• Property Improvements: Add value through extensions or renovations