Mortgages For First-Time Buyers

Introduction

Welcome back to Let’s Talk Money and Mortgages. Today, Gemma is joined by Eddie, trained accountant and mortgage broker with over 10 years of experience, to discuss mortgage options for first-time buyers, including government schemes, bank initiatives, and tips for getting approved.

95% Mortgage Guarantee Scheme

Q: What is the 95% Mortgage Guarantee Scheme?
A (Eddie):
Introduced during the pandemic to help first-time buyers with small deposits.
Government guarantees 15% of your mortgage; you put in 5% deposit.
Provides access to mortgages for people who might otherwise struggle to get on the property ladder.
Many big lenders, like Lloyds, Santander, Barclays, and others, now offer this scheme.

Q: How is it different from standard 5% deposit mortgages?
A:
Government-backed scheme vs. bank-initiated 5% mortgages.
Banks have also introduced their own 5% deposit mortgages outside the scheme.
More options are now available for first-time buyers.

Borrowing Up to 5.5x Income

Q: Is it true that some banks now allow borrowing up to 5.5 times your income?
A:
Yes, a leading bank allows certain first-time buyers to borrow 5.5 times their income.
Traditional banks usually allow 4.5 times income.
Example: Someone earning £50,000 could borrow £225,000 at 4.5x income, but now up to £275,000 at 5.5x income.
Helps bridge the gap between rising house prices and slower income growth.

Help to Buy Scheme

Q: What is the Help to Buy scheme?
A:
Designed for new builds and first-time buyers.
Buyer contributes 5% deposit; government provides 20% equity loan, totaling 25% deposit.
Reduces mortgage requirement for banks to 75% of the property value, lowering interest rates.
Example: £400,000 house → £300,000 mortgage needed.
Maximum property value: £600,000 in London, lower elsewhere.

Joint Owner / Single Proprietor Mortgage

Q: What is a joint owner single proprietor mortgage?
A:
Parents can apply jointly with children for a mortgage.
Assessment considers joint income, but only the child owns the property.
Helps first-time buyers meet income multiples without triggering additional stamp duty for parents owning other properties.
Underused but very beneficial for young buyers early in their careers.

Mortgages with Guarantors

Q: How do guarantor mortgages work?
A:
A parent or family member acts as a guarantor, not a co-applicant.
Their income helps increase the borrowing limit.
Risk for the guarantor: if the buyer defaults, they must cover the mortgage.
Useful when buyers struggle to meet income multiples.

Shared Ownership

Q: What is shared ownership and how does it help first-time buyers?
A:
Usually offered via housing associations.
Buyer takes a mortgage for a share (e.g., 50%) of the property.
Housing association owns the rest; buyer pays rent on the association’s share.
Lower deposit requirement and smaller mortgage needed.
Still allows buyers to build equity gradually.

Top Tips for First-Time Buyers

Q: What tips help first-time buyers improve their mortgage chances?
A:
Work on credit score:
Ensure registered on the voter’s register.
Set up direct debits to avoid late payments.
Avoid unnecessary borrowing; use credit cards responsibly.
Keep credit card usage below 50% of your limit.
Check for CCJs or bankruptcies: Keep clean if possible.
Build deposit: Use schemes like LISA (Lifetime ISA) to get government bonus of 25%.
Review bank statements: Clear unnecessary spending, maintain clean financial habits.

How a Mortgage Advisor Can Help

Q: How can a mortgage advisor assist first-time buyers?
A:
Acts as a mentor and guides buyers through the process.
Reviews credit files and suggests improvements.
Identifies the best mortgage products, including 5% deposit schemes and joint applicant options.
Helps with practical steps: recommending solicitors, surveyors, and following up with all parties.
Can speed up the transaction using open banking and technology.
Key Takeaway: A mortgage advisor is more than just a broker; they provide guidance, support, and hand-holding through the entire property-buying process.

Closing Advice

These schemes and tips may not apply to everyone.
Always contact a mortgage advisor or financial professional for personalized guidance.
Disclaimer: A mortgage is secured against your home or property. Failure to keep up repayments may result in repossession.