What is the best mortgage loan for a first-time buyer? | WIS Mortgages
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What is the best mortgage loan for a first-time buyer?

If it is your first time buying a home, you’re classified as a first time buyer. As such, you may qualify for specific mortgage products designed for people taking their first foray into the property market. If you’ve owned residential property before, however, you won’t be eligible. This applies even if you were part of a shared ownership scheme.

If you're planning on buying your first home, you'll likely be wondering 'what is the best mortgage loan for a first-time buyer?'. Getting the right mortgage rate is imperative to helping to ensure that you can afford your first mortgage.

In this post, we take a look at what makes the best mortgage loan for a first time buyer. You’ll learn about the latest schemes available for first time buyers, how to get a first time buyer mortgage, and how big your deposit needs to be.

What first-time buyer schemes are there?

In the UK, there are a number of first time buyer schemes designed to help new property owners onto the property ladder.

For instance, if you opened a Help to Buy ISA before 2019, you may still use it to put down a deposit on a house before 2030. Similar to a Lifetime ISA, it gives you a 25% bonus on your savings. However, the savings limit is £200 per month -- considerably less than the £4,000 limit on a Lifetime ISA.

Another new scheme is the First Homes Scheme. This arrangement gives buyers a 30 percent discount on the market value of new-build properties. However, you must be a first time buyer and certain key workers and veterans may get priority.

Lastly, first time buyers may benefit from the 95% Mortgage Scheme. Here, buyers pay just a 5% deposit with the government underwriting the rest of the loan. The scheme is only available on properties worth less than £600,000.

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How do you get a first time buyer mortgage?

The prospect of owning your own home is exciting. But how do you actually apply for a first time buyer mortgage if you’ve never done it before?

The best approach is to start preparations early. You want to make sure that you have everything in order before you begin.

The first step is to check your credit rating. This is so you can determine whether banks and building societies will accept your mortgage application. If your score is too low for whatever reason, they may reject your application or insist that you pay higher rates.

Don’t worry: there are plenty of tried-and-tested ways to boost your credit score. So if you discover it’s low, you can always improve it.

The next step is to save up a cash deposit. This is a large sum of money you’ll need to put down on the mortgage. Lenders require a minimum deposit of 5% for first time buyers. So if you want to purchase a £200,000 property, you’ll need £10,000 in cash. Mortgage lenders insist on this to protect them against negative equity (when the value of your home falls below the loan amount).

When you’re ready to take out a mortgage, you’ll need to talk to a mortgage broker. This certified financial professional can guide you through all of the mortgage products on the market and show you which are most suitable for your needs.

Most mortgages require you to have a regular income to apply. Payments on the mortgage usually begin immediately -- the first month you’re in your new home. You will need to prove to the lender that you have a salary and lifestyle that can support repayments.

What is the best mortgage loan for a first time buyer?

The best mortgage loan for a first time buyer is one that has:

  1. A low deposit (around 5%)
  2. A low rate of interest

If you can find a mortgage with both a low deposit and a low rate of interest, then you will pay less overall on your mortgage. A low deposit, for instance, reduces the opportunity cost of capital. You don’t have to save a large sum of money which you could productively invest elsewhere.

Low interest rates are also helpful. These reduce the price of the mortgage over the long term and help you pay it down quicker.

The overall cost of your mortgage will depend on how much you borrow. Suppose, for instance, you want to take out a mortgage on a home costing £200,000. If the deposit is £10,000, then the mortgage will be for £190,000. At 3 percent interest, you’ll pay £5,700 in interest per annum (assuming that you do not pay back any of the principal). However, if you want to buy a £600,000 property with a 5% deposit, you’ll need to take out a £570,000 mortgage. Assuming the same rate of interest, you’ll pay £17,100 a year in fees.

How much can you afford as a first time buyer?

The size of the house you can afford as a first time buyer depends on a number of factors. These include the size of your deposit, whether you need to make any improvements when you move in, and the limits imposed by the mortgage lender.

Before you buy any property, it is critical to work out whether you can afford the monthly repayments. When you take out a mortgage, the lender will discuss this with you. In general, you’ll want to keep mortgage expenses below 30% of household income.

If you want to learn more about mortgages for first time buyers, get in touch with WIS for free advice or use our mortgage calculator. This makes it easy to work out whether you can afford to live in the home you want to buy.

WIS also offers accountancy services -- great for self-employed and business owners -- insurance in the form of WIS Business Protection, and wealth and pension services.

As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.

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