You’re in luck – if you haven’t heard since the government launched a new mortgage backed guarantee scheme, there are now a number of low deposit mortgage deals available, specifically designed to help you – the first timers!
Whether you have a 5% deposit, a 10% deposit, or larger, you now have a range of lenders willing to help you buy your first home.
FYI low deposit mortgages were stopped in 2020 due to COVID as lenders tightened their belts – they are now back on the market so is it the time to grab yourself a mortgage deal?
How much can I borrow?
Getting on the ladder is tough and actually, has gotten tougher over the last 20 years. The chart below shows a ratio calculated by dividing first time buyer purchase prices by their ‘mean gross earnings’. So basically the price of the house you buy is divided by your, before tax, earnings.
And it doesn’t look pretty either, house prices in the UK are now on average 5.6 times your annual earnings. Gulp. Up from 4.6 just 10 years ago.
Luckily the government has thrown, those that can afford a property, a lifeline.
How much can you borrow is a good question indeed, and the answer is simple: about 4.5 times your annual salary.
So that means if you earn £25,000 per annum a lender will typically be willing to lend you up to £112,500. BUT you could be lent double that if you are applying for a joint mortgage [i.e with some else] who also earns £25,000.
So then with combined earnings of £50k per year, most lenders would now give you a mortgage upto £225,000. Make sense?
However Nationwide Building Society have gone one further and recently announced that they lend first time buyers 5.5 times their salary for a 90% loan to value [L.T.V] mortgage – excellant news!
So that means if you have a 10% deposit, total earnings of £50,000 each year and you’re a first time buyer you could be lent £275,000.
It’s important to remember not to over stretch yourself when borrowing but the lender will run through your financial position to check that you meet their eligibility and can afford the repayments.
Mortgage Brokers for First Time Buyers?
To broker or not to broker that is the question. First things first you don’t need a broker to obtain a mortgage. You can apply yourself directly to anyone of a number of lenders BUT if the thought of a mortgage application, paperwork and subsequent questions doesn’t sound up your street – maybe get a broker?
Brokers come in many shapes and sizes, some will charge a fee some won’t. Some will like face to face appointments, with others you can simply apply online. Online mortgage brokers like Habito or Trussle make life super easy as they find the best deal available and then handle the application from start to finish.
Now I know what you’re thinking, they aren’t going to do all this for free? And they aren’t. But the good news is they don’t charge you anything, infact they are paid directly by whichever lender you choose to take out a mortgage with – nice!
Something to bear in mind: Most mortgage brokers use terms like ‘search the whole market’ or ‘compare the whole market’ and whilst this is true[ish] it’s also slightly misleading. Allow me to explain.
There are mortgage lenders that won’t work with any brokers, here’s a list:
- First Direct
- Lloyds Bank
- The Co-operative Bank
- Yorkshire Bank
- Yorkshire Building Society
Now there are some big names in that list above that you probably have heard of, am I right? So when brokers say they search the ‘whole market’ they do but it’s the whole market that’s available to them.
For a mortgage with anyone listed above, that doesn’t work with brokers, you’ve guessed it – you’ll have to apply directly.
Don’t want to use a Broker – apply yourself directly!
As long as you have all the relevant things handy that lenders like to see, wage slips, bank statements, ID etc you should sail through.
With any lender, what most people do is obtain something called a DIP [Decision in Principle] this sets out how much the lender would be willing to lend to you in writing. With that you can then home hunt with more seriousness and even start to put some offers in.
First Time Buyer Mortgage Interest Rates
Rather than just list off a bunch of mortgage lenders, which we will still probably do anyway…., I think it’s important to discuss interest rates and show you typical interest rates for first time buyer mortgages. But particularly what I want to highlight is just how even a small difference in rates can mean a huge difference in repayments over say 25 or 30 years.
Using our mortgage repayment calculator you can quickly and easily see how changes in the rate of interest affect your monthly repayments.
For instance a mortgage with a 3.25% interest rate versus a 3.05% interest rate may not sound much, only 0.2% and the difference in repayments each month isn’t much either, only £21.
But £21 per month with a mortgage term of 25 years is £6,300! [21*300]. The point im making is the little stuff adds up – so beware.
What’s a ‘good’ interest rate?
The Bank of England [B.O.E] each month publishes some interesting data. They take a snapshot of the interest rates paid by U.K households but split down by LTV. Take a look at the results below:
- 2.38% – 85% LTV mortgage, 2 year fixed rate
- 3.09% – 90% LTV mortgage, 2 year fixed rate
- 3.75% – 95% LTV mortgage, 2 year fixed rate
What does that mean in terms of the monthly repayment each month, well take a look below;
It should be quite clear now that a bigger deposit [i.e lower LTV] equals lower interest rates. Lower interest rates mean a lower mortgage repayment each month.
This then throws up a problem we shall call ‘the first time buyer conundrum’.
This conundrum is, should you buy now or carry on saving for a larger deposit to get a better mortgage rate?
It’s one that all first time buyers face and goodluck with answering it. But bare this in mind, what if you put off buying to save a larger deposit and house prices go up in value? Have you now missed out on home ownership?
The same is true in reverse, what if prices come down? Does that mean you can afford something bigger and better or have a lower LTV?
Who Offers The Best First Time Buyer Mortgage?
Nationwide Building Society
As mentioned above they will lend up to 5.5 times your salary for 90% mortgages with typically interest rates of around 2.79%. Being able to borrow ‘more than average’ is fantastic for anyone looking to buy something slightly larger or more expensive. Or maybe you’ve just found your ‘forever home’ first time around.
Nationwide have some excellent rates for 95% mortgages at around 3.65% fixed for 2 years.
The good news is their mortgages are pretty easy to find as they appear on most mortgage comparison websites and Nationwide are one of the UK’s largest mortgage lenders, so you’re in safe hands.
First Direct is the lender, mentioned above, that doesn’t work with brokers. To get a mortgage with them you have to apply directly. It’s a straightforward process – their interest rates are very competitive and they state two persons’ earning a combined total each year of £50,000 could borrow £237,500. So that’s good as its slightly higher than the average.
Coventry Building Society
Maybe the least well known lender on the list but certainly worth a look – just look at those rates:
- 3.25% for 95% LTV mortgages fixed for 2 years or 3.59% fixed for 5 years.
- 2.69 for 90% LTV mortgages fixed for 2 years or 3.15% fixed for 5 years.