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Mortgage guide
Mortgage guide: First-time buyers

First-time buyers: A guide to your first mortgage

The first step onto the property ladder and securing the right mortgage are the biggest financial decisions you are likely to make in your life, so it pays to get it right.

Heading down the high street it is easy to be over-awed by all the mortgage options on the table, with banks and building societies offering a plethora of fixed-rate, tracker, discount or variable rate mortgages.

While it may seem more exciting to visit estate agents and properties to start your search for the perfect first home, dealing with the mortgage should be your first step.

With over a thousand prospective lenders on the market, for many the best first stop is a mortgage broker.

A fees-free mortgage broker is paid by a lender and can scour the home loan market for you to find a deal to suit your needs and budget. You can also head round the major lenders to find what is on offer, and be prepared to strike up a bargain.

Mortgage lenders will look at your credit rating, employment status and salary, but more importantly you have to pick a mortgage deal and lender that suits you – not take the first mortgage offered to you.

It is important to have a mortgage that you can afford. It may be tempting to overstretch yourself to secure the right home, but as the cost of living increases you won't have the funds to fully enjoy your new home. Remember, as well as your home you will need furniture, white goods and cash for any redecorating.

First-time buyers now borrow on average 3.3 times their income – meaning a couple earning £50,000 together are able to borrow £165,000.

Building up a deposit is increasingly important as the number of banks willing to lend buyers the full cost of a home diminish. A larger deposit could also help you to get a lower interest rate on a mortgage.

The big mortgage decision is between a repayment and interest-only mortgage.

With a repayment mortgage you end up repaying both the capital (the amount you borrowed) and the interest. With an interest-only you repay just the interest.

Some first-time buyers opt to start off on an interest-only mortgage to lower repayments and eventually remortgage later onto a repayment mortgage.

However, if you stick with an interest-only mortgage it is important to make sure you have a means of paying off the capital down the line.

Once you have a deal in place the mortgage lender will give you an Agreement in Principle (AIP). This says that when you find the house of your dreams, the bank or building society will lend you the money on the provisos you have set out.

With a clear budget, moving on to talk to the estate agent is the next move towards finding your first home.


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