First-Time Buyer:
How to Get a Mortgage

How much deposit do I need?​

​

A deposit is a sum of money you will pay when purchasing a property (in conjunction with a mortgage). Therefore, your deposit plus the mortgage, will equal the purchase price.

 

Often first time buyers are rejected from lenders based upon their deposit size. This typically needs to be a minimum of 5% compared to the mortgage value, however lenders can have a much stricter set of guidelines.

 

Generally speaking, the bigger your deposit, the easier it is to get a mortgage and the better interest rate you will get. First time buyers usually find it more difficult to put down a sizable deposit, often relying on gifts from parents and other family members.  
​
Importantly, this does depend on the specific lender and mortgage product, as some are more lenient than others. Therefore, to prevent your deposit size holding you back from your first mortgage, it is necessary to consult professional advice as we will locate the most suitable lender and mortgage product for you. 

​

Loan to Value (LTV)

​

Lenders will calculate your loan to value (LTV), which often determines the products available to you. For instance, if you were to buy a property for £200,000 with a deposit of £38,000 (borrowing £162,000), your LTV would be 81%. If the deposit was increased slightly to £40,000, this would reduce the borrowing amount to £160,000, and the LTV would drop to 80%. This would likely reduce the interest rate as lenders have different rates at 70%, 80%, 90% LTV.

 

It is important to discuss your deposit with your advisor as you may be able to reduce your rate by only increasing your deposit by a small amount.

​

Getting a mortgage with a small deposit

​

There are mortgages available for at 95% LTV, however these tend to be a higher rate of interest and applicants must fit lenders’ strict criteria. In these cases, the advice of a mortgage adviser is more important as mortgage options can be very restricted.

​

Affordability check

​

Lenders will start by assessing your income. Their methodology for this assessment will differ depending on whether you are employed, self-employed, contractor, etc. Many lenders will also include other forms of income, such as secondary jobs, overtime, commission, benefits, etc.

 

Most lenders will multiple your income up to 4 or 5 times, however a select few lenders will be able to lend up to 6 times your income (providing you have a good credit history and meet minimum income criteria). Lenders will also investigate any monthly outgoings, debts and other credit commitments to ensure interest payments can be made. These include:

​

Monthly outgoings

Council tax

Transportation costs

Insurance

Ground rent

Utility bills

Entertainment costs

Child costs

 

​Debts

Secured loans (e.g. other mortgages)

Unsecured loans (e.g. personal or student loans)

Credit card payments (e.g. overdraft)

Hire purchase (e.g. purchased car on credit)

 

Before taking out a mortgage, you must also consider other additional costs, such as:

Solicitors fees (approx.. £500 - £1500)

Valuation fees (approx. £300 - £1500)

Survey fees (approx. £300 - £500)

Broker fees (approx.. £500 - £1000)

Stamp duty Land Tax (depends on property value)

Mortgage application fees (approx.. £500 - £1500)

Land registry fees (approx.. £100)

Local authority searches (approx. £500)

Costs associated with moving properties (approx.. £500 - £1000)

 

*All these costs are estimates and will depend on your circumstances.

. 

Application in principle

​

Once a realistic borrowing amount has been decided and a lender has been identified, an application in principle is made. This is not a legally binding document from the lender, but it is an agreement to grant a mortgage based on the information provided. This provisionally lets you know how much you can borrow, subject to finding a suitable property in a specified time, usually 30 days. It is a relatively quick process to receive a decision in principle as lenders only require basic information, while also conducting a soft credit check.

​

Mortgage illustration and certificate

​

A mortgage illustration (ESIS) is a document which outlines all the key facts and details relating to your mortgage. Your mortgage broker will talk through this document with you to make sure you understand every aspect.

​

A mortgage certificate is also issued by your broker, which confirms an application in principle has been issued and the applicant has funds to make a purchase. You can use this document to provide evidence to an estate agent before making an offer.

​

How much will my mortgage repayments be?

​

This will depend upon your mortgage type, amount borrowed, rate of interest, term and added fees. To put it simply, there are a number of inputs that will influence your monthly repayment amount, and it is important to consider all of these when deciding on the affordability of a mortgage. 
​
Therefore, finding the best mortgage product may prove difficult as monthly repayments can vary massively across lenders. 

​

Family assisted mortgages

​

Family are often unaware of how much assistance they can be to the purchase. Their income and assets can be added into the equation to allow your mortgage to be agreed on either better terms or for an increased amount. Family do not need gift the money, they can simply use equity sitting in a property or money sitting a savings account as collateral without losing control of it.