A guide to first-time buyer mortgages

Buying your first home is a big decision. Regardless of whether you are buying on your own, with a spouse or partner, or with the help of your family, there are a lot of things to think about when it comes to getting on the property ladder. Unless you’re extremely fortunate to be able to buy outright, you will probably need a mortgage to buy your first home.

Mortgages, in simple terms, are loans that enable you to buy a property. You borrow the money over a set number of years and pay it back, with interest, in monthly instalments. There are many different types of first-time buyer mortgages available and it can seem quite daunting when you are trying to find the right one. To help you make the right choice, My Mortgage Pro has created the following guide to first-time buyer mortgages.

What is a first-time buyer mortgage?

When you’re looking to take your first steps on the property ladder, you’ll need a first-time buyer mortgage. Once you’ve found your ideal first home and agreed a price with the seller, you’ll put down the deposit you’ve saved on it, then take out a mortgage to pay for the rest.

Your mortgage is then repaid, plus interest, in monthly instalments over a set term, usually 25 years. There are many different types of mortgage and to a first-time buyer, these can seem confusing.
All mortgages are lent at a set rate of interest, which you must pay both back over the term of the loan. Repayment mortgages allow you to pay back a bit of the mortgage and a bit of interest each month, while with interest-only mortgages, you pay only the interest each month, then pay back the amount you borrowed at the end of the mortgage term.

In terms of the different types of first-time buyer mortgages available, there are several to choose from, which is why it’s important to get some advice and support from a mortgage broker with experience in the first-time buyer market, to ensure you make the right choice.

What are the different types of first-time buyer mortgage?

There are several different types of first-time buyer mortgages available, each with its pros and cons…

Joint mortgage

If you are buying your first home with a friend, spouse or partner, you may be able to get a joint mortgage based on your combined income. Joint mortgages are good because they allow you to combine deposits and potentially borrow a greater amount, but the drawback is that you will both own equal parts of the property, which may cause issues further down the line should one of you leave or want to sell.

Guarantor mortgage

With a guarantor mortgage, you may be able to borrow a larger amount to buy your first home, as a parent or close family member will agree to act as a guarantor to the mortgage and cover any repayments if you can no longer afford them. Although the mortgage will be in your name, it could place a huge financial burden on the guarantor if you fail to repay your mortgage, so you should ensure you get the right expert advice before going down this route, so everyone knows where they stand.

Shared ownership

A shared ownership mortgage enables first-time buyers earning less than £60,000 to take out a mortgage for a certain percentage of a property, with the landlord or Government owning the rest. You’ll then pay rent on the part of the property not in your name, and may even get the option to buy a larger share once you can afford to do so.

Fixed rate mortgages

A fixed-rate mortgage guarantees the rate of interest you will pay on the mortgage for a set period, which is usually between two and five years. Once the fixed-rate period is over, your mortgage will roll over onto the lender’s standard variable rate, which will usually be more expensive than the rate your mortgage was fixed at initially.

Also, because the rate is fixed on this type of mortgage, you won’t benefit from any falls in the interest rate, should they occur during the fixed-rate period.

Variable-rate mortgages

Variable-rate mortgages tend to be the most expensive type of buy-to-let mortgage in the long run. The rate you pay is based on your lender’s standard variable rate and can go up or down, depending on what the Bank of England does with its own Base Rate of Interest.

They are usually the type of mortgage you default to once your fixed-rate period expires. With most variable-rate mortgages, you are free to switch to another deal without incurring any exit fees.

Tracker mortgages

Tracker mortgages also have a variable rate, that is set at a small percentage above the Bank of England’s Base Rate of Interest.

It means your monthly payments could go up or down – if the Bank of England increases the Base Rate, your monthly repayments will be higher. On the other hand, if the Base Rate goes down, so will your repayments.

Discounted variable rate mortgages

This type of mortgage sees its interest rate set at a fixed percentage below your lender’s Standard Variable Rate. However, it will move in line with the SVR, so like a tracker, if the rate goes up, so will your monthly repayments, but if it goes down, so will your bills.

The discount rate period is usually for a fixed amount of time – again, anything from two to five years – and once it expires, you will automatically default onto the lender’s standard variable rate.

Offset mortgages

Some lenders offer what’s known as an offset mortgage, which is linked to a savings account with the same provider.
With an offset mortgage, instead of earning interest on your savings, this will be offset against the interest you would be charged on your mortgage.

For example, if your mortgage is worth £80,000 and you have £10,000 in savings, you will only be charged interest on £70,000 of your mortgage and, of course, as more of your mortgage is paid off, the lower your interest payments will be, especially if you increase your savings.

Contact us for more information about first-time buyer mortgages

My Mortgage Pro is a professional mortgage information service. While we don’t give advice, we aim to provide you with simple, jargon-free, no-nonsense information about first-time buyer mortgages to help you make the right choice. We can also connect you with a specially selected panel of leading mortgage advisers, who are authorised and regulated by the Financial Conduct Authority, who will provide advice tailored to your specific circumstances and help you find the right first-time buyer mortgage, fast.

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