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First-time buyer mortgages

With house prices still at record levels, it may seem like an impossible dream to own your own house or flat. However, there is help from the government to help you save money for a deposit, and you may be able to get help from your family or even buy with friends. Here we look at the mortgage options for first-time buyers.

Mortgages for first-time buyers

In recent times the average age of first-time buyers has risen steadily due to increases in house prices. Before thinking about buying your own house or flat with a mortgage, you need to save a deposit. The minimum you will need is usually 5% of the purchase price. The more you can put aside as a deposit the lower the interest rate you will pay on your mortgage as you are a lower risk to lenders. You may be able to get help from your parents or family or consider buying a property with a friend or two.

How much can you borrow?

The amount you can borrow with a mortgage depends on how much you earn and how much your regular outgoings are each month as lenders need to make sure you can afford the repayments now and in the future if interest rates went up. As a rough guide, you can typically borrow around 2 to 4 ½ times your annual income as a mortgage. This figure added to your deposit will give you the maximum amount you can pay for your new property.

Help to save a deposit

The Help to Buy ISA was a government scheme to help first-time buyers purchase a property. People were able to put in a maximum of £12,000 over five years, and the government would boost the savings by £3,000 when purchasing a property. Help to Buy ISAs were available until 30 November 2019.

The Lifetime ISA is a newer type of ISA that launched in April 2017. It lets anyone who is aged 18 to 40 save £4,000 per year, and the government will add £1,000 per year until you are 50. Any money you put into a Lifetime ISA will contribute to your annual ISA allowance. Money invested into a Lifetime ISA can be used to buy your first home, or accessed tax-free when you reach 60.

Mortgage deals for first-time buyers

The types of mortgages available for first-time buyers are the same as anyone applying for a mortgage. However, there may be special deals available, for example, lower application fees and free legal costs, or surveys. The main types of mortgage deal are:

Fixed rate deals

The benefit of a fixed rate deal is that the interest rate won’t change for a set period of time, say, two to 5 years. A fixed rate gives you the certainty of how much you will have to pay each month for a period of time. If interest rates rise, you are protected, and your monthly repayments won’t change.

Tracker deals

You may get a lower interest rate with a tracker deal that moves in line with changes to the Bank of England Base Rate.

Standard variable rates

It is rarely a good idea paying the standard variable (SVR) interest rate on a mortgage. If you are on the SVR, check what alternative mortgage deals you may be eligible for, like, a fixed rate or tracker mortgage.

How to shop around

Use a mortgage broker or comparison site to help you choose the right mortgage. However, they won’t necessarily tell you about deals available directly from lenders.