First time buyer mortgages

Your deposit is the amount you contribute, in cash, towards the purchase of your home. Usually, the minimum is 5%. However, the bigger your deposit is, the lower your monthly mortgage repayments and interest rate will be.

There are 100% mortgages available, but they are relatively rare, tend to have high-interest rates attached and may not be right for your own financial situation.

When saving for a deposit, it is important to explore all available options. There are two main government schemes in place to help first-time buyers save enough money for a deposit. Both offer a 25% government bonus, but they work differently:

Help to Buy ISA

You can no longer open a Help to Buy ISA however if you already have a Help to Buy ISA you can continue to pay in up to £200 each month. The government will top up your savings by 25% (up to £3,000) when you buy your first home. If you are buying with someone who also has a Help to Buy ISA, both of you will get the 25% bonus.

You can pay into the Help to Buy ISA until November 2029. You can claim the 25% bonus until November 2030.

Lifetime ISA

Lifetime ISAs are available to UK first-time buyers over 18 and under 40 years of age. Monthly deposits are not limited, but an annual limit of £4,000 applies. With a Lifetime ISA, a 25% bonus is automatically added each month to deposits made into the account until you reach the age of 40.

Withdrawing money saved in a Lifetime ISA for any reason other than buying a house or retirement will incur a 25% early access penalty and 5% interest.

Both types of ISA are individually held, so if you are looking to buy a home with your partner, you can each open an account, to effectively double your bonus.

Saving your deposit is, without doubt, rewarding, but it can seem as though it’s taking a lifetime, during which house prices are rising and your friends are jumping on the housing ladder.

That’s probably why more and more first-time buyers are making a withdrawal from the ‘bank of mum and dad’ (or grandma and grandad). In 2016, parents and families contributed to deposits on almost 300,000 homes (source: Legal & General).

Before looking at properties, you need to know your budget. A lender will be able to tell you how much you are eligible to borrow based on several factors, including;

• Your income
• Your credit history
• Your existing loan commitments
• Your monthly outgoings
• Your available deposit

Lenders will have their own criteria which may vary from this.

When working out how much you’ll need to buy your first home, it’s important to remember that the costs don’t stop at your deposit and monthly mortgage payments. There may be a number of other costs to budget for.

Mortgage product fees

Some mortgages have a product or arrangement fee, while others are fee-free. Depending on the mortgage, you may be able to pay the fee upfront or add it to the mortgage.

Adding a fee to your mortgage means you’ll pay interest on it, so your mortgage adviser can help you compare the overall cost of different options rather than looking at the interest rate alone.

Valuation fee

Your lender will usually arrange a mortgage valuation to help them assess whether the property provides suitable security for the mortgage.

Some lenders provide a standard valuation at no additional cost, while others may charge a fee. Remember that a mortgage valuation is primarily for the lender’s benefit and isn’t the same as a detailed survey of the property’s condition.

Survey

You may choose to arrange your own survey to get a more detailed assessment of the property’s condition.

The type of survey you choose will depend on factors such as the property’s age, construction and condition. Costs vary according to the property and the level of survey required.

Legal and conveyancing costs

You’ll need a solicitor or licensed conveyancer to deal with the legal work involved in purchasing your property.

Costs vary between firms and properties, so it’s worth obtaining a quotation that makes clear what is included and whether there are any additional fees or disbursements.

Stamp Duty

If you’re buying a property in England or Northern Ireland, you may need to pay Stamp Duty Land Tax (SDLT).

Eligible first-time buyers purchasing a property for £500,000 or less currently pay no SDLT on the first £300,000 and 5% on the portion between £300,001 and £500,000. If the property costs more than £500,000, First-Time Buyers’ Relief does not apply. GOV.UK

Different property taxes and rules apply in Scotland and Wales.

Land Registry fee

A fee is normally payable to HM Land Registry when ownership of a property in England or Wales is registered.

The amount depends on factors including the property’s value, the type of application and how the application is submitted. Your solicitor or conveyancer will usually deal with this as part of the purchase process.

Moving and other costs

It’s also worth budgeting for other expenses associated with moving home, such as removals, insurance and any immediate repairs, furnishings or improvements you may need after moving in.