First Time Buyers Mortgages: Your Comprehensive Guide
Starting Your Home Buying Journey
Are you starting on the journey of buying your first home in Perth and Kinross, Tayside, or Perthshire? Congratulations! However, we understand it's no small feat. The world of mortgages can be overwhelming, especially if you're a first-time buyer. You're not alone, many face the same challenges.
Positive Mortgages is here to be your guiding light through the process, ensuring your path to homeownership is smooth and successful. In this comprehensive guide, we'll address common concerns and queries about first-time buyer mortgages and provide you with some first-time buyer tips along the way. Let’s get to it, shall we?
Understanding First Time Buyer Mortgages
The first question first time mortgage buyers ask is whether they can afford it. The current property market in the UK presents a significant challenge, with average property values now standing at approximately 170,000 pounds.
In today's market, the majority of first-time home purchases are made jointly, which can make buying a home as a single individual even more demanding.
While the deposit is typically your most substantial upfront expense, there are also various other fees associated with buying a home. (we can expand on how positive mortgages can help calculate base costs)
Once you have gathered your deposit, the next step involves securing a mortgage from a specialist lender or building society. This financial institution will lend you the remaining amount needed to purchase your home, with the expectation that you will repay it over a set number of years.
Typically, a first-time buyer's deposit is approximately between 5-15% of the property's value, meaning that they will need to borrow the remaining amount from the lender, depending on individual circumstances.
It may feel like a daunting prospect but there are several actions that you can take to increase your chances of buying a first-time mortgage:
1. Check your credit score
There isn’t a minimum credit score required for buying a house. However, the higher your credit score is, the better your chances are of being offered a better mortgage deal.
Plus, understanding your credit rating can help you work out if you need to improve it before applying for a mortgage.
2. Use a mortgage broker
Using an independent mortgage broker can help you to wade through the jungle of available mortgage products. This could be especially useful for the self-employed or those with variable earnings.
3. Use a government scheme
There is financial help out there, even if it doesn’t come in the form of the bank of mum and dad. Government assistance programs have been designed to empower aspiring homeowners, making their dreams more attainable. These programs can be a beacon of hope, especially for first-time buyers in Scotland who might not have the financial support. Positive Mortgages can advise you on what's available.
Once you’ve established financial confidence in your ability to buy a home for the first time, it's time to decide on the type of property that suits your preferences and the ideal location in Scotland, whether it’s in Perth, Kinross, Tayside, or Perthshire, for your new residence.
1. Be financially realistic
It's essential to set realistic expectations. While daydreaming about a spacious three-bedroom detached house in Perth and Kinross, Tayside, and Perthshire is enticing, it's also important to align your dreams with your budget. Ensure that your expectations are financially sound.
2. Research property portals
To get a sense of available properties and their price ranges, explore property portals like Rightmove or Zoopla. This will give you valuable insights into the market, helping you understand what's feasible within your budget.
3. Prioritise your needs
Create a list of priorities, starting with the most critical factors. This list should reflect your lifestyle and preferences. Consider questions like:
- How many bedrooms and bathrooms are essential for your family's comfort?
- Do you want to be near local shops and parks?
- Is living near reputable schools a top priority for your family's future?
4. Be ready to compromise
Keep in mind that you may need to make compromises along the way. Your ideal home might not check every box on your wish list, so be open to flexibility and adjustments.
5. Mortgage in principle
While not always mandatory, having a mortgage in principle can strengthen your position as a serious first-time buyer. Some estate agents may request this document as evidence of your commitment to the homebuying process.
By approaching your first home purchase with practicality and research, you can increase the likelihood of finding a home that not only fits your budget but also meets your essential needs and desires.
The journey from discovering your ideal home in Scotland to settling into it can span several months. In this section, we'll provide a brief outline of the essential steps to buying a home. For an in-depth, comprehensive guide, we recommend reading our step-by-step homebuying guide.
- Consider your preferred property type and any specific requirements.
- Evaluate quotes from conveyancers, legal professionals responsible for the legal aspects of your property purchase.
- Determine the mortgage type that suits your needs. Positive Mortgages offers a mortgage consultation, on a no mortgage no fee basis.
- Obtain a mortgage in principle, which the estate agent may request as evidence of your commitment to the purchase, demonstrating that you're a serious first-time buyer.
Tips for First Time Buyers
What questions should I ask when viewing properties?
Whether it’s your first time or not, always keep in mind that you shouldn’t be afraid to ask lots of questions. Here are some suggestions:
- How long has it been on the market?
- Can you share information about any improvements or upgrades that have been undertaken?
- How many times has it been viewed by potential buyers?
- Have there been any offers on the property?
- How old is the boiler, and when was its last inspection?
- Do the appliances come with the property?
- What comes with the property?
- What is the neighbourhood like?
Mortgage Options Tailored for First Time Buyers
Before applying for a mortgage, it's important that you understand the difference between various mortgage types.
Once you've decided to apply for a mortgage, be prepared to furnish the bank or building society with a substantial amount of information.
The success of your mortgage application hinges primarily on:
- Your income
- Your savings
- Your age
- Your credit score
Most mortgage lenders typically cap the loan-to-income ratio at 4.5 times your income. For instance, if your annual earnings are £30,000, you might be eligible for a loan of up to £135,000.
Home loans are typically repaid over mortgage terms ranging from 25 to 40 years through monthly instalments. It's important to note that the bank levies interest on your loan, which implies that the total amount repaid will significantly exceed the borrowed sum.
Hence, it's imperative to diligently compare interest rates since different mortgage lenders may offer more favourable deals. Your chosen mortgage lender will request extensive information from you to ascertain your financial commitments, allowing them to evaluate your risk as a borrower.
Expenses you may be required to disclose encompass:
- Proof of rental payments
- Utility bills
- Council tax
- Childcare expenses
- Leisure and entertainment spending
- Outstanding debt repayments
- Travel expenditures
The documentation you'll need for your mortgage application comprises:
- Copies of your utility bills
- Evidence of any received benefits
- Either your passport or driving license as identification verification
- The bank statements for your current account spanning the last three to six months
- A P60 form issued by your employer
- Your most recent three to twelve months' payslips
- A statement of your accounts over two to three years, provided by an accountant if you're self-employed
- For self-employed individuals, it's advisable to include supplementary documentation that corroborates the income details on the SA302 form, such as bank statements.
- The latest tax calculation and tax overview for the last 2 years
While it’s not completely necessary to get one, hiring a mortgage broker in Scotland can be a wise decision, especially if you're new to the complexities of the mortgage market.
Mortgage brokers possess access to loan options that might not be readily available elsewhere. They also stay informed about fleeting mortgage deal promotions, particularly those suitable for individuals with limited deposits. However, it's important to note that certain loans are exclusively offered directly by lenders to borrowers, so exploring both avenues is advisable.
Advantages of a mortgage broker:
- Brokers provide an informed overview of the mortgage market, offering recommendations tailored to your specific circumstances.
- Brokers have access to exclusive deals that are accessible solely through intermediaries.
Disadvantages of a mortgage broker:
- You may incur a fee for their expertise. Positive Mortgages offer a no mortgage no fee service
- If you opt for a mortgage adviser affiliated with a specific lender, their scope will be limited to that lender's product offerings, potentially missing out on a broader, unbiased market perspective.
The Scottish Government offers several schemes to assist those who need help buying a new home. The right scheme for you depends on the type of home you're looking to purchase and how much of the total cost you can afford to cover. Here are the current available schemes:
| Open Market Shared Equity Scheme | If you're interested in buying an existing home that's currently on sale, this scheme allows you to pay for a 60-90% share of the cost, while the Scottish Government holds the remaining share. |
| New Supply Shared Equity Scheme | For those looking to purchase a newly built house, the New Supply Shared Equity scheme enables you to pay for a 60-80% share of the cost, with the Scottish Government holding the rest of the share. |
| Shared Ownership Scheme | If you wish to become a homeowner but have a limited income, the Shared Ownership scheme permits you to own a 25%, 50%, or 75% share of a home. The remainder is owned by a housing association, and you pay them an 'occupancy charge' to live in the property. |
Since 2007, the Scottish government’s Low-cost Initiative for First Time Buyers (LIFT) shared equity schemes have facilitated homeownership for more than 12,000 individuals.
| Open Market Shared Equity (OMSE) scheme | Assists individuals in purchasing homes available for sale on the open market, subject to specific price thresholds. |
| New Supply Shared Equity scheme (NSSE) | Designed to aid individuals in acquiring new-build homes from a council or housing association. While buyers have full ownership of the property, our interests are protected by a standard security on the property. |
Open Market Shared Equity and Shared Ownership Explained
In Scotland, there are two shared equity schemes available: New Supply Shared Equity Scheme and the Open Market Shared Equity Scheme.
In both of the schemes, the Scottish government purchases a portion of your property and retains the equity until you decide to sell it. Importantly, this is not a loan, so there is no obligation to repay it, and no interest will be charged.
- Under the New Supply scheme, you can acquire a stake in a property ranging from 60% to 80%.
- The Open Market scheme allows you to purchase a stake ranging from 60% to 90%.
- Typically, you fund your share with a mortgage, while the Scottish government acquires the remaining portion. For instance, if you buy 75% of a home, the government assists with the remaining 25%.
- If the value of your property increases, the government benefits from the profit as well.
To be eligible for the shared equity schemes, you must prove that you cannot afford a suitable home without financial assistance. Additionally, you must have the financial means to afford a mortgage on your share. These schemes are open to various groups, including:
- First-time mortgage buyers
- Individuals over the age of 60
- Social renters
- Disabled individuals
- Members of the armed forces
- Armed forces veterans who left the service within the past two years
- Widows, widowers, or partners of service personnel who died while serving in the past two years
- The New Supply version of the scheme is available to individuals who have previously owned a home but have experienced a change in their circumstances, such as separation from a partner.
Exploring the 5% Deposit Mortgages
What is a 5% deposit mortgage?
A 5% deposit mortgage is a financing arrangement where you contribute a modest 5% of a property's total value as an initial deposit to secure your mortgage.
These mortgages are often referred to as 95% loan-to-value (LTV) mortgages, denoting that you have borrowed 95% of the property's value, while your 5% deposit covers the remainder.
For instance, if you're purchasing a home priced at £300,000 using a 95% mortgage:
- Your required deposit would amount to just £15,000.
- However, the mortgage amount would be £285,000.
It's worth noting that if you were considering a 90% LTV mortgage (equivalent to a 10% deposit mortgage), your deposit would need to be twice the amount. (We need to revise the text, based on a170,000 home price)
Ready to take the first step towards your dream home?
Positive Mortgages, is your trusted partner in your homebuying journey in Perth and Kinross, Tayside, or Perthshire. Whether you're a first-time homebuyer, seeking to refinance, looking to expand your investment portfolio, or embarking on a property development venture, we're here to guide you.
With our in-depth knowledge of the market, we offer expert advice and access to a vast array of mortgage products, including creative specialist lending solutions. As a whole-of-market mortgage broker, we ensure you have a wide spectrum of options.
Since our establishment in 1999, we've assisted many borrowers in securing mortgage financing. Your homeownership dreams are important to us, and we're committed to making them a reality.
Get in touch with us today and experience the difference of working with a dedicated professional. Your journey to home sweet home begins here, and you're in very safe hands with Positive Mortgages.