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First time buyer: an introduction to mortgages

Young couple and their dog surrounded by moving in boxes.

Who is this page for?

This page is for first time buyers looking for an introduction to applying for a mortgage and how mortgages work. 

First time buyer: an introduction to mortgages

To buy your first house, you’ll need to apply for a mortgage. This is a form of borrowing that is used to cover the remaining cost of a house or flat after your deposit has been paid.

In this guide, we’ll explain how a mortgage works for first time buyers and explain how to get started.

What is a first time buyer?

A first time buyer is someone looking to buy property for the first time.

You can’t be classed as a first time home buyer if you have ever:

  • Owned a property before, even if you are currently renting.
  • Owned a property through a shared ownership scheme.
  • Owned a property with somebody else, including family, a partner or friend.
  • Owned a holiday home or property abroad.

You must also be buying for your main residence – this means that you cannot be buying a second home or a Buy to Let investment.

If you are buying a house or flat as a couple and one of you has previously owned a property, you will not usually be considered a first time buyer. 

What is a mortgage?

A mortgage is a lump sum lent to you by a lender which is used to cover the remaining cost of your house or flat, once you have paid your deposit.

Most mortgages fall into one of two categories:

  1. Repayment mortgages – The most common type of mortgage, where you pay back a combination of both the capital and interest each month. If you keep up with your repayments, you will pay your mortgage off in full by the end of your term.
  2. Interest only – A type of mortgage that allows you to pay off just the interest on your mortgage each month. You will have to repay the entire figure as a lump sum at the end of your mortgage term. 

How do mortgages work?

Within the two mortgage repayment methods (interest only and repayment mortgages), there are different types of mortgages.

The different types include:

Fixed rate mortgage

Your interest rate is guaranteed to stay the same for a set period. During this time, your repayments will be the same each month.

Tracker mortgage

The interest rate is dictated by an external rate, usually the Bank of England’s base rate, plus a percentage. Your monthly payments and interest rates could rise and fall in line with the base rate. This means your repayments will be subject to change.

Offset mortgage

Your savings account is linked to your mortgage. You’ll only pay interest on the remaining mortgage balance minus your amount of savings.

Standard variable rate mortgage

This is the rate you’ll be transferred to when your fixed rate, or tracker mortgage term comes to an end. You’ll be charged at your lender’s default rate. Your monthly repayments could go up or down depending on the changes the lender makes in line with the Bank of England’s base rate.

Discounted variable mortgage

This type is a variable rate mortgage, so your monthly repayments may change each month. But, they will always be lower than if you were on a Standard Variable Rate.

Mortgage calculator

Work out how much you can borrow with our mortgage calculator.

You could lose your home if you don’t keep up your mortgage repayments.

 

How many people can be on a mortgage?

The maximum number of people allowed on a mortgage is usually four. This is because a property deed only has space for four names.

When does a mortgage start?

Your mortgage will start on the date as agreed in your mortgage terms. Usually, your first mortgage payment is due on the first of the month after you complete and your mortgage starts.

How much will the bank lend me?

When deciding how much to lend you, mortgage lenders will look at your salary and monthly outgoings to make sure you can afford to keep up with the monthly repayments.

Banks will normally lend you between three to four-and-a-half times your annual salary in a mortgage offer. Read more about mortgage affordability.

What credit score is needed for a mortgage?

There isn’t a set score you need to have for banks to offer you a mortgage. All lenders are different.

Before they decide to make you an offer, a lender will check your financial history, along with other factors like salary, before deciding whether to offer you a mortgage.

Get credit ready

Before applying for a mortgage, it’s good to understand that mortgage lenders will take into account your financial history and credit rating. This helps them to know if you’re likely to be able to make your mortgage repayments.

While each lender has its own criteria, here are some things you can do now to make sure your credit profile, and therefore your mortgage application, is in the best shape possible.
 
8 steps to help improve your credit rating
  1. Register to vote
    You need to be registered on the electoral roll so lenders can confirm your address and trace your credit history. If you’re not registered, the lender might not have enough information to progress your mortgage application. Contact your local authority to register or to check if you are registered.

  2. Be selective about your credit applications
    If you make too many applications for credit, it can reflect badly on your mortgage application. The lender may think that you’re not creditworthy or that your finances are in a poor state and so, question your ability to make mortgage repayments.

  3. Review your credit history and score
    Before starting your mortgage application, check your borrowing history using a credit reference agency. This allows you to see any inaccuracies in advance, so that mortgage lenders receive correct information on your ability to repay.

    Also, check your credit score. If it’s low, see if there are any credit habits that you can improve on by following the below tips. Scoring bands can vary among different credit reference agencies.

  4.  Calculate your debt-to-income ratio
    This is the proportion of borrowing you have in relation to your money coming in. Mortgage lenders typically prefer a lower ratio, because it means you’re more likely to be able to afford your monthly mortgage repayments.

  5. Avoid any unnecessary borrowing
    You can reduce your debt-to-income ratio by avoiding borrowing too much. Try not to take out new credit in the six months before applying for a mortgage as it could increase your debt-to-income ratio.

  6. But keep active credit accounts open
    These show to lenders that you’re someone who’s able to consistently make repayments over a period of time. You may want to close inactive accounts as they show lenders that you have access to too much credit that you don’t need.

  7. Pay your bills on time
    It’s always important to pay any bills on time, as any missed or late payments will be recorded on your credit history. So any recent mishaps would be visible to your prospective mortgage lender. This could make them doubt whether you’re able to repay a mortgage on time, or at all.

  8. Know your joint applicants’ credit profile
    Mortgage lenders assess the creditworthiness of all of those named on the application. So, if you’re making a joint application, ask the other person to check their credit history and score in order. You can pass these tips onto them to help them too.

 

What are mortgage fees?

When applying for a mortgage you will have to factor in the following fees:

  • Arrangement fees – These typically range between £100 to £1,500. Arrangement fees cover the time your lender spends setting up your mortgage and handling your application.
  • Valuation fees – Valuation fees vary depending on the price of your property. 

What does APR mean for a mortgage?

Annual percentage rate (APR) refers to your full borrowing costs for a year. This includes your annual interest rates as well as standard fees payable for the mortgage, such as mortgage broker fees and any other fees you paid to get the mortgage.

It means APR will be higher than your interest rate in most cases. Repayments will still be the same every month.

How to get a mortgage as a first time buyer

To get a mortgage as a first time buyer, you’ll be required to provide all the addresses you have lived at, usually over the last five years and evidence of your recent earnings.

You’ll then need to prove that you can afford the monthly repayments on a mortgage.

Here are some tips which may help increase your chances of getting a mortgage as a first time buyer:

  1. Improve your credit score by keeping up with a few regular direct debits and avoiding missed payments. For more information on your credit score, we recommend Experian.
  2. Make sure you’re on the electoral register at your current address.
  3. Keep your financial records up to date, so it’s easier to provide lenders with the information they need.
  4. Close any inactive bank accounts and credit cards.
  5. Try to avoid taking out any loans, especially short term loans with high interest.

First time buyer mortgage schemes

As a first time buyer, there are a few schemes you can use to help you get on the property ladder:

Help to Buy equity loans

These work by providing you with part of your deposit. You’ll only need a 5% deposit and the government will provide another 20% as a loan, interest free for five years. These are only available on new build homes. Find out more about Help to Buy equity loans

Shared ownership mortgages

 With a shared ownership mortgage, you’ll only pay a deposit for a share of your property. You’ll then rent the remaining value.

The content on this page is for reference and does not constitute finance advice.

For impartial financial advice, we recommend government bodies like the Money Advice Service.

Calculators & tools

We have a range of mortgage calculators to help you:

  • Find out how much you could borrow from Lloyds Bank
  • See how much you could save if you make overpayments on your mortgage
  • Get an idea how a change to the Bank of England Base Rate could effect your monthly payments

Use our calculators and tools >

Need to speak with someone?

You can talk to us over the phone or use our mortgage video service from the comfort of your own home.

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Important legal information

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