First Time Buyers
Based in Sevenoaks, Kent, serving clients throughout London and the whole of the UK
First-Time Buyer Mortgages in London and the UK
Buying your first home in London, or anywhere in the UK, is an exciting milestone, but the process can be lengthy and stressful. While there’s no guarantee your mortgage application will be accepted, working with experienced mortgage brokers like us can alleviate some stress. We can guide you through the complexities of securing a mortgage in the UK.
What You Need to Know –
A first-time buyer is someone who has never owned a property before. While the process of buying a home is similar for everyone, first-time buyers can face unique challenges. Generally, the biggest hurdle is having a large enough deposit. On the plus side, there are also some advantages to being a first-time buyer, such as lower stamp duty costs.
There are a few lenders that offer zero or 1% deposit options. These are great options, however, the criteria is strict, so these types of mortgages are not always practical.
The availability of 5% deposit mortgages is much more widespread. If you are looking to buy a property with a 5% deposit, this is where using a mortgage broker can be invaluable. Borrowing 95% of the value of your new house or flat is high risk for a lender. There isn’t much equity to cushion against fluctuating property prices, so there is a higher chance that the lender may not get their money back if they need to repossess the property and sell. This means that lenders will apply stricter credit scoring requirements and affordability rules.
With a 5% deposit, you could go to your bank that you have been with for years, and you may not necessarily have any credit issues, but because lenders apply more stringent credit scoring requirements at this level of deposit, you may still get turned down for an agreement in principle. There is no need to worry though. The benefit of coming to an experienced mortgage broker in London is that we are able to find the right lender for your specific circumstances.
How Much Can a First-Time Buyer Borrow?
The amount you can borrow depends on your affordability. Lenders will determine this based on two calculations:
The loan to income ratio is the lender’s ceiling on the maximum amount of borrowing they will allow for any particular case. This is a multiple of all the accessible income that you have. For example, if two people applying for a mortgage earn £30,000 each per year, this would equate to £60,000 of total income, and a lender may apply a loan to income ratio of 4.5x income. This would mean the total maximum borrowing that the lender would lend in this example is £270,000. Lenders all have different loan to income ratios, and some will apply lower or higher ratios depending on the circumstances of the case. This can go up to 5.5x to 6x. The factors that influence the loan to income ratio are usually your level of total income (with higher incomes unlocking bigger loan to income ratios), deposit amount, what type of income you have (i.e., whether you are employed or self-employed), and even whether you are a first-time buyer or not. As experienced mortgage brokers, we are experts in knowing what income can and can’t be used in lenders’ affordability assessments, and we are able to ensure that any income that can be used is put forward to the lender to maximise the affordability of your case.
In addition to the Loan to Income ratio, a lender will do a second affordability test, called the stress test. A lender will take your net income, which is either taken from your payslips or calculated in the case of other types of income, such as self-employed income or other non-taxable income. Sometimes there is income coming in from multiple different sources, and this needs to be combined.
After your net income has been ascertained, any committed expenditure and credit commitments are then removed to work out your disposable income. The mortgage payment needs to fit within your disposable income, but with the added stress test to account for increases in interest rates in the future.
The Bank of England in 2022 actually removed the mandatory requirement for lenders to apply a standard of an additional 3% to the interest rate, and this has allowed for more flexibility in the rules. Lenders could choose not to apply any stress test at all, for example, which will increase the affordability and therefore borrowing power. This sort of flexibility to the stress test is usually reserved for longer-term fixed rates of 5 years or more. Their reasoning for this is that if the mortgage is on a longer-term fixed rate, the payments are guaranteed for a longer period and not subject to market fluctuations as often as shorter-term fixed rates, meaning there is less need for the lender to account for interest rate increases. Not all lenders do this, but sometimes it can be the difference between getting the loan you need and not.
An Agreement in Principle (AIP) is a conditional offer from a lender indicating how much they may be willing to lend you. It involves a soft credit check and demonstrates your ability to secure the necessary funds for the property purchase. While not a formal mortgage offer, and a full application is still subject to full underwriting, we apply a high level of due diligence and check all your documentation the same way a lender would. Usually, once you have passed the credit scoring and obtained an agreement in principle through us, we have a high percentage of success from submitting an application to getting a mortgage offer. This is why using a mortgage broker can be so useful. We can use our expertise to make sure that your agreement in principle is likely to translate into a successful mortgage offer. Using online services through your bank can be quick and easy, but there is also the chance that not all possible circumstances have been taken into account or income has not been assessed correctly.
You can check your credit score online through various resources like Clearscore, Credit Karma, Experian, and Equifax. Improving your credit score is crucial for securing a mortgage. You can also get free access to your credit report through us. When we conduct an initial mortgage consultation, we provide access to our client portal, where you can gain free access to your credit report powered by Equifax. This sends us the necessary information we need to adequately assess your circumstances.
Some useful tips to improving your creditworthiness are:
Reducing your outstanding debts will affect your application positively in a couple of ways. It will reduce your debt-to-income ratio. Some lenders have criteria on their maximum debt-to-income ratio. Usually, if this starts going above 50% (your total debt equals half your yearly income), then this can negatively affect your application. It will also mean the lender will not have to use the committed monthly payment for the debt in their affordability assessment. It’s important to say here that it is not a prerequisite to pay off all your debt prior to a mortgage application. It is absolutely fine to have debt! We just need to make sure that we factor any debts and committed expenditure into the affordability calculation, and a lot of the time, it’s not a problem.
This part is absolutely key. You are asking a lender to give you a lot of money, and they want to be assured that you are going to pay it back. They will be looking for you to have a good record of paying your debts. Ensure all bills and credit card payments are made on time to demonstrate responsible financial behaviour. If you have had blips in the past, it doesn’t mean you will not be able to get a mortgage, but it does mean that we might need to approach a more specialist lender or have a bigger deposit.
Registering to vote helps verify your identity and address, strengthening your credit score with the lenders’ credit scoring systems.
Help Available for First-Time Buyers:
As of September 2022, first-time buyers purchasing a home for less than £425,000 may be exempt from paying stamp duty. From April 2025, the nil rate band for first-time buyers will be reducing to £300,000.
This scheme allows tenants renting from the local council to buy their homes at a discounted price.
This option enables you to buy a share of the property and pay rent on the remaining share, gradually increasing your ownership over time.
Fees Involved in Buying a House:
This fee, charged by the lender for setting up your mortgage, is payable directly to the lender. They generally are around £999 – £1499. This fee usually has to be paid upfront at the point of full mortgage application to the lender. It is sometimes possible to add the fee to the loan, but this will cause the loan to be more expensive in the long run. Also, the majority of lenders tend to offer no arrangement fee rates, so if you would prefer not to pay a fee, you can opt for lenders that offer this, but you will pay a higher rate for this. Depending on the loan size, it may be more beneficial to take a no arrangement fee option even if the rate is higher because the lower rate attracted by the option with the arrangement fee will not save you enough money monthly to be worth paying the fixed upfront cost.
Some lenders charge this fee to secure a fixed-rate mortgage. It’s usually non-refundable and separate from an arrangement fee, as they may charge one of these as well. Most high street lenders do not charge these.
This covers the cost of a professional inspection to assess the property’s value and ensure its sufficient collateral for the mortgage. Most high street lenders do not charge for the basic valuation that’s required to assess the property for mortgage purposes.
Solicitors or conveyancers handle the legal work involved in the property purchase, and their fees vary depending on the complexity of the transaction. We will also need to ensure that the solicitor you instruct is approved to work with the lender we are using.
Arranging a Mortgage
Finding the right lender and mortgage rate is crucial. Mortgage brokers in London and the UK, like Momentum Mortgages, can access a wide range of mortgage products from different lenders, helping you find the best deal for your needs. Mortgage brokers provide valuable guidance and support throughout the mortgage process, ensuring your best interests are represented.
Remember, buying your first home is a significant financial decision. Thorough research, careful planning, and seeking professional advice from mortgage brokers are essential for a successful homeownership journey.
We can provide a no-obligation initial consultation to run through your circumstances and requirements and give you the confidence to get onto the property ladder.
Contact us today for a no-obligation initial consultation. Our friendly team is available to answer your questions and provide expert advice.
Hi my name is Stephen Dickinson and I am the Managing Director of Momentum Financial Services, I have lived in Sevenoaks for the past 11 years with my wife Vicky and my two boys. I started in Mortgage advice back in 2017 for Your Move Financial Services and then started Momentum Mortgages in 2020. My skills lie in more complex mortgage cases and in particular mortgages for self-employed business owners I particularly excel at. In my free time I like spending time with family and gardening!
Hi my name is Dan Tasker and I am one of the Directors of Momentum Financial Services. I am a mortgage and protection broker whilst also looking after the regulatory compliance and accounting for the business. Before qualifying and changing industry, I was previously an management accountant for a vehicle manufacturing group. In my free time I enjoy spending time with my family and the occasional trip to the gym.
Hi, my name is Gill Armstrong and I support the Mortgage Brokers with setting appointments, collating and inputting documents & information and assisting clients. I live in Sevenoaks and I work part time at Momentum Financial Services.
Hi my name is Darius Stonkus and I am a mortgage and insurance broker for Momentum Mortgages, I am based in Bromley. I love helping people get what they need, my specialties are company directors and sole traders, and if you had a credit blip, don’t fret I am here to help.