What is a first-time buyer mortgage and how does it work?

February 23, 2024

First time buyer mortgage and how does it work

Feeling confused by mortgage offers aimed specifically at first-time buyers?

Promises of low deposits and attractive interest rates on certain mortgage products can seem tempting for your pocket, but how do you know that you’re actually getting a good deal?

If you’re looking for comprehensive answers to common questions like ‘what is a first-time buyer mortgage’ and ‘how does a mortgage work for first-time buyers’, then you’ve come to the right place.

At UKMC, we aim to avoid baffling our customers with confusing jargon.

Instead, we provide clear answers to frequently-asked questions to help make the entire home-purchasing process as straightforward as possible for first-time buyers.

What is a first-time buyer mortgage?

A first-time buyer mortgage refers to mortgage products that have been made exclusively available to individuals that haven’t previously been homeowners.

Regardless of whether they’ve purchased property or land in the past, either alone or with someone else anywhere in the world, they must be completely new to the housing market if they want to be considered a first-time buyer by lenders.

Mortgages explained for first-time buyers

While there are different types of mortgages in the UK, the most common type of mortgage for first-time buyers is the traditional repayment arrangement.

This type of mortgage deal involves the borrower paying back both a portion of the original loan amount as well as the interest at the same time.

However, instead of there being just one type of mortgage for first-time buyers, there are many options for prospective homeowners to explore.

How does a mortgage work for first-time buyers?

While it’s uncommon for first-time buyers to be accepted for anything other than a traditional repayment mortgage, it is possible for them to obtain different agreements, such as interest-only and offset mortgages if they meet the lender’s criteria.

The way a first-time buyer mortgage works therefore naturally varies depending on the type of deal they choose. To help you understand your options, the experienced mortgage advisors explain how some of the most common mortgage arrangements for first-time buyers work in more detail below.

5% deposit, 95% mortgages

Following the introduction of the government’s Mortgage Guarantee Scheme in the UK, there’s been a significant increase in the availability of high 95% loan-to-value (LTV) mortgage products, particularly for prospective homeowners. A 95% loan to value essentially means, you’ll borrow 95% of the property’s value you are trying to buy. For example, if you purchase a property for £200,000, you will put a 5% deposit down at £10,000 and your mortgage loan will be the remaining 95% working out at £190,000.

This has led to more first-time buyers being able to purchase property with only a 5% deposit.

This type of mortgage works in the same way as traditional repayment mortgages that require a deposit of between 10% and 20%– where the borrower repays (in monthly payments) both the original loan and the interest at the same time.

Discount rate mortgages

Discounted standard variable rate (SVR) mortgages are simply offered at a slightly lower rate than the lender’s SVR. By way of illustrating, if a lender’s SVR is 4% then their discounted offering may have an interest rate of 3%.

This ensures first-time buyers benefit from a continuous set discount, but unlike a fixed-rate mortgage, the rate of interest can fluctuate throughout this period. As a result, first-time buyers that want more peace of mind may decide to opt for a capped-rate mortgage.

Capped-rate mortgages

Capped-rate mortgages are variable like discount-rate mortgages, but they come with a fixed upper limit. This simply means that your agreed monthly mortgage payments will never go above a certain rate regardless of how much interest rates might rise.

This makes capped-rate mortgages a popular choice when compared to the unpredictability of standard variable rate mortgages.

No-deposit mortgages

Similar to 5% deposit, 95% mortgages, no-deposit mortgages (or 100% loan to value (LTV) mortgages) are a popular option as no significant savings are required to secure the property.

However, they do come with higher interest rates.

No-deposit mortgages are a relatively new option for first-time buyers whereby lenders look at the applicant’s salary and outgoings (such as their ability to make rental payments) to determine whether they can afford to purchase their chosen property.

Each one of these mortgages work slightly differently, so it’s important to do your research before choosing the best one for you.

What is the best mortgage for a first-time buyer?

As mentioned above, when it comes to choosing the best first-time buyer mortgage, you should not only be aware of all your options, but you should also have a comprehensive understanding of the potential pros and cons of each of the deals available to you.

The best mortgage for you will vary according to your personal circumstances, such as your savings, annual income, eligibility for certain government schemes, and personal preferences.

Here at UKMC, our team of expert mortgage advisors has years of invaluable experience helping first-time buyers fully understand all their mortgage options.

With the right support and guidance, your first property purchase should be quick and easy.

Receive expert first-time buyer mortgage advice

At UKMC, we believe that purchasing your first home should be a celebration about hitting one of the biggest milestones in your adult life.

However, complex jargon and complicated processes can make this cause for celebration feel stressful for first-time buyers.

That’s where our team of expert mortgage advisors can help.

No matter whether you’re interested in a specific lender, government scheme, or type of mortgage, we can help you to explore all your mortgage options until you find the best arrangement for you.

Our first-time buyer services involve searching through thousands of mortgage products from many different lenders to help find the best deal to suit your specific requirements. From low deposits to interest rates, we can help you to navigate through the entire property-purchasing process with ease.

To find out more about our mortgage advisor services or how mortgages work for first-time buyers, please feel free to reach out to our knowledgeable team today to arrange your appointment with one of experienced mortgage advisors.

Our family-run business is based in Warrington, so you can either pay our friendly team an in-person visit or get in touch by calling us on 01925 573328.

Alternatively, you can book your own appointment directly on your preffered time and date here – we look forward to hearing from you soon!

UK Mortgage Centre is a trading style of Refresh Mortgage Network Limited. Refresh Mortgage Network Limited is authorised and regulated by the Financial Conduct Authority. FRN – 826982. Registered in England & Wales: 11614569. As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. The Financial Conduct Authority does not regulate some forms of buy-to-let mortgages. The Financial Conduct Authority does not regulate will writing and taxation and trust advice.