A First Time Buyer's guide to Mortgages

Last Updated: 29th Apr, 2024

Author: Charlotte Burton

A First Time Buyer's guide to Mortgages

As a first time home buyer navigating the complex world of mortgages can be overwhelming! In this guide we will explain how mortgages work so you can make informed decisions going forward.

Simply put, a mortgage is a loan from a lender (normally a bank or building society) to purchase a property. This loan is “secured” by the property, which means if you cannot keep up with payments, then the lender can repossess and sell the property.


How much you can borrow

Firstly, it’s good to get an idea of what will affect how much you personally are able to borrow. A good rule of thumb is that a lender will offer you about 4.5 times your household income. However, this is not an exact number and will depend on your circumstances.

The lender will calculate how much they are willing to lend you based on a number of factors, including:

  • Income and Affordability: Lenders typically look at your income and spending to assess how much you can afford to repay.
  • Credit Score: A good credit score may allow you to borrow more, sometimes at better interest rates.
  • Deposit Size: The size of your deposit affects how much you can borrow. You generally need at least a 5-10% deposit to get a mortgage. A deposit of over 10% means a lower Loan to Value (LTV) ratio, which gets you better interest rates.
  • Property Type: Lenders may lend as little as 75% of the property value for new builds, and will generally lend lower percentages for leasehold properties than freehold ones.

How to choose a mortgage

The key things to think about when choosing a mortgage are how long it’s paid back over, the interest rate, whether it is a fixed or variable rate mortgage and any upfront fees. We explain what all these terms mean and the impact of different choices below:


Other things to look for in a mortgage

Alongside the length, interest rate, fees, and fixed period, there are other things that you should look at when you are researching deals to make sure the mortgage is best for you.

Here are some things to consider:


Other Considerations

Finally, there are a few other things that might be useful for you to be aware of:

  • Government Schemes: There are schemes that can assist first-time buyers or those with smaller deposits. For example, the government's Mortgage Guarantee Scheme enables some first time buyers to get a mortgage with a 5% deposit.
  • Overpayments: Some lenders allow you to pay more than the required monthly payment (typically up to 10% per year). This will mean you pay less interest in the long run as you will pay off your mortgage earlier. However, you should consider whether the interest you save doing this is better than investing your money somewhere else e.g. a high interest savings account.
  • Remortgaging: This involves switching your mortgage to a new deal, possibly with a different lender, often to save money after an initial deal fixed period ends.
  • Insurance: You might be required to purchase life insurance or building insurance as part of your mortgage agreement.

It's always advisable to seek independent financial advice to find the best mortgage option for your specific situation. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

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