Embarking on the journey to homeownership is an exciting milestone, but you might have many questions, especially as a first-time buyer navigating the mortgage landscape. With the deposit hurdle often being the first challenge, it's essential to explore the variety of options available to make your dream home a reality.
What is a mortgage?
A mortgage is essentially a type of loan. When you want to buy a home but don't have enough money to pay for it upfront, you can take out a mortgage to cover the cost. Think of it as a way to borrow money for a house or flat, with that very property acting as collateral for the loan. Each mortgage deal has a different loan-to-value ratio, where the loan-to-value (LTV) is the ratio of the mortgage amount compared to the actual value of the property you're buying and is expressed as a percentage. For example, if you're looking at a house valued at £200,000, and you have a deposit of £40,000, you're likely to need a mortgage of £160,000. Here, your LTV would be 80% - it's the mortgage amount divided by the property value, multiplied by 100 to get that percentage.
Here's how it works in simple terms:
- You choose a property you want to buy.
- You put down a deposit, which is a portion of the total price.
- You take out a mortgage for the remaining amount.
- The lender, usually a bank or building society, gives you the money to pay for the property.
- You then pay back the lender over time, with interest, through monthly payments.
If you're unable to keep up with the mortgage repayments, the lender has the right to take back the property, a process known as repossession. Therefore, it's crucial to ensure you can comfortably afford the mortgage repayments you've committed to.
Remember, taking out a mortgage is a significant financial decision, and it's always wise to seek advice from mortgage professionals to find the best option for your situation.
To find out more about the different types of mortgages, read our blog here.
Now let’s dive into the different schemes and opportunities tailored to support first-time buyers.
Understanding your mortgage options
The options below not only offer a lifeline to those stepping onto the property ladder but also provide a sense of security and possibility in an often challenging market.
For those struggling to save for a sizeable deposit, several schemes can help you secure a mortgage with as little as a 5% deposit or even no deposit at all. Speak to your mortgage advisor for more information on what’s available. Here's a snapshot of some of the pathways you can consider and could discuss with them to see if they’re right for you:
Deposit schemes and low deposit solutions:
|
Mortgage Guarantee Scheme
|
This initiative aims to increase the availability of 95% LTV (loan-to-value) mortgage products, helping more households to access mortgages with a smaller deposit.
|
|
Guarantor Mortgage
|
A home loan where a parent or close family member takes on some of the mortgage risk by acting as a guarantor.
|
|
Gifted Deposit
|
A lump sum of money gifted by a family member to cover the entirety or part of the borrower's deposit.
|
|
Joint Borrower Sole Proprietor
|
Allows relatives to contribute to the mortgage without needing to be on the title deeds.
|
|
Family Springboard
|
Family or friends can help with a mortgage with as little as 0% deposit, with their savings returned with interest.
|
|
Non-Resident Borrowers
|
Some mortgage programmes allow a co-borrower who won't live in the home to support the application.
|
|
Track Record mortgage
|
This product allows customers to borrow up to 100% LTV (loan-to-value) if they have a proven track record of renting for 12 months.
|
|
Family Assist
|
This mortgage product allows a family member to provide savings or property as additional security for the mortgage application.
|
|
£5k Deposit Mortgage
|
Benefit from the opportunity to move with only a £5,000 deposit.
|
Government and local authority schemes:
|
Shared Ownership
|
Shared Ownership offers the chance to buy a share of a home. Typically, this is a share of 25% to 75% of the home’s value, however, some selected homes are as low as a 10% share. You then pay rent on the remaining share of the property. |
|
Help to Build
|
An equity loan scheme in England for individuals custom-building their homes, offering a loan of 5% to 20% of the estimated land and build costs.
|
|
First Homes
|
New homes are sold at a minimum of 30% discount to first-time buyers, with the discount reapplied to future sales to continue benefiting first-time buyers.
|
Private sector schemes:
|
Green Mortgages
|
Incentives for buying energy-efficient homes or making energy-efficient improvements, potentially including lower interest rates and higher borrowing amounts.
|
|
Own New
|
Offers reduced rates and smaller deposit mortgages on new builds, with two mortgage products: Rate Reducer and Deposit Drop.
|
|
Deposit Unlock
|
A mortgage indemnity scheme that supports 95% loan-to-value (LTV) lending on new build properties, reducing the lender's risk with an insurance policy paid by the developer.
|
Each of these options has its own set of criteria and benefits. It's essential to weigh them against your circumstances and long-term financial goals. Speaking to a mortgage advisor can provide clarity and direction, ensuring you choose the path that aligns with your homeownership aspirations and financial health.
Other first-time buyer tips
To help you get onto the property ladder, we created a handy, 10-step guide to buying your first home and listed some tips on how you can start saving for a house deposit.
If there are three things we want you to remember on your journey to homeownership, it’s these top three tips for first-time buyers:
- Start saving for your house deposit.
- Explore a range of deposit options available.
- Get professional mortgage advice.
A mortgage advisor will be able to offer you advice that’s personalised to your financial situation. So if you’re wondering what mortgage deal best suits your needs, we have access to all these mortgage products and can advise you.
