A first-time buyer mortgage is a mortgage that is available to individuals who have never owned or had a property in their name in the UK or abroad, with the exception of business premises that have no living space attached to it.
Before looking for a mortgage, you have to save for a deposit that is at least 5% to 20% of the cost of your property. For example, if you want to buy a home that has an open market value of £200,000, you need to have an initial deposit of £10,000 if the requirement is set at 5%.
The main financial advantages of being a first-time buyer are that you have access to schemes that make getting on the ladder a little easier such as:
- Help-to-buy schemes
- Shared Ownership
- Right to buy/Right to acquire
Through help-to-buy schemes, you can deposit 5% of the purchased property price and enjoy the first five years with interest-free monthly payments on an equity amount between 20% and 40% which depends on where you live.
With shared ownership, you can buy a part/share of the property from the landlord. You can then take out a mortgage to pay for your share of the property and enjoy less rent on the share you don’t own. Furthermore, if you can afford it, later on, you can buy the remaining share of the property from the landlord by mortgaging it as well.
The government has two schemes in which tenants who have rented from the public sector can apply to buy and mortgage the properties they live in under Right to Buy and Right to Acquire schemes.
When you remortgage
, you choose to move onto your lenders standard variable rate, move onto a new fixed-rate mortgage with the same lender or change lenders entirely. Usually, this is to save on interest repayments but could be to consolidate any debts you may have accumulated, release equity from the property or because of a change in circumstances like marriage etc
A buy-to-let mortgage
is taken out with the agreement that the landlord (i.e. the person who buys the home and takes out the mortgage) will rent the property to a third party. Lenders use different criteria on a buy-to-let mortgage which are applied on a case-by-case basis, they may insist;
- You are already an owner of a home outright or with a mortgage
- You have a good credit rating
- Your yearly earning is more than £25,000
- Your age does not exceed the upper limit of the lender’s requirement
The deposit amount in buy-to-let mortgages varies between 20% to 40% of the property’s open market value and the interest rates are generally higher than other mortgage products. Most of the time, borrowers prefer taking out buy-to-let mortgages that are interest-only which means that they pay only the interest every month and pay the capital amount at the end of the loan term.