First-time buyer mortgages

With a guarantor mortgage, someone is added to the mortgage who’ll be responsible for making the repayments if you can’t.  
  
This type of mortgage can be useful if you have little or no deposit, are struggling to find a suitable lender or want to increase the amount you can borrow for a house you wouldn’t normally be able to afford. 
 
Be very careful when considering a guarantor mortgage, as the person acting as the guarantor is making a huge commitment on your behalf. If you can’t meet your repayments, they’ll be liable to pay them for you. If they can’t pay, their own home could be repossessed. So make sure you’re able to meet the repayments comfortably and that the guarantor is fully aware of, and willing to support with, the potential repayments too. You might want to get legal advice if you’re thinking about a guarantor mortgage.

If you can’t afford a home, you might be able to buy a share of one through a shared ownership scheme. You’ll then pay rent on the remaining share, which you could buy in the future once you’re able to afford it. 
 
You could be entitled to join a shared ownership scheme if your household earns less than £80,000 a year (£90,000 if living in London) and you’re a first-time buyer.

You should think carefully about shared ownership. By splitting the ownership, you might find the pool of people you’re able to sell to is smaller, while any improvements will have to be approved by the housing association. Other restrictions can include a ban on subletting a room or owning a pet.

If you’re not sure about anything, it’s always best to seek legal advice to avoid any nasty surprises once you’re already tied into a mortgage.

A joint mortgage is a mortgage you take out with someone else. This could be a family member, friend, husband or wife, or partner. Both people are responsible for a joint mortgage, which means you’ll both be liable for any missed repayments or making up the balance if one of you is unable to pay.

While joint mortgages are usually just for two people, some lenders will allow up to four people to take out a mortgage. Just keep in mind that the more people you share the responsibility with, the more people you’re liable for.

Your loan to value ratio (LTV) is the amount you can borrow on a mortgage compared to the overall cost of a property. Mortgage lenders usually have a maximum LTV ratio they’re willing to offer you. For example, if you’re looking to buy a property worth £200,000 and the lender is only willing to lend you 90% of the property’s value, you’ll get a mortgage of £180,000 and you’ll need a deposit of £20,000. 

In most cases, if you can lower the LTV, you’ll normally lower the rate of interest you’ll be charged.

When you’re looking for a new home, it’s quite likely that you’ll come across the terms ‘freehold’ and ‘leasehold’. Freehold means you own the property and the land it sits on, so if you buy a house it will usually be freehold. With a leasehold, you own the property (not the land it’s on) for the length of your lease agreement with the landowner. Most flats and maisonettes are leasehold and you’ll have to pay fees including ground rent and service charges.

There are pros and cons to both options, but bear in mind that it can be very difficult to resell a property with a short lease and you might struggle to get a mortgage if the lease has less than 70 years remaining.

Your deposit isn’t the only cost to think about when you’re buying a home. You’ll also need to budget for: 

Stamp duty - This tax is normally payable on any first-time buyer’s property worth more than £300,000 in England and Northern Ireland. In Scotland, instead of stamp duty you have to pay Land and Buildings Transaction Tax (LBTT), while in Wales it’s Land Transaction Tax (LTT). In response to the coronavirus crisis, the government has cut stamp duty. From 1 July 2021 until 30 September 2021, the stamp duty threshold will be set at £250,000. From 1 October 2021 onwards, stamp duty will return to the old £125,000 threshold.

Arrangement fee - This is the amount you pay to take out a mortgage. It typically goes up to around £2,000, but prices vary among providers. Most lenders will allow you to avoid this as an up-front cost by adding the arrangement fee onto the mortgage itself. While this might seem like a good idea, you’ll pay more in interest if you add it to your mortgage.

Valuation fees - Your mortgage provider will carry out a valuation of the property to reassure them that it’s worth the amount they’re lending you. Valuation fees vary between providers. You can expect to pay several hundred pounds, but rarely more than £1,000.

Survey fees - The cost of surveys can vary more significantly than valuation fees, depending on the level of detail you want, although you shouldn’t expect to pay more than £1,000.

Surveys are different to valuations because they review the property’s structure, along with any issues the home may face. This includes structural problems or restrictions around planning permission if you were looking to extend.

Broker fees - If you go through a mortgage broker, you may need to pay them a fee. These fees are typically several hundred pounds, but the broker may earn their fee through the commission provided by the mortgage provider. Take care to check for broker fees to avoid any surprises. We’re partnered with London & Country Mortgages Ltd (L&C) to provide fee-free advice to Compare the Market customers - you can call them on 0808 292 0811.

Legal costs - These could range from £500 to £1,500 or more. Find out more about the legal expenses relating to a property’s sale in our guide to conveyancing.

A repayment mortgage is where you pay back both the capital (the amount you initially borrowed) and the interest with each monthly payment. It means that by the time your mortgage ends, you will have paid off the total loan. 
 
An interest-only mortgage pays only the interest on your loan each month, but not any of the original capital borrowed. So, at the end of your mortgage term you still owe the lender the original cost of the property and you’ll need to show how you intend to pay that back. If you can’t repay the loan by the end of the term, you might need to sell your home. Since the financial crash of 2008, interest-only mortgages are rarely offered to first-time buyers.

Our eligibility checker can help you see how likely it is you’ll qualify for a mortgage, before you apply for one. This could give you more confidence when applying for a mortgage and when speaking to a mortgage broker. What’s more, you can check your eligibility without impacting your  credit score.

Many first-time buyers think about a longer-term mortgage because it lowers the amount you pay back each month, spreading the cost over a longer period of time. While the standard length (or term) of a mortgage is 25 years, an increasing number of mortgage lenders are offering longer-term mortgages – some up to 35 years.

If you’re considering taking out a longer-term mortgage, be aware that while your monthly repayments will be lower, you’ll be paying back a lot more in interest overall. And think about how old you’ll be when your mortgage term comes to an end. Will you be happy paying off a mortgage at that age? And are you likely to still be working and have enough income to afford the monthly payment? A mortgage lender should highlight and talk through these issues with you.

It’s worth checking if a mortgage deal lets you overpay without penalties. This will give you the flexibility to pay extra each month if you have a pay rise, or even pay off a lump sum if you come into some money. This could help you to shorten the length of the mortgage and save on interest.