When you’re ready to buy your first home, it’s tempting to dive straight into property viewings. But there’s a lot to consider even before you view potential properties and put in an offer. In this guide, we've done a rundown of everything you need to know about mortgages before buying your first home.
What mortgages are available?
In the UK mortgage market, you can choose between two different types of mortgages: a fixed rate or a variable rate.
A fixed rate mortgage locks you into a specific interest rate for a set amount of time. Your payment won’t change until the product ends. Some mortgage holders prefer to lock in their interest rate so they have predictable payments.
A variable rate mortgage means your payment can go up or down. It’s linked to the interest rate charged by the Bank of England (BoE). Usually, if the BoE interest rate goes up, variable mortgage payments will increase. If the BoE interest rate comes down, variable mortgage payments will decrease.
If you choose to work with a mortgage broker, they’ll be able to guide you through different mortgage options. That way you can decide what’s best for your circumstances.
How much should you borrow on a mortgage?
Rather than stretching your budget to the maximum, it’s best to borrow a mortgage amount with payments you can comfortably afford even if interest rates rise. Mortgages are one of the biggest and longest financial commitments you’ll make and unexpected events in life can happen. Leaving yourself some room for movement in your budget will help you manage your money even if income or interest rates fluctuate in the future.
What Government schemes are available to help?
With property prices increasing, many people find it hard to get a foot on the property ladder. But, with first-time buyer schemes from the Government, more people can achieve their dream of owning a home.
Government schemes aimed at affordable homes for first-time buyers include:
First Homes Scheme
Aimed at keyworkers and first-time buyers, this scheme offers a discount of 30-50% on the market price of new-build homes. You’ll need to earn less than £80,000 (£90,000 for London buyers) and meet any criteria set by the local council.
Shared Ownership
Through this scheme you buy a share of a property, usually 10%-75% funded by a mortgage. You then pay rent for the remaining share to the Housing Association that owns the other share. Different rules apply for this scheme across the UK, so check the criteria for shared ownership schemes where you live on the Government website.
How do you know if you’ve found the right property?
When you’ve found a property you love and you’re thinking about putting an offer in, take some time to research the area first. Visit at different times of the day to assess noise, parking and traffic levels. You can also use the UK police website to find out crime rates by postcode.
When you initially look round a property, there’s a lot to take in, so book in for follow up viewings as you might spot things you missed the first time round.
What are the other costs of homeownership?
The deposit and mortgage payments are costs that most first-time buyers will be familiar with. But there are many other costs involved when you buy and own a home. It’s a good idea to work out a full budget including all the hidden costs of homeownership so you have a detailed plan listing everything you’ll need to pay.
Do first-time buyers pay stamp duty?
Stamp duty is a tax you pay when you buy a property in England and Northern Ireland. In Wales it’s called Land Transaction Tax and Scotland call it Land and Buildings Transaction Tax.
The amount of stamp duty you’ll pay is dependent on the purchase price of your property*:
| Property value | SDLT rate |
| Up to £250,000 | 0% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
If you’re in Wales, the Land Transaction rates and bands are*:
| Price threshold | LTT rate |
| The portion up to and including £225,000 | 0% |
| The portion over £225,000 up to and including £400,000 | 6% |
| The portion over £400,000 up to and including £750,000 | 7.5% |
| The portion over £750,000 up to and including £1,500,000 | 10% |
| The portion over £1,500,000 | 12% |
In Scotland, the Land and Buildings Transaction Tax rates and bands are:
| Purchase price | LBTT rate |
| Up to £145,000 | 0% |
| £145,001 to £250,000 | 2% |
| £250,001 to £325,000 | 5% |
| £325,001 to £750,000 | 10% |
| Over £750,000 | 12% |
*Rates correct as at 15 April 2024
How do you get pre-approved for your mortgage?
There can be a lot of competition for properties, particularly if they have a lower asking price, so it’s important to show estate agents you’re a committed and proactive buyer. One way you can do this is by applying for a decision in principle (also known as an agreement in principle) from your chosen mortgage lender.
This assessment is part of the mortgage application process and shows how much you’re likely to be approved for taking into consideration your earnings and outgoings.
Having a decision in principle in place can make your offer more attractive to a seller and their agent as it shows you’re ready to move quickly and have already approached a mortgage lender.
Which lender should you choose?
Choosing the lender that has the best product for your circumstances is important. But you should also research their fees, flexibility and commitment to customer service. Reading customer reviews will help you form a well-rounded view of each lender, making your decision easier.
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