Concern and confusion when choosing the best mortgage as a first-time buyer is common and understandable given this is likely to be the biggest loan someone ever takes out. But it doesn’t have to be scary.
As the number one direct lender for first-time buyers, Lloyds is alongside you every step of the way.
Its expert mortgage teams ensure your journey towards that first home purchase starts with a clear understanding of how much you can realistically borrow; the guidance then continues all the way through to picking up the keys, moving in and enjoying life beyond those first few weeks behind your new front door.
Selecting your first mortgage as a first-time buyer is a huge decision, but it’s not as tough as you might fear. Applying for a mortgage with Lloyds is an easy-to-follow process with explanations of all the different conditions and requirements.
From deposits to interest rates, monthly payments to fixed or tracker rates, and mortgage agreements in principle to the length of your loan, Lloyds offers all you need to know about first-time buyer mortgages, and through My First Home, one of the features on Lloyds’ smartphone app for existing customers.
Can I get a mortgage as a first-time buyer in the UK?
First-time buyers are able to get a mortgage to purchase a home in the UK just like anybody else – but always dependent on their own personal and financial circumstances.
Being a first-time buyer does not stop you from getting a mortgage – we all have to start somewhere. Lloyds is the number one direct lender for first-time buyers and this means it knows a thing or two about getting you settled under your new roof.
Like any other applicant, a mortgage will only be approved to someone who is judged as able to afford it; first-time buyers go through the exact same checks as everyone else. To qualify for this type of loan, many steps must be followed, and several decisions must be made, but fulfilling your dream of home ownership need not be daunting.
What mortgage options can a first-time buyer get in the UK?
Depending on their circumstances, first-time buyers in the UK have many different mortgage options, each with their own advantages and restrictions. These include mortgages with Lloyds Bank needing just a £5k or a 5% deposit.
Lloyds offers a range of mortgages specifically for first-time buyers with different options and elements to choose from. Each mortgage will also have its own requirements, exemptions and restrictions. Alongside its mortgages that are open to all, which first-time buyers can apply for, Lloyds has a number of specific mortgage products aimed directly at those purchasing their first home.
Each of these mortgages is explained in more detail in this article in this series.
What types of mortgage can a first-time buyer get in the UK?
Mortgages for first-time buyers in the UK are mainly two types – fixed, where the mortgage interest rate is fixed for a period, and tracker, where it tracks the Bank of England base rate of interest. (There is a third type – standard variable rate – where the interest is set by your lender.)
Lloyds offers a number of mortgage types, including fixed and tracker, and buyers can choose which is best for them: here is an explanation of fixed and tracker.
Fixed
Your interest rate is set for a specific length of time and won’t change until the end of that period, usually two, three, five or 10 years. When your fixed-rate deal ends, you can usually remortgage with your existing lender, switching to a new deal with them (this is also known as a product transfer). Alternatively, you can remortgage with a different lender” – this allows you to change the loan amount or its duration.
Tracker
Your interest rate is agreed at the outset of the loan, but it is variable, meaning it can move up and down. This is because that rate is tied directly to the movements of the Bank of England’s base rate; this is either raised, lowered or kept the same at meetings the BoE holds eight times a year. When this rate rises or falls, for example by 0.5%, then your own mortgage interest rate with Lloyds will reflect that going forward but can also, of course, rise. A tracker term usually runs from one to five years.
What are the monthly mortgage payments for a first-time buyer in the UK?
The size of monthly mortgage payments for first-time buyers in the UK depends on a number of factors including how much they borrow, the interest rate and the length of time the mortgage will last for.
Monthly mortgage payments are calculated according to the interest rate of the loan you decide on and the duration of the mortgage term you choose. Whether you opt for a fixed or tracker with Lloyds, yours will be a repayment mortgage.
This style of mortgage is composed of two parts: there is the interest you are charged each month based on the rate you have chosen (usually calculated daily) and then the amount you’ve borrowed (known as “the capital”).
With a repayment mortgage, monthly payments go towards paying off both the interest and the capital. The monthly amount of interest is settled and then the balance of what you have borrowed is reduced by however much is left from the overall monthly payment amount.
A repayment mortgage means across your entire mortgage term, you will begin to pay back the amount of money you were initially loaned by Lloyds to buy your first home.
How can I find out how much I can borrow for a mortgage in the UK?
If you’re a first-time buyer, the first step in finding out how much you can borrow for a mortgage in the UK, is to complete a quick questionnaire using an online calculator – Lloyds Bank has one on its website.
As a first-time buyer, how much you can borrow from Lloyds depends on what you can afford after certain bills and any other loan obligations are taken into account. This amount is also linked to the value of the property you want to buy as well as the amount of money you have set aside for your initial deposit.
The deposit is what you pay from your own pocket towards the home purchase, with the mortgage then making up the rest of the property price total. The bigger the deposit you have, the lower your monthly payments can be because you would need to borrow less from Lloyds to make up the difference.
For example, if your first home is worth £300,000 and you have a 5% deposit of £15,000, then you would need to take out a mortgage for £285,000. Lloyds has online calculators on its website to help with the sums.
The more you borrow for a mortgage, the greater the amount of interest you will be charged overall. Paying a bigger deposit up front means typically you can reduce that interest amount and have lower monthly payments.
It is vital to remember though that all mortgages are secured against the home you will be buying, meaning that property may be at risk if you fail to make the agreed monthly payments. This is why knowing what you can borrow, and what you can afford, is paramount ahead of making a formal mortgage application.
Your formal mortgage application as a first-time buyer will itself be judged on a number of factors, including whether you apply for the mortgage on your own or make a joint application with another person such as a partner or friend. A joint mortgage may mean you can borrow a higher amount than as a solo applicant.
Factors influencing how much you can borrow include:
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Your employment status, various earnings, and overall level of income.
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The number of dependants you have, such as any children.
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How much you spend on certain monthly bills and paying off other loans.
This information gives a lender such as Lloyds a clearer picture of your personal life and finances ensuring it can have confidence in your mortgage’s affordability; this then means there is a lower risk of you defaulting on your mortgage.
As part of this formal mortgage application, Lloyds will also contact credit reference agencies to see your credit history and match the details you have provided with the information these bodies hold to ensure they are true.
However, applying for a mortgage in this formal way can only be done once you have found a property you wish to buy. That is why using Lloyds’ online mortgage and repayment calculators should be the first informal step to gaining a rough idea of how much borrowing you could be eligible for. Doing so in this way will not affect your credit score.
What is a mortgage agreement in principle and how do I get one in the UK?
A mortgage agreement in principle is an important step on the first-time buyer’s journey to getting a loan approved. It offers a firmer guide to the amount that can be borrowed before a full application is made.
An agreement in principle (AIP), also known as a mortgage in principle, is the step after you have used the online calculators but the step before you go on to make a full formal mortgage application. This is a shorter and softer application process to help you get a greater understanding of how much you could borrow.
While the calculators are just for a rough guide, the AIP provides you with a firmer basis on which to narrow down your property search and ensure what you are looking for can be bought with a mortgage plus your deposit.
An AIP has fewer questions to answer, and includes a “soft credit check”. Making an initial application in this way won’t affect your credit rating. It also won’t be seen by other potential mortgage lenders apart from Lloyds.
However, given this is not the final formal mortgage application, the amount you might be offered is not guaranteed because your circumstances may change in the interim.
For more information about first-time buyer mortgages from Lloyds, see the dedicated section on its website.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Lending is subject to status.
