Getting started on that search for your first property as a first-time buyer can be exciting and daunting at the same time – so it may pay to ask Lloyds just how much you can borrow with a mortgage before you actually begin.
Spending your evenings browsing potential dream homes online and then having an estate agent show you around some favourites is one thing. But bringing to life your moving plans when wandering through other people’s living rooms and bedrooms could be in vain if your search filters for “price” were set too high.
Any eventual loan you take out has to meet your would-be purchase’s value; that total is only achieved from what you can borrow plus your saved deposit. So, it’s good to get a rough idea of what’s available to you early on.
Given Lloyds is the number one direct lender for first-time buyers, it has several ways to help you do this.
Understanding your realistic level of mortgage borrowing makes the first-time buying journey smoother. You can then move forward to calculating your affordability, gaining a mortgage agreement in principle, and choosing the best mortgage deal for your first home. Ultimately, the best mortgage deal for you will depend on several factors – your deposit size, the length of the initial deal, the overall mortgage term, additional fees and offers – the list goes on …
How can I find out how much I can borrow for a mortgage in the UK?
To find out how much a first-time buyer can borrow for a mortgage in the UK, the first step is to use an online mortgage calculator, such as the one on the Lloyds Bank website.
All mortgage applications are approved or declined based on various criteria, including income, outgoings, commitments, deposit and a lender assessment. First-time buyers go through the exact same process as anyone else and applying for a mortgage happens across many stages.
Lloyds offers all you need to know about first-time buyer mortgages on its website and through its My First Home feature on its smartphone app for existing Lloyds customers.
But before you take the plunge to make a formal mortgage application – which you cannot do until you have chosen a property you wish to buy – you can do some initial research on Lloyds’ mortgage calculator. This will give you a starting point for the price of properties you should be looking at. It will also show you how much your monthly repayment could be.
This calculator will take into account whether you are applying as a first-time buyer on your own or with a partner, relative or friend. It will also ask whether you’re employed or self-employed. Income and outgoings will also be needed, but you won’t need to put in every single monthly bill or loan you are paying. Dependants too are a factor if you have children or adults that you are financially responsible for.
Once everything is entered, you’ll be given an estimate of how much you could borrow as a mortgage. This is just a guide, it’s not a formal mortgage offer. But because using Lloyds’ mortgage calculator won’t affect your credit score, you can do this as many times as you need should your circumstances change during your first-time property search.
Remember, you could lose your home if you don’t keep up your mortgage repayments so getting this rough idea of your borrowing limits based on your affordability for a mortgage is advisable right from the start of the process.
What does the mortgage agreement in principle do for a first-time buyer 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.
The mortgage agreement in principle (AIP), also known as a mortgage in principle, comes before making a full formal mortgage application based on the specific property you have decided to buy.
Unlike the amount suggested when you are using the Lloyds’ mortgage calculators, the AIP provides you with a much more confident figure, although this is still not guaranteed as being the mortgage amount you will ultimately be offered. That’s why it’s an agreement only provided “in principle”.
However, the AIP does allow you as the potential buyer much more confidence and flexibility when negotiating on a property’s price. It is initial proof to show the seller and their estate agent that you are likely to be able to afford the home you want. This means you can then go on to make them an offer.
An agreement in principle has a shorter application to fill out and only a “soft credit check”, so this won’t affect your credit rating. It also won’t be information shared to other mortgage lenders as only Lloyds sees the results.
What is the minimum deposit for a mortgage for first-time buyers in the UK?
In the UK, first-time buyers generally need a minimum deposit of 5% of the value of the property they are buying. But at Lloyds Bank, as well as the 5% option, it can accept first-time buyers with just a £5,000 mortgage deposit.
Lloyds offers two mortgage deals for first-time buyers that need a smaller deposit. However, it’s important you read through the detailed exclusions and restrictions of each one to ensure you will be eligible.
For example, a first option for a lower deposit mortgage may be Lloyds’ £5k Deposit mortgage. It has a fixed five-year interest rate, and the deposit must be your own; it cannot be gifted to you from a family member or friend. The value of the property you wish to buy must be no less than £102,000 and no higher than £300,000. It also can’t be a new-build or under schemes such as right to buy or shared ownership. However, you will only need to have saved up £5,000 to get started on your journey towards buying that first home.
The second option with Lloyds would be its 5% Deposit mortgage. The fixed term here is between two and five years and because you only need 5% of a property’s value to make the purchase, you might not have to save for so long. For instance, if your first home is going to be worth £300,000, you will need a 5% deposit of £15,000, and then you would be taking out a mortgage for £285,000. However, any property bought with this particular mortgage has to be under £600,000.
These and other specific first-time buyer mortgages are explained in more detail in the final part [Link here to article 4 of the series] of this article series.
What are my best next steps as a first-time buyer in the UK?
A formal mortgage application is the major step for a first-time buyer in the UK – and this follows after they have received a mortgage agreement in principle and found a property to purchase.
Once you have received your agreement in principle, found a property you wish to buy, and then made an offer and had it accepted, the next step will be to make your formal mortgage application with Lloyds.
This will trigger a thorough check against all the information provided previously and any extra details needed by Lloyds. 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 your formal mortgage application must be based on the true facts and figures relevant at the time of applying and various pieces of evidence will need to be provided, and a formal credit reference agency check carried out.
When everything has been looked over, taken into account, and judged to be correct, you will then be given your formal mortgage offer – the official amount of borrowing you can have so that you can proceed with your purchase.
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.
