Getting the Best Fixed Rate Mortgages for First Time Buyers

First time buyers - Is now a good time to get a fixed rate mortgage?

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A Guide To Fixed-Rate Mortgages For First-Time Buyers

Fixed-rate mortgages and first-time buyers go together pretty well. It allows those who aren’t experienced in repaying such a large loan amount to manage their budget with fixed payments for a set period. For the first-time buyer, fixed-rate mortgage options make a lot of sense.

However, tracking down those ideal first-time buyer mortgages isn’t as plain sailing as many hopeful homeowners would like. Mortgage lenders demand strict criteria and charge a host of additional costs on top of what you’re likely to pay for the house.

If you think you're entitled to a first-time buyer mortgage, or would like to know more about how they work, read on...

What is a fixed-rate mortgage?

Buyers choose a fixed interest rate over a set period, allowing them a precise figure to budget for over the next two, five, or even ten years.

A variable rate fluctuates in line with the Bank of England base rate. Given that rate can go up or down, monthly payments could ease, leaving borrowers with a little more money in their pocket, or they could rise, adding problems for anyone without the means to cover the increased cost.

What is a first-time buyer?

A first-time buyer hasn’t bought or owned a home or engaged in a mortgage before, whether solely or part of a joint mortgage or a shared ownership scheme.

If you’ve owned a house or flat before, it’s highly unlikely you’ll be accepted for any first-time buyer schemes or deals.

How does a first-time buyer mortgage work?

A first-time buyer can typically borrow around four to four-and-a-half times their income.

If they’re borrowing as part of a joint mortgage (i.e., with a partner, family member or friend), they can then borrow against their combined income.

The actual amount offered depends on the lender’s criteria and the income and outgoings of the applicant. Lenders conduct a strict assessment to determine how much money they have after paying the usual monthly expenses to ensure a borrower is a viable risk. This includes household bills, vehicle costs, outstanding debts, groceries, entertainment, etc.

The lender applies an appropriate interest rate to your affordability calculations and the mortgage term to determine the amount they’re prepared to offer.

They’ll also check your credit score and history to see how you’ve handled your finances in the past. A low credit score or red flags can mean a higher interest rate or stop an application dead in its tracks.

Applying for a first-time buyer mortgage

You’ll need three things to get your application rolling:

  1. A healthy credit score
  2. A cash deposit
  3. A regular income

Although that sounds simple, having a mortgage application approved takes a lot of work and a little more investment.

There are plenty of apps available to help you find your credit rating and how to improve it if it’s lower than you’d like or need it to be.

The bigger your deposit, the more preferential your mortgage interest rates; this is known as your LTV or loan-to-value rate.

Loan-to-value rates

Most first-time buyer mortgages will require a deposit of at least 5%.

The loan-to-value rate provides an easy-to-understand method of measuring the loan risk to the lender.

If you hope to buy a property for £200k and have saved £20k to put down as a deposit, that’s 10% of the total. The remainder, the loan amount, is £180k at an LTV of 90%.

If you’ve saved double the amount, providing a 20% deposit, the new LTV would be 80%.

The lower your LTV, the more preferable interest rates you’ll get. With a lower LTV, the lender sees you as less of a risk, with less chance of defaulting on payments or the mortgage as a whole.

Alternative mortgages available to first-time buyers

There are alternatives to the fixed-rate mortgage; first-time buyer options include:

  • Tracker mortgages - The rate of interest you pay each month changes in line with the Bank of England base interest rate. Tracker mortgage rates can go up or down.
  • Discounted variable-rate mortgages - Usually set for two or five years, the rate is fixed at a percentage lower than the lender’s standard variable rate (SVR).
  • Offset mortgages - Linked to a savings account, your savings balance is used to offset your mortgage debt. While you earn no interest on your savings, you’re paying less interest on your mortgage.
  • Capped mortgages - Also linked to the lender’s SVR but with a set top-level.

Are there specific fixed-rate mortgages for first-time buyers?

Most major lenders offer specific fixed-rate mortgages for first-time buyers. As long as they adhere to the specific lending criteria, their deals reflect their position as buyers, limiting the risks of defaulting while helping them achieve first-time homeownership.

What is a 95% fixed-rate mortgage?

A 95% fixed-rate mortgage reveals the interest rates available for borrowers with a 95% LTV (loan-to-value rate).

90% and 95% LTVs are considered low-deposit mortgages and come with higher interest rates. As a first-time buyer, 95% fixed-rate mortgage options are often all that’s available without a bit of help putting a larger deposit together.

Help for first-time buyers

As well the more traditional means of assistance, the government also supports new entries into the property market to keep the wheels of the economy turning, providing schemes to help get new buyers onto the property ladder.

The Help to Buy equity scheme offers first-time buyers a loan of 20% of the cost of new-build homes (40% in London) interest-free for five years.

A Lifetime ISA account provides a government bonus of £1 for every £4 saved up to a maximum of £4k/year to help buy your first home.

Guarantor mortgages allow parents or family members to step in when the buyer is likely to miss payments.

Shared ownership schemes allow buyers to buy between 25–75% of a property, paying a reduced rent on the remainder. Buying more of the property as and when they can afford it allows the mortgage holder to move forward in smaller steps – where the process gets its name, ‘staircasing’.

Should first-time buyers go for 10-year fixed-rate mortgages?

As much as a 10-year fixed rate seems like a sensible way to budget long-term, the rates you pay are higher than those of two and five-year fixed-rate options, meaning the total extra you pay can be incredibly high. When considering a 10-year fixed-rate mortgage, first-time buyer options are likely to be limited as it’s not the kind of deal it might first appear to be.

It’s unlikely that interest rates will grow significantly enough to make the 10-year deal a good one. Negotiating new fixed-rate contracts over shorter periods will likely achieve lower total costs and easier-to-manage long-term payment schedules.

How to find the best first-time buyer fixed-rate mortgages

Despite the mass of information at our fingertips, scouring the entire mortgage market for the best deals takes a lot of work. You’re not a professional, so it’s unlikely you’ll understand all the intricacies of each offer, mortgage type, and process, nor the terminology you’ll face.

A mortgage broker is far better positioned to find you precisely the deal you hope for and often save you money into the bargain – despite their costs.

CLS find the mortgage deals you're looking for

As a leading mortgage broker, CLS works with house buyers like you every day. Whatever your situation, we find the mortgage deals, rates, and monthly repayments you need. Wny not give our expert advisers a call or drop us a message today? We'd love to hear from you.

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Gemma May

Mortgage Advisor

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