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The best mortgage advice for first-time buyers

By Daisy Mason

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If you're thinking of stepping onto the property ladder for the first time, you'll need to start by researching suitable mortgages. But if you've never done this before, finding the right mortgage for you can be a headache. This is why many people go straight to their bank to find a deal rather than shopping around.

But it doesn't have to be a difficult process. We speak to expert mortgage brokers Alexander Hall, who give their advice on finding the perfect mortgage as a first-time buyer.

Where to begin

You'll need to start by arranging a mortgage in principal, which is a promise from your lender that they will lend the money you require to buy a property. This will outline what you are able to afford and will subsequently direct your property search and allow you to submit an offer on a property.

The great news for today's first-time buyers is that interest rates are at an historic low and mortgage rates are the cheapest they've ever been. Although the property market remains relatively competitive on price, the cost of a mortgage is proportionately somewhat cheaper than average rents – meaning you could still have extra money in your pocket at the end of the month even after becoming a proud homeowner.

And following last autumn's budget announcement, first-time buyers don't have to pay Stamp Duty for property purchases up to £300,000 and will pay a flat rate of 5% on any amount between £300-500,000.

Other options from the bank of mum and dad

Did you know the 'Bank of Mum and Dad' was one of the UK's top 10 lenders in 2017? And because of this rise in the number of parents helping their children buy their first home, there has been a significant increase in the number of lenders offering mortgage options that involve parental assistance.

One possibility is the 'joint borrow sole proprietor' option, where you can borrow jointly with your parent/s without their name on the title deeds of the property. This allows you to have greater borrowing power, but you will be liable for the higher Stamp Duty rate as your parents will be second-time homeowners.

There are also schemes available where lenders will use the parent's property equity as security for buying a new home, as opposed to first-time buyers needing a cash deposit.

Learn more about the government's Help to Buy scheme

The government's Help to Buy Scheme has helped hundreds of thousands of first-time buyers onto the property ladder with a deposit of only 5%. It's widely available and the requirements are basic, which means most first-time buyers will be eligible.

As a buyer you will need to have a deposit that's equivalent to 5% of the property's value and the government will lend you up to 20% required by the mortgage lender. This government loan is interest-free for 5 years, after which interest will be applied.

In London, the scheme works in the same way, but the amount you can borrow is higher. You will need to have a 5% deposit, but the government will lend you up to 40% of the property's value.

Read our in-depth guide to Help to Buy here.

Consider buying with a friend or family member

Buying a property with a friend or family member may allow you to buy a larger and more suitable property and while it does come with some problems – like who will have the bigger bedroom – you can be rest assured that you will be covered by law in case something goes wrong.

Find out more about joint property ownership here.

Mortgages needing only a 5% deposit

Following the economic crash in 2007, it became difficult to secure a mortgage with a deposit of less than 20%. However, this is no longer the case.

There are lenders that will allow you to take out a mortgage with a 5% deposit – these low deposit mortgages are not only limited to the Help to Buy scheme.

Of course, all lenders are different and it's crucial as a first-time buyer that you understand and appreciate the varying rules and criteria that each lender adopts. These different rules will determine a range of outcomes, from whether you are able to obtain a mortgage at all, to the varying amounts you can borrow.

Don't give up at the first hurdle

It can be tricky to secure a mortgage if your financial situation is self-employed, freelance, or anything other than a straight-forward employee. Don’t get disheartened if a bank turns you down for finance, as there are many lenders who specialise in these sorts of situations who will be able to assist you.

Similarly, a first-time buyer may consult an online calculator or speak to their bank directly to be offered a set amount of money, without appreciating that lenders all work to very different models. Other lenders could offer more and some less.

Speaking to a mortgage broker is the only way to fully understand what mortgages are available to you.

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