First Time Buyers 2023

Marty Naan gives us the latest home buying information for First Time Buyers.  

Is there any help for First Time Buyers in 2023?

Yes, absolutely. There are a few different schemes out there so we’ll go through them and give people an idea of the criteria for each scheme and how they work.

What’s the First Homes Scheme?

This scheme can potentially help people to buy a home for 30% to 50% less than the market value. It’s designed for new homes built by a developer, or a home that somebody else bought through that scheme. It’s currently only available in England and there are some conditions. 

You have to be 18 or older, you must be a First Time Buyer and you need to be able to obtain a mortgage for at least half the price of the home. Your household income cannot be more than £80,000 outside of London or £90,000 in London. 

There also can be conditions depending on the location, as the local council may also set eligibility requirements. You need to look for new homes that are advertised by developers as part of the First Homes scheme. The property cannot cost more than £420,000 in London or £250,000 outside of London after the discount has been applied. 

One big proviso with this is the future sale. You can only sell the home to somebody who’s eligible for the First Homes scheme and you have to give them the same percentage discount as when you bought the home. It can be a bit complicated, so like many of these schemes, the first step in the process is to always contact a mortgage and protection advisor.

Have 100% mortgages come back?

Yes, and it’s good news to some, while other people are talking about it as if it’s Armageddon. The 100% mortgage is essentially a no deposit mortgage. There is only one available at the moment and it’s called a Track Record mortgage. 

It is a very specific deal with Skipton Building Society. It’s available to First Time Buyers as long as they have a 12 month track record of rental payments. It also includes standard credit and affordability checks.

What is a Joint Borrower Sole Proprietor mortgage scheme?

This is a really good scheme that allows for two people to apply for a mortgage, such as a parent and child.

That can help increase the affordability of the mortgage because it uses both incomes to support the application. But only one person – the child – would actually own the property. 

It can be a really fantastic tool for parents or guardians to help First Time Buyers get on the property ladder. The mortgage itself is a standard product, it’s just the way that it’s processed that’s different.

Is it a new version of the guarantor mortgage scheme?

Yes and no. A guarantor mortgage is for clients who don’t have enough income to qualify for a mortgage on their own. It’s a bit different from the Joint Borrower Sole Proprietor (JBSP) because the guarantor is guaranteeing to repay the loan if the borrower does not. 

Guarantor schemes are not widely available and only three lenders out of hundreds in the UK accept them. So JBSP is not a direct replacement for it, but it’s a fantastic alternative.

What is shared ownership?

Shared ownership has been around for a long time. It allows you to purchase a percentage share of a property. Say you buy 25% of a home, you would then pay rent on the remaining 75%. 

You can potentially own more of the property in the future, through what everybody refers to as ‘staircasing’. Maybe you’ll buy an extra 25% or an extra 50%, and your rent would then decrease, but obviously your mortgage would increase. 

One of the key benefits of shared ownership is that you actually only need a deposit based on the share of the property, not the full market value. 

If you were buying a property worth £100,000 and purchasing a 25% share, then you only need a deposit based on £25,000. A standard 10% deposit then will be £2,500 – which is a lot less than the £10,000 deposit you would need on a standard purchase.

What other schemes are worth exploring?

We should mention the Right to Buy scheme, which could apply if you’ve been living in a council-owned property. If you fit the criteria you might be able to purchase your council home at a significant discount. There’s potentially no deposit required, as the discount actually acts as the deposit. It’s a really useful scheme. 

A less well-known one is a Concessionary Purchase. It’s essentially a purchase between a buyer and maybe a family member or a landlord. Again, the house is sold at a discount that can be used as the deposit. 

Let’s say you were renting property from somebody and it’s valued at £150,000, but it’s being sold to you for £100,000. The £50,000 discount would be treated as your deposit.

How is the mortgage process different for First Time Buyers? 

From a technical point of view it’s not all that different, unless the purchase is part of one of those schemes. If that’s the case, some extra steps may apply. 

On a more personal level, First Time Buyers won’t have any experience of buying a home, so ideally the first step is to speak to a mortgage and protection advisor. We can help guide you through the whole process, even before you start looking for a house right up until you move in.

Someone who already owns a house might go out and start looking at homes first because they know what their mortgage is and roughly how much they can borrow. They have that experience – whereas First Time Buyers don’t have the same level of knowledge. 

We can hold somebody’s hand throughout that entire process and our clients appreciate having somebody there to support them at all times.  The process can be slightly overwhelming and it rarely goes smoothly. So having someone helping you and guiding you can make a big difference. 

As an example for you, a First Time Buyer couple recently sent me a property they were looking at. The property was on sale for £375,000 but it was massively overvalued. I suggested how much to offer and it was accepted for £35,000 less. So one phone call saved that client £35,000 upfront – never mind the interest on a mortgage as well. 

We’re on hand at all times to make sure that you’re not being taken advantage of. So if you’re a First Time Buyer, find a mortgage advisor.

What is an Agreement in Principle?

An Agreement in Principle is a tool with many names: mortgage certificate, decision in principle, agreement in principle… but essentially it’s an indication that a lender will consider an application for a mortgage. It can also let you know your maximum borrowing to guide you on your purchase price. 

The key thing is that it’s not actually a guarantee that a lender will offer you a mortgage. It’s an indication of how much they might lend. Estate agents might ask for a document to support your offer and that Agreement in Principle will help get your offer accepted. They are easily available – your mortgage advisor can get them at any time. 

What is the First Time Buyer ISA and are these still available?

The First Time Buyer ISA or Help to Buy ISA was a government scheme designed to help people save money to buy a home. Unfortunately, the scheme is now closed, although you can still use any existing ISA funds. 

As part of the scheme the government would top up your savings by 25% when you buy your first home. The 25% bonus for any existing clients must be claimed by November 2030. 

The Help to Buy ISA has been replaced with the Lifetime ISA, which is available to anybody over 18 and under 40. It can be used to buy your first home. You can contribute up to £4000 each year until you’re 50, and the government will add a 25% bonus each year. 

If you use that money to buy a home, the property has to cost £450,000 or less. You have to be buying with a mortgage and it must be at least 12 months after you make your first payment into the lifetime ISA. There are criteria and exclusions to the schemes as well, but essentially it’s a savings tool designed to help somebody purchase their first home.

What is the average deposit for a First Time Buyer in the UK in 2023?

I’m going to be awkward here because I don’t like the word average. It suggests that everybody is in a similar position when it comes to buying a home – and that simply isn’t true. There are so many factors to consider. There’s savings, there’s income, there’s location, there’s property prices. So it’s really difficult to give an average, as everybody has unique circumstances.

My advice is to speak to a mortgage advisor before you do anything else, and explore all the different options available including the ones we’ve discussed here today. 

There are zero deposit mortgages, there are 5% or 10% deposits and higher. Providing more deposit might end up putting you in a better financial position over the long term, as you can access more attractive interest rates. But the real truth of the matter is that a mortgage advisor’s job is to help you buy your home based on your circumstances. 

That’s why average is a misleading word. The goal here is to get somebody a home, not to get a mortgage. Nobody wants a mortgage – it’s just a tool to get a home.

How much can I borrow as a First Time Buyer?

This is similar to the deposit question. It depends on your personal circumstances – your income and what type of interest rate it attracts. It depends if you are buying on your own or with a partner; your current level of debt; your credit history. 

There’s a long list of variables that affect how much you can borrow. It’s easy for someone to say that a bank will lend you four and a half times your income, but the reality is much more complicated. It’s an indication of the maximum borrowing, but what you can actually borrow could be very different. 

The best way to figure out how much you can borrow is to get in touch with a mortgage advisor. We can work it out together and start that journey. 

How do I know what my credit score is and how do I improve it?

Most full mortgage applications involve a credit check. Getting an Agreement in Principle will involve a soft credit check – so there’s no footprint left behind and it won’t impact your credit score. I always ask my clients to obtain a copy of their credit report before starting a mortgage journey, so we can identify and resolve any issues. 

Bear in mind the credit score number is not the be-all-and-end-all. It’s just a number. Your actual credit report has so much more information than that. It’s more about how you actually manage your finances. 

There are ways to improve your credit score – such as making sure you’re registered to vote. You can prove that you’re able to manage credit by having a credit card with a small limit and repay it in full each month. That can help improve your overall score. 

Make sure you pay your bills on time and stay within your limits. Avoid using unauthorised overdrafts or making multiple applications for credit within a short space of time, as that can suggest you’re struggling for money, even though that might not actually be true.

There are many services that let you check your credit score, so keep an eye on it and know what’s going on. Once you see your report you should be able to fix any errors or mistakes on it.

What sort of costs are involved when buying your first home?

  1. Stamp duty. Now is actually a good time to buy a house, because if your property costs £425,000 or less and you’re a First Time Buyer there’s no stamp duty. That could save you thousands. 
  2. Mortgage fees. A typical product fee is £999 for a two-year fixed rate deal. There are usually multiple fee options when you apply for a mortgage, and my advice is to discuss all the options with an advisor before making any decisions. In some respects it can actually be cheaper in the long term to pay a fee, depending on how much money is borrowed.
  3. Property searches. Completed by your solicitor, these find out information about the property ahead of the purchase from the local authority. They include details about the environment, water and drainage. Cost depends on the solicitor, but £300 is a good estimate. 
  4. Surveys. There are three types to choose from. A basic survey is usually, but not always, paid for by the lender. It’s not always even shared with the seller. A basic valuation determines if the property is habitable and presents suitable security for the lender. You shouldn’t rely upon it for information about the property. 

The next one is a home buyer’s report, and is a very popular choice. The cost starts at around £400 and it can help identify structural issues like damp, but it doesn’t look under the floorboards or behind the walls. It’s quite aesthetic in nature and gives you a valuation to check against your offer.

The last one is a full structural survey. This is the most comprehensive and the most expensive, typically costing upwards of £600. It’s good for older properties or unusual buildings. It is very extensive and can be worth the extra money as advice and repairs are usually included as well. You will find out everything about the property – which can be good or bad. 

  1. Mortgage protection. This should be a part of anybody’s budget. When you go through an application, an expert advisor should identify any potential gaps in your personal protection and recommend solutions based on your needs.

It includes things like life insurance, critical illness cover, income protection and home insurance. The good news is that the cost can be led by your budget. I cannot stress enough the importance of protection. It’s good to get your home purchased, but I want to make sure you can stay in that home for as long as you want to. 

  1. Solicitor costs. These vary based on the solicitor but I would always discuss a budget with my clients before they engage, so we can try and find something that suits their budget.

How can I improve my chances of getting a mortgage as a First Time Buyer?

Speak to a mortgage advisor before you do anything. As soon as the idea of buying a house comes into your head, that’s the time to speak to a mortgage advisor. 

We guide you through every step of the process. It could even be starting out – how much do you need to save? Are there any savings plans to look at? We give you information on saving a deposit right up to picking a solicitor. We ensure you have the best possible chance of buying a home. 

You can do it on your own, but why would you? I don’t know anybody that fixes their own car unless they’re actually a qualified mechanic. There’s a reason that mortgage advisors exist – to help people achieve their ambitions. It’s not just about finding the best interest rate. There’s so much more to it than that.

Can you sum up what First Time Buyers can expect from a mortgage advisor?

I have a list of specific things that a mortgage broker can help with if you are a First Time Buyer… 

  • Explaining where to start with a deposit 
  • Talking through home buyer schemes
  • Getting you a decision in principle 
  • Guiding you on properties you’re interested in 
  • Completing your mortgage application 
  • Dealing with the lender on your behalf 
  • Helping you find a solicitor 
  • Dealing with the solicitor on your behalf 
  • Finding the right protection for you and your family 
  • Helping you understand a property valuation report. 
  • Answering any and all questions you might have at any stage of the process. 

That’s just a short list – I could go on, but I don’t want to bore people!