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From sorting an agreement in principle to arranging the mortgage offer, how do you apply for a mortgage when you’re a first-time buyer? Let’s take a look.

Taking the first step onto the property ladder is no mean feat. After saving for a deposit, you’ll need to work out how much you can borrow and how much can comfortably afford to repay each month.

You’ll also need to decide how long you’d like to pay your mortgage back. Longer term mortgages offer lower monthly repayments, but cost more money in interest.

Then you’ll need to get in touch with a lender or mortgage broker to arrange your mortgage agreement in principle, and finally, your official mortgage offer.

Let’s look at all of the steps involved.

1. Get your finances ready

Most mortgage providers will lend up to 4.5 times the amount you earn.

You’ll need to decide what price range the property you want to buy is in, then the amount of deposit you’ll need to save towards it.

Ideally, you’ll need to save around 10% of the property’s total value as a deposit, but 95% mortgages are available, meaning you only need to save 5% of the property’s total value.

How to save for a deposit

There are schemes available to help you save for your deposit, like the Lifetime ISA, where you can save up to £4,000 a year and the government will chip in an extra 25%. That’s up to £1,000, for free.

Make sure your credit rating is in good shape.

If you’re buying a new-build home, there are several buying schemes available to help you on your way.

You’ll also need to think about stamp duty. As a first-time buyer, you won’t need to pay any stamp duty on the first £425,000 of the property you’re buying.

For the portion of the property between £425,000 and £625,000, you’ll need to pay 5%. And for properties costing more than £625,000, you’ll need to pay the normal stamp duty rates like everybody else.

2. Compare mortgage rates

There are two ways of finding the best mortgage rate for you:

Approach individual lenders for their best rates.

Speak to a whole of market broker, like Concise, who can look at all of the deals currently available and find the best rate available for you.

3. Decide the length of your mortgage term

Before higher mortgage rates, 25 years was a popular option. More recently, increasing numbers of first-time buyers are opting for 30-40 years.

A longer mortgage can keep the monthly payments lower, but you’ll pay more in interest in the long term.

4. Agree on a monthly payment you can afford

The traditional rule of thumb is that you shouldn’t pay more than 28% of your gross monthly income (that means before it’s taxed) on your mortgage, and it’s a threshold most lenders adhere to.

5. Arrange a mortgage agreement in principle

A mortgage agreement in principle (AIP) is a statement from a lender saying they’re willing to lend you a certain amount before you purchase your home.

Most estate agents prefer buyers to have an AIP agreed before they can put in an offer, as it shows that you’re a serious buyer.

To arrange an AIP, you’ll need to provide a lender with your financial information, so that they can give you an indication of how much they’re willing to lend you. We can help you with this.

A mortgage in principle is not the same as a mortgage offer: an AIP provides an indication of how much a lender is willing to offer you, while a mortgage offer is official confirmation from a lender that they’re willing to provide you with a mortgage.

6. Arrange your mortgage offer

Once you’ve found a property you want to buy, you’ll need a mortgage offer to secure it. We can set up an appointment to firm up figures and submit a full application on your behalf.

You don’t have to go with the lender who offered you an initial AIP if you’d like to change, but if you do, the lender will use the information you gave for the initial AIP as part of the process.

To secure a mortgage offer, you’ll need to go through the full mortgage application process. This will involve providing information to prove:

• Your identity
• Your income
• Your outgoings

This part of the process can take between 2-6 weeks, as lenders verify all of your documents and run credit checks.

 

Source: Nic Hopkirk, Zoopla

1.5m new homes, a Freedom to Buy Scheme and changes to stamp duty are among Labour’s manifesto pledges.

Following Labour securing a majority government in last week’s General Election, what could this mean for mortgage rates and the wider housing market?

Labour have promised 1.5m new homes over the next parliament. In a blog by William Lloyd-Hayward, chief operating officer at The Brightstar Group, he outlined Labour’s plan for housebuilding:

• Create a number of New Towns that would invigorate building at scale and ensure much needed accompanying infrastructure in the form of schools, GP surgeries and transport links.
• Re-think the green belt.
• Mandatory house building targets reintroduced across local authorities.
• 40% affordable housing. Angela Rayner, the shadow communities secretary, said: “Developers have been let off the hook and for too long allowed to wriggle out of their responsibilities to provide new social and affordable homes. Labour will robustly hold them to account”.
• 300 additional planning officers to help resource a largely broken planning system, funded by taxing foreign buyers.
• A Freedom to Buy Scheme to help people secure a mortgage with ‘funded deposits’.
• First dibs for local people on new developments, ending the farce of entire developments sold off to international investors before local people get a look in.
• Reform of compulsory purchase rules to get homes built.

Labour have also pledged to lower the stamp duty threshold for first-time buyers from £425,000 to £300,000 in April 2025 and increase the higher stamp duty rate on purchases of residential property by non-UK residents by 1%.

Capital Gains Tax

Labour have not ruled out increasing Capital Gains Tax, in a potential further deterrent for landlords. However, they have said they will not apply CGT to primary residences.

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said: “If landlords end up selling in larger numbers, worried about the potential of increased capital gains tax, we may see an influx of ex-rental properties to the market. This could lead to a fall in house prices but of course will also reduce rental stock which so many first-time buyers rely on while saving for a deposit.”

Iain McKenzie, CEO of The Guild of Property Professionals, commented: The buy-to-let market may see the most volatility under the new government, as landlords are facing difficulties due to high borrowing costs and regulatory changes.

“Potential increases to Capital Gains Tax might cause more landlords to exit the market, or pass the increased costs over to tenants.

“This must be avoided at all costs, as rent prices have been unaffordable for many tenants during the cost-of-living crisis. A proposed ban on ‘no fault’ evictions will be a safety net for some tenants, but it remains to be seen how significantly it will impact landlords.”

However, James Quarmby, a partner in the private wealth team at law firm Stephenson Harwood, said: “I’m not expecting a CGT rise this Autumn or anytime soon. Mainly because Labour front benchers have been saying ‘there are no plans to raise CGT’ in dozens of interviews. If the first thing they do when elected is to raise CGT, then it will look like they have been dishonest when campaigning. That would not be wise, even with a big majority.”

Freedom to Buy scheme

Labour plan to introduce a new Freedom to Buy scheme to replace the Mortgage Guarantee Scheme.

Karen Noye, mortgage expert at Quilter, said: “The Freedom to Buy scheme would see the current Mortgage Guarantee Scheme made permanent. However, the scheme has achieved very little take up since launch as it does not tackle the fundamental issue of high property prices relative to average incomes. What’s more, with house prices still at risk of fluctuating, negative equity could become a significant issue for those taking such high loan to value mortgages. Halifax reported the average UK home now costs £288,455, meaning a 95% mortgage supported by the guarantee scheme would require a £14,422.75 deposit. Having such a relatively low deposit amount would leave very little wiggle room in terms of house price changes before falling into negative equity.

“Prospective first time buyers and homeowners across the country have been crying out for help for some time now. Labour must follow through on its commitment to increase housing supply in the first instance, and it should explore alternative options to ensure that more people are supported in getting onto the housing ladder without needing to make potentially risky decisions when it comes to high loan to value mortgages.”

Tim Bannister, Rightmove’s property expert, agreed: “We think there is an opportunity to go further in giving support to first-time buyers. Whilst a permanent mortgage guarantee scheme provides the certainty that this option will be available, from our research we can see that only a small number of first-time buyers are likely to benefit from it. Making the existing stamp duty thresholds permanent for first-time buyers would be a start, and then there is an opportunity to look at innovative solutions to help first-time buyers with both their deposit, and being able to borrow enough from a lender in the longer term.”

In addition, a study from Barratt Homes reveals that 88% of first-time buyers are unaware of the current scheme, which means many may not benefit from its predecessor under the new government.

Could we see a post-General Election market pick-up?

Data from Rightmove shows that the average first-time buyer mortgage payment has risen by 61% since the last election year of 2019. Over the last five years, the average mortgage payment for a typical first-time buyer home has risen from £667 per month to £1,075 per month.

The increase in average mortgage payments for first-time buyers has significantly outpaced wage growth, which is up by 27% over the same five-year period.

Simon Jackson, managing director of SDL Surveying, predicts that if we see what is expected — a summer cut to the Bank of England’s base rate — accompanied by a post-election ‘buzz’, we may well see a welcome boost in transactions; especially if there is some form of housing initiative such as a stamp duty cut from the new Government.

Data from eXp UK shows that house prices have climbed by an average of 5.4% in the year following a General Election since the 1980s. Its analysis revealed house prices have increased in the year following every General Election since 1983, with the exception of 1992 and 2010.

However, Tom Bill, head of UK residential research at Knight Frank, was more cautious, stating: “One general point to make is that a combination of inexperience and instinctive caution means the new government is unlikely to make big decisions quickly.

“There will be no mini-Budget moment, avoiding the type of adverse reaction on financial markets and spike in mortgage rates seen after Liz Truss took power in September 2022. There has been minimal reaction on markets so far, which had expected a Labour victory.

“We will get a clearer sense of its plans in the autumn Budget once the Office for Budget Responsibility has examined its numbers. An even fuller picture will emerge at the spring Budget in 2025. Until then, we will have to rely on what Labour says to anticipate what its victory means for the UK housing market.”

Sam Mitchell, CEO of Purplebricks, concluded: “With 16 housing ministers since 2010, the industry is desperate for some certainty and clear strategic direction from the government.”

ROZI JONES | EDIT

The general election is taking place on 4 July. Will a new government be the answer to mortgage-borrowers prayers or is the prospect of affordable repayments just a D:Ream? We found out…

‘Things can only get better’ was the (unintended) soundtrack to Rishi Sunak’s election announcement speech – and it’s a phrase to which most mortgage borrowers will nod in agreement.

Labour leader Keir Starmer has hailed the election as an opportunity for change. And, for those struggling to make their mortgage repayments or people worried about remortgaging to a more expensive deal, change would no doubt be most welcome.

But what could a change of government mean for your mortgage and finances? What effect might the election campaign have on the economy and interest rates?

We take a look at what mortgage experts think the general election and potential new administration will mean for homeowners and buyers.

How do general elections influence mortgages?

Mortgage prices are influenced by various factors but are strongly linked to the Bank of England’s base rate – or interest rates. Lenders also set their prices based on how the economy and the markets are faring too.

Nicholas Mendes, mortgage technical manager at John Charcol, said: “A general election in the UK can significantly impact mortgage rates, often indirectly, through its influence on economic conditions, investor confidence, and monetary policy decisions.

“During the run-up to an election, uncertainty about the future political landscape typically causes financial market fluctuations.

“This instability can prompt lenders to adopt a more cautious approach, potentially delaying significant rate reductions until the economic outlook becomes clearer.”

Will the election impact the next interest rate decisions?

The decision makers at the BoE, the Monetary Policy Committee (MPC), are due to meet next on 20 June to make their decision on interest rates.

They have remained at 5.25% since August 2023 and most experts believe the BoE will cut them in August. At the moment, it is thought they will remain at 5.25% in June – although it’s not a sure bet.

Could a general election change this?

It depends, says Mendes, on the new government’s finance policies. “A government adopting expansive fiscal policies might lead the Bank of England to raise interest rates to curb inflation, resulting in higher mortgage rates,” he said.

“Conversely, a government focused on austerity and reducing public debt might support lower interest rates, making mortgages more affordable.”

How will a change of government influence mortgage prices?

Mendes believes the policies of the winning party also play a crucial role in shaping mortgage rates themselves. Obviously, these are affected by the interest rates but there are other factors to consider.

“If the new government implements measures aimed at stimulating the housing market,” said Mendes, “such as tax incentives for homebuyers or reforms to mortgage regulations, it can influence lenders’ products.”

He used the example of how Rishi Sunak’s stamp duty holiday during the pandemic drove the first-time buyer market.

Basically, policies which encourage economic growth and stability generally lead to lower mortgage rates, according to Mendes, because lenders feel more secure in a robust economic environment.

Will a new era in politics improve housing?

Housing – or lack of it – is one of major challenges facing society. On top of the low supply of property there is a dire need for more support to help people buy their first home.

Laura Suter, AJ Bell personal finance director said: “The state of the housing market is a key concern for many Brits.

“First-time buyers will want to see an extension to support helping them get a foot on the ladder, while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts.”

Meanwhile, Elliott Culley, director at Switch Mortgage Finance, speaking via the Newspage Agency, said: “Housing was not taken seriously under the recent conservative government. More than 15 housing minsters since 2010 has left the housing sector in ruin.

“If Labour does win they need to tackle the issues in the sector decisively. Now we are in to election season, let’s see what pledges are made. This will give us a steer as to how the economy will react.”

Source: Kate Saines of What Mortgage

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Buying a home

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Fresh wave of competition among lenders could provide relief for homebuyers ahead of UK general election.

A swath of UK lenders have dropped their mortgage rates over the past few days, fuelled by expectations that the Bank of England will soon start lowering interest rates.

Barclays decreased the rate on a five-year remortgage deal from 4.77 per cent to 4.32 per cent, assuming a 40 per cent deposit. The rate on its two-year fix dropped from 4.94 per cent to 4.61, with a £999 fee. Other lenders to cut rates — with more modest changes — include HSBC, TSB, Skipton Building Society and buy-to-let specialist BM Solutions.

The cuts have renewed hopes that a fresh wave of competition among lenders will push others to follow suit, providing relief for homebuyers ahead of a general election anticipated in the autumn in which access to housing has become a key battleground.

This follows growing market expectations that the Bank of Ireland, which held its benchmark rate at 5.25 per cent, will soon start lowering borrowing costs, with the balance tipping slightly in favour of a rate cut by June. That has pushed down swap rates, which reflect market expectations of the path for interest rates, and are used by lenders to price their mortgage deals.

“Following last week’s announcement that the bank rate would remain unchanged financial markets have adjusted their forecasts,” said Nicholas Mendes, technical manager at mortgage broker John Charcol. “There is now significant potential for rate reductions in the coming fortnight”.

Two-year swaps — which correlate to the pricing of two-year fixed-rate mortgages — fell to 4.51 per cent this week, down from 4.78 per cent at the start of May. Five-year swaps have fallen from 4.26 per cent to 3.97 per cent over the same period.

“It gives the lenders some room to manoeuvre,” said Andrew Montlake, managing director of mortgage broker Coreco. “It looks like it’s going to be a little more competitive for a while, certainly up until the summer. And we’ll see other lenders following suit.”

A period of optimism — and lower mortgage rates — in January proved short lived, as inflation data surprised markets by ticking up. “I think the markets and everyone else got ahead of themselves,” said Montlake.

Mortgage rates have continued to climb in recent weeks, as lenders struggled to see a clear outlook on inflation and the economy.

But others agreed there were now signs of a turn. “It wouldn’t be unreasonable to expect fixed rates to come down over the next six months and be somewhere close to the levels they were in January,” said Aaron Strutt, a director at broker Trinity Financial. “Five-year fixes need to be around 4 per cent for people to feel like they are getting reasonable value.”

Chris Sykes, consultant at broker Private Finance, said: “It’s good that lenders are responding quickly to changes in swap rates. These rate reductions are edging us back towards the position we were in three or four weeks ago, because over the past few weeks it’s always been up, up, up. I think we will see other lenders follow up.”

Average rates on two-year fixes are 5.9 per cent, according to data provider Moneyfacts — up from 5.3 per cent this time last year.

James Pickford, Akila Quinio & Mary McDougall

Financial Times 17/5/24

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