Buying your first home is an exciting milestone, but it can also feel overwhelming. With so many terms, options, and decisions to make, it’s easy to feel a bit lost. However, understanding the basics of mortgages can help you approach the process with confidence.
Here’s what we think first-time buyers need to know to get started, and how a financial services business like ours can guide you along the way.
What is a Mortgage?
In simple terms, a mortgage is a loan that helps you buy a home. You borrow money from a lender, which you then pay back over a period of time, typically 15 to 30 years. The loan is secured against the property, meaning if you fail to repay it, the lender can take possession of the house.
How much can you borrow?
The amount you can borrow depends on several factors, such as your income, credit score, and the size of your deposit. Lenders usually want to make sure you’re not taking on too much debt. A common rule is that all your monthly debt payments (including your mortgage) shouldn’t be more than 36% of your total before-tax income.
To get an idea of how much you can borrow, you can use an online mortgage calculator or consult with a lender, such as your bank, directly. Keep in mind that the more you can put down as a deposit, the less you’ll need to borrow, which can result in lower monthly payments.
Types of Mortgages
There are various types of mortgages, and each comes with different terms and conditions. Some of the most common types include:
- Fixed-Rate Mortgages: With a fixed-rate mortgage, your interest rate stays the same throughout the life of the loan. This gives you the security of knowing exactly what your monthly payments will be.
- Variable-Rate Mortgages: These loans have an interest rate that can change over time. Your payments could go up or down depending on market conditions, so while the initial rate may be lower, it can be harder to budget for in the long term.
- Government-Backed Mortgages: In the UK, there are government schemes like Help to Buy – Wales, which can help first-time buyers who are located in Wales only with smaller deposits. These schemes are designed to make it easier for buyers to get on the property ladder.
- Buy-to-Let Mortgages: If you plan to rent out the property, a buy-to-let mortgage might be an option. These usually require a larger deposit, and the interest rates can be higher. Some buy-to-let mortgages are not regulated by the Financial Conduct Authority.
Credit Score and How it affects your Mortgage
Your credit score plays a big role in determining whether you’ll be approved for a mortgage and what interest rate you’ll be offered. A higher credit score typically leads to better mortgage terms, while a lower score can result in higher interest rates or a refusal of your application.
You can check your credit score by requesting a free report from credit agencies like Experian or, in some cases, through your bank. If your score isn’t where you want it to be, take steps to improve it before applying for a mortgage. This could include paying off any outstanding debts or ensuring you pay your bills on time, both of which can positively impact your credit score.
How much deposit do you need?
The deposit is the amount of money you pay upfront towards the cost of the home, and it’s usually expressed as a percentage of the property price. A standard deposit is 20%, but first-time buyers may be able to find mortgages with deposits as low as 5%. It is now even possible to get a 0% deposit.
However, a smaller deposit often means you’ll pay more in monthly repayments and may need to pay for private mortgage insurance (PMI) until you’ve built up more equity in the home. It’s important to consider whether you’re comfortable with the monthly payments before committing to a smaller deposit.
Closing costs
In addition to your deposit, you’ll also need to budget for closing costs, which can include things like stamp duty, solicitor fees, surveys, and insurance. Closing costs can vary depending on the property price and where you live, so it’s worth doing some research to ensure you have enough savings set aside.
How can Four Oaks Financial Services help?
Navigating the mortgage process can be complex, and this is where a financial services company can really make a difference. We can help you understand the different mortgage options available, assist with the application process, and provide expert advice tailored to your individual circumstances.
One of our advisers can help:
- Compare Mortgage Deals: They will help you find the right deals that suit your needs, whether you’re looking for a fixed-rate mortgage or a more flexible option.
- Help with Pre-Approval: Getting pre-approved for a mortgage can give you a clear idea of how much you can borrow, which is essential when you’re house hunting.
- Explain the Fine Print: Mortgages can involve a lot of paperwork and jargon. A financial expert will break down the terms and conditions, helping you understand what you’re signing up for.
- Provide Ongoing Support: Even after your mortgage is in place, a financial services business can help you manage your payments and advise on future options, such as remortgaging or early repayment.
Buying your first home is a big step, but with the right knowledge and support, you can make the process much smoother. Understanding how mortgages work, the types of loans available, and how a financial services company can help will set you on the right path.
Remember, it’s important to shop around, get expert advice, and make sure you fully understand your mortgage terms before committing.
If you have questions or need guidance, we’re here to help. Get in touch today to see how we can support you on your home-buying journey – it should be a fun one, not a stressful one!
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 10th April 2025.