How to Get Your First Mortgage

Anyone looking to secure their first mortgage is likely to face an uphill battle in the current market, but it's not impossible. Here is all you need to know if you are looking for your first mortgage.

Why is getting a first mortgage so difficult?

For first time buyers, getting a mortgage has never been easy. However, the impact of the credit crunch has made matters far worse. That is, most lenders are focused on offering the best deals to low risk customers – a category that relatively few first time buyers fall into.

What constitutes low risk?

In simple terms, a low risk mortgage customer is:

• A first time buyer with a large deposit
   
• An existing homeowner who has already paid off a significant chunk of their original mortgage debt, or who put down a sizeable deposit at the outset

What these two types of customer have in common is that they will both be looking for mortgages with low ‘loan to value’ (LTV) ratios. That is, the mortgage amount is a relatively small proportion of the overall value of the property. In the current market, the lower the LTV percentage (say 60%), the more deals there are available, and the better the interest rates are likely to be.

What does that mean for first time buyers?

Most first time buyers have relatively low deposits at their disposal, so will be looking for mortgages in the 85-95% LTV range.

First of all, it's worth bearing in mind that there aren't a huge number of these deals on the market at the moment, so choice is limited, although more are becoming available all the time.  Secondly, mortgages aimed at high LTV buyers tend to be more expensive, often commanding higher upfront costs (for instance, product and arrangement fees and charging interest at a higher rate).

That said, things do seem to be slowly improving and more affordable and accessible deals are becoming available all the time.  So while it isn't as easy to get your first mortgage as it was in pre-credit crunch times, it is still possible.

So what should first time buyers do?

If you're looking to buy your first home a lot comes down to getting together a sizeable deposit, but it is also worth remembering that setting your sights lower in terms of the property you aim to buy will also have an impact here.

Here are some of the steps you could take to increase your chances of securing a competitive mortgage:

1. Assess your local housing market:
   This will help you to see how prices stack up against your needs.
    
   • Visit local estate agents, check local papers and property websites to find out what your budget will need to be (but don’t forget to include a bit extra to cover things like solicitors' fees)
      
   • Be realistic: Remember, LTV relates to the proportion of the asking price you can cover with a deposit. Your deposit is likely to be a fixed amount, so the only way to bring down the LTV may be to look at cheaper properties
      
2. Save a deposit:
   In the current market you will need to have money put away as a deposit in order to stand a better chance of securing a first time buyer mortgage. Remember that the more you can put away, the better your chances will be and the more affordable the mortgages available to you will be.
    
3. Work out your minimum LTV:
   Based on your property prices research, and the deposit you have put aside, work out what proportion of the purchase price you will need to borrow. To do this, subtract your deposit from the likely cost of buying a property (including up front fees and expenses) – this will tell you how much you need to borrow. Then work out your LTV percentage by dividing the amount you need to borrow by the asking price and multiplying the result by 100.
    
4. Compare the mortgage deals on offer for first time buyers:
   By looking at the whole market, you can get a feel for your options. Look in particular for:
   
   
   • Mortgages that do NOT explicitly exclude first time buyers
      
   • The relationship between LTV and mortgage interest: You will see that as LTV goes down, so do the interest rates
      
   • Product fees: In the current market low interest and/or high LTV mortgage products tend to charge high set up fees. If you don’t factor these fees into your comparison, you will not have a true picture of the cost of the mortgages available to you.
      
   • TIP: Use money.co.uk’s Power Search feature to filter your results according to your circumstances – for instance to ensure that only mortgages available at or above the LTV you calculated are displayed.
     
     
5. Move quickly if you find a suitable deal:
   If you are lucky enough to find a mortgage deal that you are eligible for, and which is affordable, it is worth applying there and then as rates are changing quickly and deals maybe withdrawn. However, before you do:
   
   
   • Check terms and conditions carefully – to make doubly sure you are eligible (remember that failed credit applications affect your credit rating), and to ensure you understand what you are signing up to
      
   • Ask for a full illustration: Based on certain information you provide, the lender will be able to put together a detailed picture of the overall mortgage cost (including set-up costs as well as monthly payments). Study the illustration carefully before you commit yourself
      
   • Get advice from an independent whole of market broker if there is anything you don't understand
      
   • REMEMBER: If your application is successful the lender will make you an ‘in principle offer’. In many cases, this offer will remain on the table for three to six months
      
6. If you do not find anything you can afford, don’t give up:
   
   
   • Look for ways to increase your deposit: Can you borrow from family members? If you are able to go down this route, read our guide to gifting and tax before going ahead.
      
   • Consider lowering your sights further. Are there any property options at lower prices?
      
   • Seek out government help for first time buyers: The government has launched a range of schemes designed to help first time buyers in recent months and these are definitely worth investigating.
      
7. Keep an eye on mortgage rates as the situation is changing all the time:
   There is no reason why you should not continue to look for the ideal property – given time, lending to first time buyers will ease, giving you more options.
   
   
   • TIP: If you set up a Power Search on money.co.uk, you can book mark the link: Your search criteria will be automatically saved (based on the last set of options you selected), so you can check the options available to you whenever you want.