First Time Buyer Mortgages

In times of economic growth, which ultimately reflects on house prices, it can be possible to obtain mortgage finance with a deposit of as little as 5%. In order to access some of the more competitive mortgage deals, you would likely require a 20% deposit. The deposit acts as an insurance policy for mortgage lenders, providing a degree of protection if house prices were to fall.

There is also the government help-to-buy program. This involves shared ownership through a government-backed scheme, with a typical deposit anywhere from 5% upwards. Even though the statutory affordability test has been removed by the authorities, mortgage lenders will still have an eye on the risk/reward ratio.

The first-time buyer mortgage market is very competitive, offering a variety of options such as:-

Fixed-rate mortgages

Fixed-rate mortgages are the most popular amongst first-time buyers, offering a degree of certainty in the early days of the mortgage and a potential discount on the mortgage lender's standard variable rate.

Standard variable rate mortgages

A standard variable mortgage rate is heavily influenced by base rate movements. While a useful tool when interest rates are falling, it can be counter-productive for homeowners when interest rates are rising.

Tracker rate mortgages

While standard variable rates are influenced by base rates, tracker mortgage rates are formally linked to a measure such as base rates. They tend to be set at a rate which is a fixed percentage above or below the base rate.

Discount mortgages

Discount mortgage rates are directly linked to the mortgage lenders standard variable rate with a fixed discount. The discounted rate will traditionally last anything up to 3 years.

Offset mortgages

An offset mortgage allows you to consolidate mortgage debt with savings and regular income. While the outstanding mortgage balance will vary over the month, it can lead to long-term interest savings.

The UK mortgage market is extremely well developed and very competitive. Whether looking at a fixed rate or a discount rate, these offers can be relatively short-lived but are an interesting way to entice first-time buyers into the market. Mortgage companies take a long-term view on first-time buyers, often reducing their initial returns for cross-marketing opportunities and the sale of additional services further down the line.

Even though first-time buyers tend to get a better deal on average, mortgage lenders are now more acutely aware of the dangers of neglecting existing customers.