The Importance of Residential Mortgages for First-Time Buyers

Borrowers need mortgages in various forms. Contractor mortgages, professional mortgages, self-employed mortgages, remortgage services, and first-time buyers are among the wide range. 

But residential mortgages for first time buyers are much more important than other mortgages because living on private property is a great incentive. Also, first-time buyers can save much money by using residential mortgages. Residential mortgages also allow first-time buyers to split the cost of buying their property over several years, to buy the property and pay for it over time.

Challenge To Get Residential Mortgages for First-Time Buyers

Despite the importance of residential mortgages for first-time buyers, getting these mortgages also faces challenges that include:

  • Lack of sufficient knowledge of first-time buyers about the available products in the market
  • The lenders’ Limited products to first-time buyers
  • Expanding lender restrictions as a result of the pandemic
  • Setting special rules for buying property by first-time buyers
  • Special features of first-time buyers and restrictions on choosing a specialist broker
  • The complexity of comparing rates and conditions of products on the market
  • Difficulty evaluating lenders’ programs for first-time buyers
  • Difficulty in simultaneously comparing required rates and deposits to get a residential mortgage
  • Negotiate with lenders about their rates and conditions

Types of Residential Mortgages for First-Time Buyers

There are different types of residential mortgages for first-time buyers, and they can find their advantages and disadvantages here:

Fixed-rate mortgages: Fixed-rate mortgages keep the mortgage repayable monthly for two, three or five years (in some cases up to 10 years) at a fixed rate.

Advantages

First-time buyers know exactly how much their mortgage will cost, and they can determine their budget based on that. In other words, first-time buyers’ payments do not increase during the mortgage, no matter how much interest rates go up.

Disadvantages

  • If interest rates fall, first-time buyers will not see their payments reduced.
  • If first-time buyers want to repay their mortgage sooner, they usually have to pay high costs.

Tracker mortgages: Tracker mortgages follow the Bank of England’s base rate, meaning that if interest rates rise, the amount of interest that borrowers pay each month can increase or decrease.

Advantages

First-time buyers are confident that only economic change can change rates, not lender considerations.

Disadvantages

If mortgage rates increase, first-time buyers’ rates will also increase.

Discounted variable rate mortgages: Discounted variable-rate mortgages usually last between two and five years and are fixed lower than the SVR. However, if the SVR changes, so will the mortgage rate.

Advantages

If interest rates fall, so do first-time buyers.

Disadvantages

There is no guarantee that the lenders will reduce their SVR if the Bank of England’s base rate is reduced. Therefore, first-time buyers may not take advantage of price changes.

Offset Mortgage: Borrowers can use a related savings account to repay the amount owed with offset mortgages. In this mortgage, the borrowers’ savings will repay the amount owed.

Advantages

  • It is a good opportunity to reduce the interest rate that first-time buyers pay.
  • First-time buyers can repay their mortgage faster than a standard plan.
  • If necessary, first-time buyers can maintain their offset savings account access.
  • First-time buyers can take advantage of the tax benefits of these mortgages.

Disadvantages

  • Loan-to-Value (LTV) ratios of these mortgages are at least 75%, meaning first-time buyers will need 25% or more.
  • The interest rate on the offset mortgage can be more than a standard repayment plan.
  • Not all lenders offer offset mortgages, so the choice of these mortgages is more limited for first-time buyers. For this reason, the lenders may offer lower competitive rates to first-time buyers.
  • Using cash savings to deposit can be more financially rewarding.
  • Monthly repayments and/or interest rates may increase if withdrawals are made from an offset savings account.

How to Find the Best Residential Mortgages

Finding a residential mortgage is a challenging and stressful process for first-time buyers. On the other hand, finding a property that first-time buyers can afford depends heavily on their mortgage.

But today, there are lenders in the market interested in lending to first-time buyers. But how do first-time buyers find the right residential mortgages in the market?

However, lenders offer different types of residential mortgages based on credit score, employment history and contracts, and the debt-to-income ratio of first-time buyers. But their choice depends on first-time buyers’ needs, affordability, and circumstances. But to find the best residential mortgage with the best rates and conditions, first-time buyers have to do many things to consider, including:

  1. Assessing Needs and Financial Capability – How first-time buyers want to use a residential mortgage has a huge impact on the lenders’ terms. On the other hand, it is very important to evaluate the affordability of first-time buyers to repay mortgage instalments.
  2. Type of Mortgage – Lenders offer different products to borrowers based on the rate and repayment period of the mortgage. The choice of residential mortgage type depends on the needs and conditions of first-time buyers.
  3. Credit Score – First-time buyers should follow the strategies to improve their credit score to get the best mortgage available.
  4. Deposit – The more first-time buyers can pay the deposit, the lenders will consider more reasonable rates and conditions.
  5. Collecting documents related to the history of current contracts – By providing bank statements, future statements, tax invoices and any documents that show a stable income of first-time buyers in the future, the lender to repay the mortgage instalments on time, which will pay them more confidence and provide better conditions for them.
  6. Considering interest rates and closing costs – Different lenders offer first-time buyers several options based on interest rates. This makes it more difficult for them to compare and select mortgages.
  7. Using the advice of a residential mortgage broker – As mentioned above, getting residential mortgages for first-time buyers faces many challenges. For this reason, they can use the advice of specialised first-time buyers because first-time buyers are not familiar with the products available in the market, lenders’ rates and conditions and will be unable to choose the best options. The functions of a specialist residential mortgages broker for first-time buyers include:
    1. Paying attention to the needs and goals of first-time buyers
    1. Organization and efficiency of the mortgage process
    1. Save time and energy for first-time buyers
    1. Credit score improvement

The Advantage of Using SWG Mortgages Specialist Advisors

SWG Mortgages specialist advisors have enough experience in suitable products for first-time buyers. They have experience in making several residential mortgage applications for first-time buyers during a month and can help first-time buyers to choose the best option according to their needs and circumstances. SWG Mortgages specialist advisors recognise lenders interested in lending to first-time buyers and consider the good rates and conditions.

SWG Mortgages specialist advisors assess first-time buyers ‘financial terms and provide sufficient information about lenders’ rates and conditions, enhancing their ability to negotiate with the lender. SWG Mortgages advisors help first-time buyers improve their credit status and give them more confidence by providing affordable solutions.

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