First Time Buyers Mortgage

A first time buyers mortgage will usually have a range of benefits and discounts attached to it to make life for first time buyers a lot easier. Commonly these benefits and discount mortgages deals come in the form of a temporary lower interest rate and a much lower deposit requirement. For example many banks and building societies offer a 10% deposit on their first time buyers mortgage. A deposit is a percentage of a property's asking price. Most mortgage lenders require all borrowers to pay a deposit before they grant them their mortgage loan.

A common deposit requirement is 25% of a property's asking price. Although the lender is still paying for the majority of a property, 25% can still be a lot of money for people and is often unaffordable for some. For example if you are getting a property which costs £100,000 pounds and you had a 25% deposit requirement from your lender, you need to be able to hand over £25,000 all at once. This is often more than a lot of first time buyers yearly salary and this means they have to save for years and years to get enough money together for a deposit. Many people are simply put off buying a property all together because of these deposit requirements.

For this reason the government and financial institutions put measures into place to encourage first time buyers to get on the property ladder. A 10% deposit requirement on first time buyers mortgage is one of the common ways that lenders try and get first time buyers to apply for a mortgage. The downside of this kind of first time buyers mortgage is that they usually require a very high credit rating from any potential borrower. This is because financial institutions want to make up for the increased risk they are taking by paying for more of a property's asking price. Having stricter entry requirements and only letting in borrowers who have a good track record of paying off debts is one of the ways make up for the increased risk.

100% Mortgages

This requirement for a very good credit rating from prospective borrowers is particularly the case for lenders who offer 100% mortgages. This rare kind of first time buyers mortgage does not have any deposit requirements attached to it. As well as only accepting borrowers who have a very good credit rating, these types of mortgages also include a very high interest rate to make up for the increased risk. This means that this sort of mortgage costs you more in the long run due to the interest charges. However because they completely eliminate the need for a large lump sum of money as part of a deposit, they are still in demand by many people.

Lower Interest Rates

As well as a lower deposit requirement a first time buyers mortgage is also likely to have a lower interest rate on it. The terms and conditions of this lower interest rate differ from one lender to the next. Almost all lenders will only apply a lower interest rate onto their first time buyers mortgage for a few years before the rate returns back to the lenders usual rate.

How short or long the rate stays low is dependent on the provider. Some use it to simply lure prospective borrowers to come into a branch and talk about getting a first time buyers mortgage. Then when the details of the mortgage become clear potential borrowers learn that the reduced rate is only applicable for a year or so.

Government Schemes

Getting first time buyers on the property market is also heavily encouraged by the UK government. Over the last few years there have been a number of support schemes developed by the UK government to help them with this goal. Two examples of some of the support schemes used by the government to get people on the property ladder is the key worker scheme and the shared ownership scheme. The key worker scheme supports public sector workers who are first time buyers to get on the property ladder by allowing them to take out a loan to pay for their mortgage deposit.

The loan used to pay for the deposit does not have any interest attached to it so is there purely to help people get on the property ladder. The shared ownership scheme helps reduce a mortgage deposit and monthly repayments by getting a housing association to buy a property with someone. This means that the costs of buying a property are spilt in half. Both of these scheme means that someone can get a first time buyers mortgage without having to pay as much initially as they did before. This has been shown to encourage uptake of these mortgages which helps people get a home and stimulates the economy.