What First-Time Buyers Need to Know About Mortgages

Getting your first mortgage

Your mortgage is likely the biggest financial commitment you will ever make. Understanding how it works puts you in a much stronger position when it comes to buying your first home. This guide covers the essentials: how much deposit you need, the different types of mortgage available, how lenders decide what to lend you, and the help available in Northern Ireland.

How much deposit do you need?

The minimum deposit most lenders will accept is 5% of the purchase price. On a property costing £150,000, that is £7,500. However, the size of your deposit has a direct impact on the mortgage rates available to you.

• 5% deposit (95% LTV): You will get on the ladder, but interest rates at this level are noticeably higher. Expect to pay 1% to 1.5% more than someone with a bigger deposit.
• 10% deposit (90% LTV): Rates improve significantly at this threshold. This is a good target if you can manage it.
• 15% deposit (85% LTV): Better rates again, and you start with more equity in the property.

Even small differences in interest rates add up over the life of a mortgage. On a £140,000 mortgage over 25 years, dropping from 5.5% to 4.5% saves you roughly £80 a month, or nearly £25,000 over the term.

Mortgage types explained

There are three main types you will come across as a first-time buyer.

Fixed-rate mortgage

Your interest rate is locked in for a set period, usually two, three, or five years. Your monthly payment stays the same regardless of what happens to interest rates in the wider economy. This is the most popular choice for first-time buyers because it gives you certainty over your biggest monthly outgoing.

Variable-rate mortgage

Your rate can go up or down at any time, at the lender's discretion. The lender's standard variable rate (SVR) is the default rate you move onto when a fixed deal ends. SVRs are typically higher than fixed rates, so most people remortgage before their fixed period expires.

Tracker mortgage

Your rate tracks the Bank of England base rate, plus a set percentage. If the base rate goes up, your payment goes up. If it falls, your payment falls. Trackers can be cheaper than fixed rates, but they come with more uncertainty. They suit people who can absorb potential payment increases.

For most first-time buyers, a two or five year fixed rate is the safest starting point. It gives you predictable payments while you settle into homeownership.

How lenders decide what to lend you

Lenders look at several things when assessing your mortgage application.

Income multiples

Most lenders will offer between 4 and 4.5 times your annual gross income. Some specialist lenders go higher for certain professions (doctors, solicitors, accountants), but 4.5 times is a reasonable starting figure. For a joint application, both incomes are included.

Stress testing

Lenders do not just check whether you can afford the payments now. They "stress test" your application to see whether you could still afford the mortgage if interest rates rose significantly. This is why you may be offered less than the simple income multiple suggests.

Credit checks

Your credit history matters. Lenders will check your credit file for missed payments, defaults, county court judgements, and how much other debt you have. If you have credit card balances or loans, these reduce the amount a lender will offer you. Before applying, it is worth checking your own credit file (you can do this for free through Experian, Equifax, or ClearScore) and fixing any errors.

Outgoings

Lenders will look at your regular spending: childcare costs, loan repayments, subscriptions, and general living expenses. They want to see that you have enough disposable income to cover the mortgage comfortably.

Getting a mortgage in principle

A mortgage in principle (also called an agreement in principle or decision in principle) is a statement from a lender saying they would be willing to lend you a certain amount, subject to a full application and valuation.

It is not a guarantee, but it serves two important purposes. First, it tells you what you can realistically afford. Second, it shows sellers and estate agents that you are a serious, credible buyer. Most agents will ask whether you have one before arranging viewings.

Getting a mortgage in principle usually involves a soft credit check (which does not affect your credit score) and takes as little as 24 hours.

Government help for first-time buyers

There are schemes that can make buying more affordable, particularly in Northern Ireland.

• Lifetime ISA (LISA): You can save up to £4,000 per year and the government adds a 25% bonus (up to £1,000 per year). You must be aged 18 to 39 to open one, and the property must cost £450,000 or less. The money can be used towards your deposit.
• Help to Buy ISA: These closed to new applicants in November 2019, but if you already have one, you can keep saving into it until November 2029. The government bonus of 25% (up to £3,000) is still available when you buy.
• Co-Ownership NI: This scheme lets you buy a share of a property (typically 50% to 90%) and pay rent on the rest. It is one of the most popular affordable housing routes in Northern Ireland. Read our detailed guide to Co-Ownership NI.

Common mistakes to avoid

• Applying for credit before your mortgage. Taking out a new credit card, car finance, or loan in the months before your mortgage application can reduce the amount a lender will offer or trigger a decline.
• Not checking your credit file. Errors on your credit report can cause delays or refusals. Check it well in advance and dispute anything that is wrong.
• Overstretching. Just because a lender will offer you a certain amount does not mean you should borrow it all. Leave yourself a buffer for rate increases, unexpected costs, and life in general.
• Ignoring the total cost. A low interest rate with a £1,500 arrangement fee can cost more overall than a slightly higher rate with no fee. Always compare the total cost over the deal period.
• Going straight to your bank. Your bank may not offer the best deal. An independent mortgage adviser can compare products from across the market and find something better.

Get mortgage advice

CGR Financial is independent and FCA-regulated, with access to a wide range of products from across the market. They work closely with our team and can guide you through the mortgage process from start to finish, with no obligation.

Ready to start looking for your first home? Browse our properties for sale or get in touch with our team. We are based on the Antrim Road in Newtownabbey and cover North Belfast, Newtownabbey, Carrickfergus, Glengormley, and the surrounding areas.