Buying a first home comes down to three sums: the deposit you can raise, the mortgage you can get, and the costs on top that catch people out. This guide explains how a first-time buyer mortgage works in the UK, with the current stamp duty figures and the help available, so you can work out your numbers before you start viewing.
How much you can borrow, and what deposit you need
Lenders look at your income, your outgoings, your debts and your credit file. As a rough guide, many lenders will lend around four to four-and-a-half times your income, and some go higher, but they also run affordability checks that can reduce the figure. Some lenders offer mortgages with a 5% deposit, known as 95% mortgages. A larger deposit usually gets you a lower interest rate, because lenders price in bands of loan to value, such as 90%, 85% and 80%.
First-time buyer stamp duty
In England and Northern Ireland, first-time buyers pay no Stamp Duty Land Tax on the first £300,000 and 5% on the part of the price between £300,001 and £500,000. Above £500,000 there is no relief at all, and standard rates apply from the first pound.
| Purchase price | Stamp duty for a first-time buyer |
|---|---|
| Up to £300,000 | £0 |
| £350,000 | £2,500 |
| £400,000 | £5,000 |
| £450,000 | £7,500 |
| £500,000 | £10,000 |
| Over £500,000 | No relief, standard rates apply |
Every buyer on the purchase must be a first-time buyer to claim the relief. Scotland and Wales have their own taxes, Land and Buildings Transaction Tax and Land Transaction Tax, with different rules.
The Lifetime ISA
The Lifetime ISA can help with a deposit. You can save up to £4,000 a year and the government adds a 25% bonus, up to £1,000 a year. You must open it between the ages of 18 and 39, it must have been open for at least 12 months, and the home must cost no more than £450,000. Withdrawing the money for any other reason before age 60 triggers a 25% charge, which can leave you with less than you put in. Check the current rules on GOV.UK before relying on it.
Costs on top of the deposit
- Conveyancing, the legal work, and Land Registry fees
- A survey and the lender's valuation
- Mortgage arrangement fees and any broker fee. Our guide to mortgage brokers in the UK explains how these work
- Buildings insurance, which lenders require from exchange of contracts
- Moving costs
- On leasehold homes, ground rent and service charges
The process, step by step
- Check your credit file and your outgoings, and decide a realistic budget.
- Get a decision in principle. Ask whether it uses a soft or a hard credit search.
- Find a property and make an offer.
- Make the full mortgage application, ideally through a broker.
- The lender arranges a valuation, and you arrange any survey.
- Receive the mortgage offer.
- Your solicitor completes searches and the legal work.
- Exchange contracts, then complete.
Schemes that may help
Schemes such as shared ownership, First Homes and the government's mortgage guarantee scheme, which supports some lenders offering 95% mortgages, exist alongside the Lifetime ISA. Eligibility and availability change, so check GOV.UK and ask your broker. Keep your deposit somewhere safe while you save, and our guide to high yield savings accounts in the UK explains how to compare them. When your first fixed deal eventually ends, our guide to remortgaging explains what to do next.
Mistakes first-time buyers often make
- Budgeting for the deposit but not for fees, moving costs and furnishing
- Changing jobs, missing a payment or taking on new credit between the offer and completion, which can lead a lender to withdraw its offer
- Treating a decision in principle as a guarantee. It is not a mortgage offer
- Skipping a survey to save money on an older property
- Not reading the lease on a leasehold flat. Check the years remaining, the ground rent and the service charges
- Borrowing the maximum a lender will offer without testing what a rise in interest rates or other costs would do to your budget
Questions to put to your broker or lender
- How much can I borrow, and how does that change with a larger deposit?
- What fees apply, and can any of them be added to the loan?
- What happens when the deal ends, and what would the revert rate be?
- Can I overpay without a charge, and by how much each year?
- How long does the offer last, and what if the purchase takes longer than expected?