UK first-time buyers: how to get yourself mortgage ready | First-time buyers

The weather is warming up, and so too is the property market, according to some reports – which may not be music to the ears of would-be first-time buyers.

The average asking price of a home in the UK has jumped by more than £5,000 (or 1.5%) in a month, according to the latest data from the property website Rightmove.

This month, TSB said the average age of a first-time buyer had come down slightly, from 32 to 31. However, high property prices and rising interest rates and living costs have forced some to lower their sights and look for a smaller property than they would ideally like.

“It has never been more difficult for aspirational homeowners to get on to the property ladder,” says Matt Bartle, the director of products at Leeds building society. But he adds: “There are options out there for those looking to buy their first home.”

Get mortgage ready

How much you can borrow will depend on three main things: your income, your outgoings and the size of the deposit you plan to put down.

There are lots of mortgage affordability calculators online that will give you an idea of the size of loan you may be able to get. The government-backed MoneyHelper website has one, as do many banks, mortgage brokers and comparison websites.

When you come to apply, the lender will carry out a detailed affordability assessment to work out what you can afford to repay based on your income and spending commitments.

Getting a decent deposit together

This is one of the biggest challenges facing would-be homeowners.

In January the Halifax said the average UK first-time buyer deposit in 2023 was £53,414 – representing about 19% of the typical purchase price.

According to the financial data provider Moneyfacts, at the start of this month there were 318 deals (fixed and variable) that let people borrow 95% of a property’s value.

But if you are able to get together a deposit of 10% or more – perhaps with some help from “the bank of mum and dad” – that will give you access to more competitive rates.

Financial assistance provided by parents or others is known in the mortgage industry as a gifted deposit. Usually, the borrower will have to prove the money is a gift, not a loan, and the gift giver cannot have any stake in the home either. A lot of lenders will accept this arrangement, although they may ask for a gifted deposit letter signed by the person giving the cash.

This week, best-buy 95% loan-to-value (LTV) five-year fixed mortgages from the Monmouthshire and Newcastle building societies were priced at 4.9% and 4.99% respectively.

If you were able to move up to a 90% LTV five-year fixed deal, the best-buy rates were a fair bit cheaper: 4.64% from Lloyds Bank and Clydesdale Bank, or 4.65% from Virgin Money.

Signing up for a regular savings account can be a good move as it lets you put away a little each month.

Leeds building society offers the Home Deposit Saver aimed at first-time and next-time buyers, which now pays 5.15% interest and lets you pay in up to £500 a month. However, there are higher rates available. First Direct and the Co-operative Bank offer regular savings accounts paying 7%, although in each case you need to hold a current account with the bank.

Keep a close eye on your credit file

Well before you apply for a mortgage, check your record with one or ideally all three of the main credit reference agencies: Equifax, Experian and TransUnion. This will alert you to any problems that may lead to you being turned down or offered a less competitive rate.

The agencies typically offer several ways, free and paid-for, to check your credit record or score.

Make sure your record is accurate and up to date, and dispute anything you don’t agree with. You can add a notice of correction (a short statement) to your credit report to explain special circumstances. For example, maybe you temporarily fell behind with some payments because you were ill, or your credit score dropped because you were a victim of identity theft.

Once you have hopefully got your credit record in good shape, keep it that way. Monitor it closely in the run-up to applying for a mortgage. During this time, try to avoid applying for any other borrowing, such as loans or overdrafts, if possible.

Try to steer clear of buy now, pay later (BNPL) deals when shopping. Some providers such as Klarna share information about BNPL purchases with credit reference agencies, so these may be visible on your credit file.

Get your bank statements in good shape

As part of its affordability checks, a mortgage lender will want to see your bank statements and payslips to check you can afford the repayments.

In terms of bank statements, lenders will typically want to look at the last month, although in some cases they may want to go back three months, says Nicholas Mendes​ at the mortgage broker John Charcol. If there are blips on your credit report, they may ask to see your bank statements for the last six months.

There is a strong argument for cutting back on your spending in the months before you apply for a mortgage. Forgoing the non-essential extras that show up on a bank statement is probably a wise move.