What do first-time buyers need to know in 2021?

If you’re looking to buy your first home or help somebody close to you buy theirs, it can be an exciting time, but not one without challenges. Most first-time buyers have spent some time saving for a deposit or have access to the bank of mum and dad, but the journey doesn’t end there. When the time comes to step onto the housing ladder there is plenty to consider, not least of these considerations is the type of property that the buyer can expect to afford.


The purchase price of your first home will depend on how much you can afford to borrow, which in turn depends on a combination of the size of your deposit, your credit rating and your ability to afford monthly repayments. According to data from MoneySupermarket collected between 2016 and 2018, the average deposit for a first-time buyer is £43,433 and the average purchase price of a house for first-time buyers is £217,199. The average borrowing amount for first-time mortgage loans is £173,766.  Both of these figures are significantly higher in the South East.


The same data showed that the average monthly mortgage payment amount for first-time buyers comes in at £760, so it’s important to make sure that those costs are factored into your long term outgoings.


Mortgage providers usually set a maximum loan-to-value ratio, known as an LTV, that they’re prepared to offer you. If you were offered a mortgage of £170,000 on a property valued at £200,000 that would be an LTV of 85%. This means that your deposit would need to cover the other 15% at a value of £30,000.


The average LTV for first-time buyers is 82%, however there are a variety of options available for those with smaller deposits, with most deposits generally being between 5% and 20%. The Government ‘Help to Buy’ schemes offer a few opportunities to aid buyers in getting on the property ladder. Shared ownership schemes offer the chance to buy a portion of a house; between 25% and 75%, and pay rent on the remaining portion. You can purchase a bigger share down the line, when you can afford to.


The Help to Buy Equity Loan, although only available on newly built homes purchased from registered homebuilders, offers up to 20% of the full purchase price to first-time buyers, with no interest for the first five years. There are property price caps depending on your region, and if the market value of your home rises, so does the amount you owe on your equity loan. It’s important to understand the terms you are accepting when taking out any kind of loan, so do your research and seek professional advice before acting.


Rishi Sunak’s Spring 2021 budget outlined the mortgage guarantee scheme, designed to give mortgage lenders confidence in providing higher LTV offerings. This is set to increase the availability of 95% LTV mortgages, allowing would-be first-time buyers with smaller deposits to make that first step onto the ladder.


Getting your first mortgage is a complex undertaking. We’ve produced a video that outlines what you can expect – and we’re ready and waiting to help you get the ball rolling and make a plan towards home ownership.  Get in touch to see how we can help.