Getting a mortgage as a first-time buyer can be stressful, scary and expensive. Plenty of people think that owning their own home is simply beyond their financial reach, but the Moneymagpies are here to tell you otherwise.

While the economy isn’t out of the woods yet there are finally some better signs for first-time buyers; more mortgages for those with a 10% deposit, and a slightly healthier looking mortgage market more generally.

We want to make sure you are completely clued-up about the process of getting a mortgage. That way you have the best possible chance of getting a great mortgage rate and saving yourself  £100s, and even £1,000s.

• What is a first-time buyer? Why knowing the official definition can save you £2,500
• How to boost your mortgage chances
• What to do if your deposit isn’t big enough
• What type of mortgage should you get?

What is a first-time buyer?

While this may seem obvious, it’s not always as straightforward as you might think and knowing the proper definition is essential.

HMRC (the tax office to you and me) defines a first-time buyer as; ‘a person who has not acquired a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run) or an equivalent interest anywhere in the world.‘ Phew!

What this means is that if you have ever owned a property – either jointly or on your own – in Britain or anywhere else in the world, you’re not a first-time buyer.

This holds true for all the buyers of a property, so if you are buying jointly and one of you has never bought before but the other has, then you don’t qualify as first-time buyers.

Also, according to HMRC, you as the buyer ‘must intend to occupy the property as their only or main residence.‘ So no buy-to-let ambitions right away.

Remember that if you are fortunate enough to have parents who are buying property for you, they obviously won’t qualify as first-time buyers, even if you have never owned property before.

So why does the classification matter? Well, because as a first-time buyer you have one thing on your side – the stamp duty threshold.

What’s the stamp duty threshold? Stamp duty land tax (SDLT) is payable on all land and property transactions in the UK, but varies according to the price of the property. Anything with a purchase price of less than £125,000 is currently exempt from SDLT, while if you’re a first-time buyer you don’t have to pay SDLT on property costing up to £250,000 – a maximum saving of £2,500. This rule will continue until at least March 2012.

Moneymagpie exhibited at the First Time Buyer show and will be there again. See how it could help you to be there too (it’s free!)….

How to boost your mortgage chances

Check your credit rating. A good rating is essential if you want to be approved for a mortgage. Remember that a mortgage is just a type of loan and as with all borrowing – the better your credit record, the more competitive interest rates you’ll be able to get.

You can get a look at your credit record for FREE with Experian. Use their 30 day free trial but remember to cancel within the time period so that you aren’t charged anything.

If your rating isn’t as good as you’d hoped, don’t panic. Instead, check out our 10 easy ways to improve your credit record – they’ll get you back on track in no time.

SAVE, SAVE, SAVE! We cannot stress enough how important it is to have as big a deposit as you can possibly manage before you even think about buying. If you are really determined to buy, then making sacrifices which allow you to put more cash aside now will be 100% worth your while.

No matter how much a of a drag it seems, saving hard will make your mortgage cheaper over the long term – and bearing in mind it’s the biggest loan you are ever likely have, that equates to a heck of a lot of money.

So how much do you need? Take a deep breath… you ideally need a deposit of at least 20% of the value of the property you want to buy.  So if your dream home costs £200,000 you’re going to need a deposit of £40,000.

We are well aware that amount of money is no joke, it’s probably twice your salary in fact. But we want to be realistic. A 20% deposit will give you the best possible chance of getting one of the better, more affordable mortgages.

You want to be able to make your repayments comfortably each month and not have to constantly worry you can’t pay them – that’s when the problems start. If interest rates go up by just 1% that could add £100s to your monthly payments. As rates are at the lowest they’ve ever been right now, the only way is up. So make sure you’re protected – which also means making sure you have good mortgage protection insurance.

It’s worth remembering too that lenders have tightened their purses for a reason – because it was their handing mortgages out like there was no tomorrow that made such a mess of our economy in the first place.

What to do if your deposit isn’t big enough

If you don’t have a big enough savings pot to buy your dream home then don’t despair. You have two feasible options.

1. Downsize your expectations. We know it’s easy to get carried away when looking at property. You get so used to seeing huge figures that a few £1,000 here and there suddenly doesn’t seem like much. Try having another look at houses in the area to see if you can find a cheaper property. Work out what you can afford so that the money you have actually does amount to 20% of the price.

2. Take your time. Over the last couple of decades we have got used to thinking that we have to race to buy a property before it goes up faster than our buying power. Now however, prices have largely flattened-out and it’s quite likely that they will dip again this year, or at least remain fairly stagnant possibly even for the next few years.

So you have time to wait, work at saving like mad to put as much aside as you possibly can and spend time looking around and really thinking about what you want to buy.

We’ve got loads of ideas for how to beat the dismally low savings rates with some great alternatives to traditional accounts here. Plus if you haven’t already, set up a high interest regular savings account and pay in as much as you can each month. Have a look here for the best rates.

What type of mortgage should you have?

So you’ve saved like mad, you’ve checked that your credit rating is healthy and you’ve set yourself a budget for how much you can spend on your property. Now you need to decide on what type of mortgage to go for.

There are two main questions you need to ask yourself at this point:

1. Repayment or interest-only? Will you just pay the interest on your mortgage and nothing else each month – an interest-only mortgage – or will you repay both capital and interest each month – a repayment mortgage?

2. What kind of interest rate will you pay? A fixed rate for a few years, a variable rate where the interest goes up and down according to what Base Rate does or a capped rate where it could go down but it won’t go up above a certain level?

Because everyone is different, you need to get some professional advice. We recommend mortgage brokers London & Country. Why?

• Because they are completely independent so they can offer you totally impartial advice.
• They cover the whole of market and even offer exclusive deals you can’t get anywhere else.
• They have won more awards than any other broker.
• The service they offer is absolutely 100% FREE.

Have a good chat with a London & Country advisor, and you’ll have a much better idea of the best options for your specific situation.

Whilst everyone is different, there are a few rules that hold good for most first-time buyers:

Repayment or interest-only? Although interest-only mortgages are a lot cheaper than repayment ones on a month-by-month basis, mortgage providers are increasingly reluctant to offer them. Also, while interest-only mortgages seemed attractive when house prices were shooting up as fast as Jedward’s hair, now that prices are flattening out and could easily dip down again this year they are much more risky than before.

We recommend that you go for a safe repayment mortgage if possible. Although in the first few years the majority of your payments will be interest, at least you will be paying off some of the capital.

Fixed, capped, offset, variable? For first-time buyers it’s generally best to go for a cut-price fixed or capped mortgage for the first few years. It will help you keep your costs down and allow you to budget for all the extras like all the additional property buying costs, as well as furniture and decoration. Knowing exactly what you’ll have to pay every month is very reassuring and much easier to plan for.

If, on the other hand, you are in the happy position of knowing you will be getting some fat bonuses or an inheritance of some sort in the near future, it may be better to get a more flexible mortgage like a variable rate. With these you won’t be penalised if you are suddenly able to pay off a large chunk of the loan. Remember though, if the Base Rate rises so will what you pay, so make sure you could afford the increase or you might find yourself in difficulty.

Again, when it comes to choosing the best type of interest option, it’s best to talk it through with London & Country as what is best for you will very much depend on your individual circumstances.

Useful links

• Speak to London & Country mortgage brokers