First Time Buyer Mortgage Guide Scotland 2021



The prospect of buying your first home is an exciting one. It’s a chance to put down roots and invest in a tangible asset that is likely to steadily grow in value over the years. But before you start browsing on Zoopla for your dream home, you have the not-so small hurdle of a mortgage to sort through.

The process of finding and applying for a mortgage can be daunting, which is why we’ve put together the guide below for first time buyers in Scotland. Let’s jump right in.

How much do I need to save up?

The first step is getting together a deposit for your property purchase. But how much do you need to save up? The simplest way to approach this question is in terms of the percentage of the hypothetical home you’d purchase. 

Your mortgage rate will be determined by your loan-to-value ratio (LTV). So if, for example, you put down a 10% deposit, your LTV will be 90%. The lower your LTV, the better your mortgage interest rate will be. It’s worth noting here that the value of your property will be the one outlined in your home report rather than the price you buy it for.

5% mortgages do exist, but after the COVID-19 pandemic started, it’s been harder to get one. However, with the right mortgage broker by your side, you could find financing for your home with just a 5% deposit.

So take a look at properties in your area that match your needs and the kind of prices that are being asked of them. Zoopla also offers a free online service through which you can see recent sale prices in the area you’re looking at – this can be more accurate as depending where you’re looking, properties tend to sell over the asking price. This has definitely been the case in the Edinburgh property market in recent years.

Then it’s time to think about what percentage of a property you can realistically save. Keep in mind that there are other costs involved with buying property, such as conveyancing fees and building surveys or home buyer reports. 

Depending on the price of the property you end up buying, you might also have to pay stamp duty on it – called LBTT (Land & Buildings Transaction Tax) in Scotland. First-time buyer stamp duty in Scotland starts for properties with a purchase price over £145,000 at 2% of the purchase price for residential homes.

How much can I borrow?

In the past, rules of thumb like multiplying your annual income by five were useful for estimating how much you could borrow. These days, things are a bit more complex. Lenders will also want to check the affordability of the mortgage you apply for. While you won’t get an exact number until your application is accepted, you can get a rough estimate through your mortgage broker or directly from lenders.

In order to estimate your mortgage’s affordability, your lender will want to know about your spending habits in the three months before you apply for a mortgage. This includes things like how much you spend on food, utilities and activities as well as any other financial obligations you may have. So make sure you’re living within your means in the months before applying for a mortgage. 

Lenders will also want to know you’ll be able to make your mortgage repayments if mortgage rates shoot up 6-7%, and your credit score will also be checked. All of these things will have an impact on how much you can borrow.

What should I keep in mind when shopping around for a mortgage?

At Cox & Co, we tend to recommend interest-only mortgages for our property investors. However, for residential homes, and especially for first time buyers, going with a repayment mortgage is usually the wiser option. Working with a mortgage broker experienced in both types of property financing is your best bet if you’re not sure which one is right for you.

Additionally, you can choose between variable and fixed-rate mortgages. The latter means the interest rate on your mortgage stays the same for 2-5 years after which you’ll be switched to a variable rate. At this point, many people opt to remortgage to find another fixed rate mortgage product.  

Opting for a fixed-rate mortgage means your repayments will be the same every month, which makes budgeting easier. Fixed-rate mortgages are harder to exit from, with high exit fees before the end of your fixed rate term, but they’re still often the safer option for first-time home owners.

You’ll officially apply for a mortgage once your offer for a home is accepted. However, once you start going to property viewings, you could apply to get an agreement in principle (AIP) from your preferred lender. Not only will this help you get a more accurate image of how much you could borrow, it’ll also make you more attractive to sellers. Your AIP is usually valid for 30-90 days.

Where can I get mortgage advice?

Don’t just go to your existing bank for a mortgage – shopping around is the best way to get the best possible deal. This and handling the paperwork that comes with your mortgage application can be a lot of work, which is why bringing in the professionals, especially as a first time home buyer, is such a good idea. What’s more, a mortgage broker can often get you a better deal than if you were to approach a lender yourself.

Especially if you have a more complex financial history or income profile, working with a broker is a must for first-time home buyers. This includes things like an adverse credit history, being self-employed or having a large chunk of your income coming to you in the form of bonuses.

Working with an experienced mortgage broker with a whole-of-market approach is your best bet. You don’t pay for the services of a mortgage broker and instead, they take their payment in the form of a commission from the lender. So there’s really no reason not to seek the advice of the experts here!

As a mortgage broker in Edinburgh, Cox & Co has a high level of expertise when it comes to the property market of the Scottish Central Belt, as well as having a nation-wide network of lenders we can turn to find you the best mortgage deal.

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