How Young People Can Get a Mortgage

Securing a mortgage as a young person can feel like a huge mountain to climb, right? With endless paperwork and scrutiny over your finances, it's no wonder it feels like a maze. Take a deep breath and don't panic because, with the right plan and a bit of savvy know-how, you'll soon be unlocking the door to your dream home. Here's how to tackle the process step by step.

Understanding the Basics

What is a Mortgage?

A mortgage is a loan designed for home buying. You pledge your home as collateral and receive funds to purchase the property. It's a big responsibility, requiring consistent monthly payments over the loan's term.

Why Young People Should Consider Homeownership

Owning a home isn't just about settling down; it's an investment in your future. With every payment, you're building equity that can be leveraged for future financial goals. Renting often doesn't offer this kind of long-term return.

Assessing Your Financial Situation

Checking Your Credit Score

Start by checking your credit score. Lenders scrutinise this number because it shows them how risky lending to you might be. Since different credit agencies use different rating systems, a good score will vary from one agency to the next. For Experian, a score of 881-960 is considered good, and a score of 961-999 is considered excellent. For Equifax, a score of 420-465 is considered good, and a score of 466-700 is considered excellent.

Evaluating Income Stability

Stable and consistent income reassures lenders that you can repay your mortgage. If you're in a job with predictable monthly paychecks, that's a good sign. Freelancers should keep detailed income records to demonstrate reliability.

Debt-to-Income Ratio: What Lenders Look For

This ratio compares monthly debt payments to gross monthly income. A debt-to-income (DTI) of 43% is typically the highest ratio a borrower can have and still qualify for a mortgage. Still, lenders generally seek ratios of no more than 36%. Investopedia.

Preparing Financial Documents

Key Documents Needed for Mortgage Approval

You'll need recent tax returns, pay slips, and bank statements to verify your income and savings. If you're self-employed, additional documents like profit-and-loss statements or a letter from your accountant might be necessary.

The Importance of a Steady Employment Record

Lenders look for at least two years of steady employment in the same field. You'll likely be fine if you've changed jobs but stayed in a similar role.

Exploring First-Time Buyer Schemes

UK Government Schemes

The UK government offers affordable home ownership schemes like Help to Buy and shared ownership, which can help first-time buyers get on the property ladder with a smaller deposit.

Grants and Low-Interest Loans

Local councils and charities sometimes provide grants or low-interest loans. Check your local government's website for available opportunities.

Saving for a Deposit

How Much You Should Save?

Conventional wisdom suggests saving 10-20% deposit, but many schemes let you put down less. Aim for at least 5%, but remember that the more you save, the lower your monthly payments will be.

Tips to Accelerate Your Savings

Cut unnecessary expenses, sell unused items, or start a side hustle. Automating savings transfers ensures consistent growth.

Building a Good Credit Profile

Ways to Boost Your Credit Score

To increase your credit score, pay bills on time, reduce existing debts, and avoid applying for new credit unnecessarily. A higher score means better rates.

Managing Debts and Paying Bills on Time

Keep up with all debt payments and minimise credit card balances. Payment history significantly impacts your credit score, so don't miss those due dates!

Working with a mortgage advisor 

Comparing Mortgage Rates and Terms

Working with a mortgage advisor will ensure that you have access to a variety of lenders so you can compare rates, terms, and fees from multiple sources to find the best overall deal. 

Finding an advisor Who Understands Your Needs

A good advisor, like the team at Farrell Heyworth, will guide you through the process. Find one who communicates clearly, offers transparency, and provides education rather than sales pitches.

Understanding Different Mortgage Types

Fixed vs. Variable-Rate Mortgages

Fixed-rate mortgages offer consistent payments, while variable-rate ones start lower but can increase over time. If you're planning to stay long-term, fixed is safer.

Other Mortgage Options

Look into other mortgage options like tracker or offset mortgages. Research each to find the best fit for your situation.

Finalising Your Application Process

Pre-Approval and Final Approval

Get pre-approved to understand your budget and make your offer stand out. Final approval comes after the lender verifies all your documents and the property is appraised.

Closing the Deal and Getting the Keys

After final approval, you'll sign the paperwork, transfer the deposit, and pay closing costs. Once everything is signed and sealed, you'll receive the keys to your new home!

Securing a mortgage as a young person in the UK doesn't have to be stressful. With a clear financial plan, proper documentation, and assistance programs, you can confidently navigate the process and unlock homeownership. Prepare yourself, get organised, and go after that dream home!

FAQs

What credit score is ideal for a young homebuyer in the UK?

Credit agencies use different rating systems, so a good credit score varies. For Experian, a score between 881 and 960 is considered good, while 961 to 999 is excellent. For Equifax, 420 to 465 is good, and 466 to 700 is excellent.

How much should a first-time homebuyer save for a deposit?

Aim for a deposit of at least 5-10%, though 20% is ideal.

Are there any special programs for first-time buyers?

Look into the UK government's Help to Buy, shared ownership, and other local schemes for first-time buyers.

How does income stability affect mortgage approval?

Lenders favour steady income in the same job or industry over at least two years. A person who does temporary or freelance work, especially an independent contractor engaged on an informal or on-demand basis, will likely need to provide additional information.

Can student loans impact my chances of getting a mortgage?

Yes, as they count towards your debt-to-income ratio. Please ensure they're manageable and consider paying down some balance before applying.

Live in the North West? Farrell Heyworth can guide you through each stage of the home-buying process, ensuring you have the support you need to make informed decisions.

Our mortgage team, working with Mortgage Advice Bureau, can help you through the whole process – from planning your budget and looking at the costs, to searching through the thousands of mortgages on the market. Let us help you find your mortgage.