First-Time Buyer and Second-Time Buyer Mortgage

Should we choose between joint tenants or tenants in common? What’s the difference for us?

We’re verging into questions for solicitors rather than advisors, but roughly speaking a husband and wife would usually do this as joint tenants. In that case, if one person dies, their share of the property goes to the other owner.

Tenants in common often applies when friends are buying together – to get higher up the housing ladder by teaming up. They would tend to do this as tenants in common. If one person dies, their share of the property goes to their next of kin – whether that be parents, brothers or sisters, rather than the other owner.

How does the size or source of our deposits affect our application when one of us is a first-time buyer?

We could actually delete the word first-time buyer from this – because whether you’re a first-time buyer or second-time buyer, it has exactly the same effect.

The size of the deposit makes a huge difference to the interest rate. When a bank is looking at lending money, they look at risk. A high Loan to Value mortgage of 95% or 99% is very risky for them, because if the customer misses payments and they repossess the property, the chance of them getting their money back is quite slim. Therefore, the interest rate with a high Loan to Value is more expensive.

If you go to a 90% mortgage, i.e. you put a 10% deposit down, the interest rate reduces greatly. If you come down to 85%, 80%, 75%, the interest rate comes down each time.

If you’re buying a house at £100,000 and take a £60,000 mortgage, that’s a 60% Loan to Value. The size of the deposit is so important, whether you’re a first or second-time buyer. The larger the deposit, the less risk to the lender, and the cheaper the interest rate.

The source is very important from an anti-money laundering perspective. Any lender, solicitor or mortgage broker will need to establish where that money’s come from.
If £50,000 has just arrived in your account, we need evidence of where it’s come from.

If it’s a gift from a parent or work or whatever, we’ll want confirmation. In most cases we would want a gifted deposit letter from the donor, explaining that it’s a gift and not a loan. Even if it’s coming from your mother or father, a solicitor may ask for six or 12 months’ bank statements to see a build-up of funds. It’s to make sure there’s no money laundering.

It’s a little bit easier when you’re using equity. If you’ve just sold a house at £100,000 and you had a £60,000 mortgage, you’ve got £40,000 equity to transfer. We don’t need to see proof of that.

Are there alternative ways to structure the purchase to reduce costs?

Yes, and the most obvious one is a Joint Borrower Sole Proprietor mortgage. Let’s say I had a small mortgage on my property, and we’re looking at buying together.

I’m going to sell my property, and if you could almost get a mortgage in your name we could use Joint Borrower Sole Proprietor. The mortgage will be in joint names, but the deeds are just in your name.

The benefit here is that you would have no stamp duty as a first-time buyer. I’ve done this on a number of occasions for clients. There is a trade-off, because in that example, the joint borrower still has to get independent legal advice, so there are additional legal fees for that.

How can a mortgage broker help? Any final thoughts?

If you’re dealing with a decent mortgage broker, they’ll talk to you about everything that we’ve covered here – we’ll chat through it all with you.

We’ll make sure that the rate you’re going for is optimal, whether it’s a Joint Borrower Sole Proprietor, whether you’re paying stamp duty and whether it’s a first-time buyer deal or a second-time buyer deal.

It can be a bit of a minefield. In the past I’ve had a client who has put themselves down as a first-time buyer – but they sold a house a year ago. Once it gets down to the legal side, the solicitor asks if you have ever owned a property. The client says yes and suddenly there’s stamp duty to pay.

You’re always better discussing your circumstances with your advisor in full. Then we can work out the best way of moving forward.

Key Takeaways:

• If one applicant has previously owned a home, both individuals will be treated as second-time buyers for mortgage and stamp duty purposes.
• There is often little difference in interest rates between first-time and second-time buyer mortgage schemes.
• Joint applications involving a first-time buyer and a second-time buyer will not qualify for first-time buyer benefits like stamp duty relief.
• The size of the deposit significantly impacts the interest rate, with larger deposits generally leading to lower rates.
• A mortgage broker can help navigate the complexities of joint applications, find optimal rates, and explore alternative structures like Joint Borrower Sole Proprietor mortgages to potentially reduce costs.