First-time buyer mortgage

Lenders love first-time buyers, because once snared, they may keep them as borrowers for years and also sell them larger mortgages.

But, first-time buyers are becoming more and more shrewd. Today, more people are likely to shop around once any redemption penalties have been paid off. (Typically, this is about three years after taking the mortgage out.)

Apathy still exists, however, and so first-time buyers remain tempting to mortgage lenders. This is why mortgages offered to first-time buyers tend to include competitive incentives.

When to take out a mortgage
Property is still a gamble, even though most people make money on their home. This is why it can be dangerous to borrow too much.

No matter how attractive owning rather than renting a property is, buyers should beware of becoming financially overstretched.

Negative equity - when your mortgage outstrips the value of your home - has been out of the headlines in recent times, but some experts are predicting it will resurface. This is a difficult time to predict what will happen to prices.

How much can I borrow?
Some lenders will offer up to five times' salary and 100% of the property's value. However, the Financial Services Authority recommends that single people should borrow up to a total of three times' salary and two and a half times' salary for couples.

What deposit will I need?
Although 100% deals do exist, most lenders will require at least a 5% deposit. If you can come up with 10%, you are likely to be offered a better deal, as you are seen as lower risk.

What type of mortgage?
Most first-time buyers will choose a repayment mortgage. Endowments are largely dying out in the wake of a mis-selling scandal - thousands of homeowners are now facing a shortfall because their endowment will not cover their mortgage.

Flexible mortgages are definitely worth considering. There may be fewer incentives offered to first-time buyers, but they are suitable for those who can pay off large amounts of capital.

What about fixed or discounted rate deals?
No one knows what will happen to interest rates and so a discounted rate can be a good deal.

Similarly, a fixed rate mortgage can have benefits - providing the interest rate does not fall further still. Deals will usually only last for three years. After this, you should look at other deals in the market.

What about interest-only deals?
These can be good for those who want to keep their repayments low. Some lenders will offer an interest-only deal for three years - but you will have made no inroads into the capital and so this is a downside.

What about Cat-marked mortgages?
The government recently launched a kitemark for financial products. Cat stands for cost, access and terms and, while it is early days, some mortgages which fit the criteria are now available.

Beware the Mig
First-time buyers who only have a low deposit should watch out for mortgage indemnity guarantees (Migs). Many lenders force borrowers to buy these as a condition of the mortgage.

The Mig is an insurance policy and is designed to protect the lender if the borrower defaults. It has no benefits for the borrower and can cost thousands. Even if it's spread out over the period of the mortgage, it simply adds onto your outgoings.

It may be worth trying to get together a larger deposit to avoid paying one, or make sure the deal is a good one if you agree to a Mig.

Redemption penalties
As with all mortgages, these vary, but can be around 5% of the loan if you pull out early.