Because of this, most first time buyers need to borrow a large proportion of the value of their home. The potential for problems here is that should house prices fall, a first time buyer could end up in negative equity. Negative equity is where the value of their home is less than the amount they have borrowed. Some first time buyers, in order to buy the home they want, will borrow too much money and stretch themselves to the limit. The problem with this is that should interest rates rise, the payments could become unaffordable.

Many First time buyers are surprised by the initial costs that apply when you take out a mortgage. The Valuation, legal, arrangement fees and stamp duty can eat into themyour savings. Then there are the costs of furnishing the house and buying appliances such as washing machines.

Mortgage providers are faced with the problem of the recent rise in property prices in the South East of the England, meaning that to get first time buyers to take the plunge and afford the costs, they have to be innovative with the products they provide. For this reason, specialist first time buyer mortgages can include features such as the ability to borrow up to 100% of the value of the property, discounted variable rates to cut down on monthly payments, and cash back in order to help with costs. Lenders may also relax rules how much they are willing to lend you.

Discount variable rates on mortgages can see significantly reduced interest rates compared to a lender's standard variable rate for a period of, say, 2 or 3 years. These mean that the initial monthly payments are more affordable even though the borrower may have had to borrow a large income multiple. Lenders should also not have redemption penalties at the end of the discount period, so a borrower does not have to pay fee to move mortgages once their discount is over.

Whatever happens, both lenders and borrowers have a responsibility to be sensible over the first time buyer mortgage terms they offer and accept.

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