Being a first time home buyer can be daunting. Conveyancing, gazumping, gazundering…if you’ve not purchased a property before, these terms can all feel like a foreign language!
Fear not, our First Time Home Buyer Guide will cover everything you need to know.
What’s the budget? A first time home buyer guide to mortgages
Although it may be tempting to jump straight onto Rightmove or Zoopla, and start searching for your dream home, any good first time home buyer guide will tell you that it is important to start the home buying process thinking sensibly about what your budget might be. The best way to do this is to look at your finances carefully and think about what you might be able to afford. You should consider both upfront costs (deposit, legal fees and stamp duty) and monthly repayments.
First time home buyer mortgage calculator:
You can get an idea of how much you could borrow by using a free online mortgage calculator.
Taking out a mortgage is a big step, and not one that you should take lightly. Should property prices fall after you purchase your property, you could find yourself in negative equity. You also risk repossession if you fail to keep up with your mortgage repayments.
If you decide that buying a property is the right move, there are several things you can do to improve your chances of securing a mortgage.
Boost your credit score
Years ago, a mortgage lender would simply multiply your income by a number to calculate how much they would be prepared to lend you. Since the recession, stricter lending and affordability criteria have made the process a bit more complex. A mortgage lender will consider a number of factors, including your credit score (a score assigned to you based on your financial history). The higher your number, the more attractive you are to lenders.
You can boost your credit score in several ways, including:
- Registering to vote
- Checking your credit file, by doing a free online credit check, and correcting anything that you believe to be an error
- Making sure you keep up with any credit repayments
- Not making too many applications for credit or finance in the months leading up to your mortgage application – a lot of applications over a short period of time will communicate to potential lenders that you rely heavily on credit and finance, which will cause alarm bells to ring for them
When assessing how much they might be happy to lend you, a mortgage provider will look at your monthly income and expenditure, including any credit card or loan repayments. They will also take into account what percentage of available credit you are currently using (ie. how far away from your credit card limit you are etc). If you are using more than half of your available credit, you may be considered a ‘higher risk’ candidate. For this reason, it is important that you try to clear as much debt as you can before applying for a mortgage.
Before you apply for a mortgage, it is important to think carefully about how much you think you could afford to pay each month. Mortgage interest rates can go up or down, so be careful not to push yourself too hard and ensure you leave space for market fluctuation. The current UK base rate (the interest rate at which mortgage lenders borrow from the Bank of England) is 0.75%, but in October 1989 it reached highs of 15%! Whilst no-one is expecting it to reach those levels again anytime soon, it is difficult to predict what the future holds, so it’s important to consider how a significant rise in interest rates would affect you.
Once you’ve got a good idea of your finances, it’s a good idea to get independent advice. Speak to a financial adviser or mortgage broker, who will able to advise which mortgage products they think would be a good fit for you and your individual circumstances. There are thousands of mortgage products available from a vast number of mortgage providers, and the range of products available changes frequently. Using a mortgage broker can be a good way to get an overview of the products available, without having to do all the legwork yourself.
Once you and your mortgage broker agree on the mortgage product you would like to apply for, they will submit some of your personal and financial information to obtain a ‘mortgage in principle’. A mortgage in principle is a document from the mortgage company, informing you of the amount they may be willing to lend you. This will be based on the financial information you have provided.
Once you have a mortgage in principle, you will have a pretty clear idea of your property budget. You can now begin your property search.
What am I looking for?
When you begin your property search, it is important to think carefully about what it is you are looking for. Remember, property is a long term commitment, so you will need to consider how your needs might change in the future. How many bedrooms would you like? Is outdoor space important to you? How about parking? Which areas do you want to search in? Where do you see yourself in two, five or even ten years? These are all important questions to consider early on in the process.
Once you’ve found a property, you need to decide about how much you are willing to pay for it. Several factors will influence the offer you make. These include the seller’s circumstances (how keen they are to sell), local property market conditions, and how much competition there is for the property. It is important to remember that as a first time home buyer – and therefore a chain-free buyer – you are a very attractive prospect for someone trying to sell their property. Chain-break is one of the most common causes of house sales falling through before completion. Any seller who has the choice between a chain-free first time buyer and a buyer with their own property to sell would be wise to choose you.
Once you’ve decided to make an offer, you should submit the figure to the estate agent. They will pass it on to the seller for their consideration.
The seller is going to want to achieve the highest price possible for the property. Be prepared for a bit of negotiation, but don’t let them push you higher than you are happy to go. Remember, losing out on a property is preferable to having your home repossessed because you pushed yourself beyond what you could comfortably afford.
Choosing your solicitor
Once you are at the point of having your offer accepted, it is time to alert your solicitor. If you don’t already have a conveyancing solicitor (one who handles the buying and selling of property) lined up, ask for recommendations from friends or family. Your solicitor will play a big role in how quickly your sale progresses. It is important to find someone proactive, who will manage the sale through to a quick and successful completion.
Once your solicitor is on board, they will handle the purchase process for you. However, it is important that you maintain regular contact with them to ensure the sale is progressing well.
Formal mortgage application
At this point, you will need to make your formal mortgage application. If you are using a mortgage broker, they will assist with completing the mortgage application. If you are handling it on your own, there should be mortgage advisors working for the lender available to assist you with any questions.
Getting a survey
Once you have submitted your mortgage application, the lender will want to get a property valuation carried out. If you fail to keep up with your mortgage repayments, the lender will repossess the property in order to recoup their losses. For this reason, they will want to ensure that the property is worth what you claim it is. At the point of valuation, you will have the opportunity to upgrade to a more in-depth property survey. This would advise you of any potential issues with the property. Upgrading is often a wise move, as it will warn you about any costly property maintenance that may be required. As part of the conveyancing process, your solicitor will also carry out a number of ‘searches’ for the local area. These searches will alert you to any potential issues that are highlighted in local land surveys.
When the survey and searches have been completed, and the mortgage offer has been received, your solicitor will send you the property purchase contract to be signed. These signed contracts will be exchanged on a date agreed by you, the seller and both solicitors. Once the contracts have been exchanged, you are legally obliged to go ahead with the sale.
Completing the sale
Once you have exchanged contracts, your solicitor and the seller’s solicitor will agree a date for completion of the sale. This is the date that the seller will vacate the property and legal ownership will officially be transferred to you.
Q & A
Q: I’m trying to work out my budget for my first property. I’m not sure how much I should put in for things like gas and electricity? Is there such a thing as a first time buyers guide to utility bills?
A: You are being very sensible. When you are a first time home buyer and considering affordability, it is important that you take into account all of your monthly outgoings, not just your mortgage repayments.
You can get an estimate for the cost of your utility bills by referring to the energy performance certificate. Each property will have one. The energy performance certificate will use a series of averages (average number of hours, average temperature, average unit price etc), so the estimated energy use costs listed in the property’s energy performance certificate are unlikely to give exact costs, but they should give you a good idea of the sort of costs you could be looking at.
Stamp Duty first time buyers
Q: How much Stamp Duty will I have to pay on my first home?
A: Stamp Duty can command a significant chunk of your budget when purchasing a property. Thankfully, first time home buyer stamp duty exemption exists for those buying a property worth up to £300,000.
First time home buyer scheme
Q: I’ve heard a lot recently about different Help to Buy schemes being run by the government – what’s available?
A: You’re right, the government has launched several different Help to Buy schemes in recent years. These include:
First time home buyer ISA
A first time buyer deposit can be difficult to raise. With high rental costs and increasing living costs, saving for a house is not an easy task. In December 2015, the government launched a first time home buyer ISA. It is called the Help to Buy ISA. In short, the Help to Buy ISA will boost your property deposit savings by 25%. For every £200 you save towards a property deposit, the government will contribute an additional £50. The maximum amount contributed by the government will be £3,000.
Affordable housing for a first time home buyer
The government has two separate schemes (both under the Help to Buy umbrella) to help provide affordable housing for first time home buyers. The first is a shared ownership scheme. This allows you to purchase between 25% and 75% of a property and pay rent on the remaining share. You then have the choice of buying a greater percentage of the property, up to 100%, at a later stage. The second is an equity loan scheme. This allows you to borrow up to 20% of the cost of a new property. It enables you to purchase the property with just a 5% deposit and a 75% mortgage, giving you access to better mortgage deals and requiring less up-front funds. The government loan for up to 20% will remain interest-free for the first 5 years.
For top tips on how to prepare for moving day, check out our first time home buyer checklist!