First Time Buyers Guide

First time buyers guide

The ultimate guide for First Time Buyers 

Table of contents

 

Who is this guide is for?

You are taking the first steps on the road of home ownership; there are a lot of things to consider. This guide is designed for anyone looking to get onto the property ladder. This guide will outline all the necessary steps and requirements to help secure the best lenders that can offer you the right mortgage. This guide will have useful information for anyone looking to buy a new home but the specifics are aimed at the first-time buyer’s process. If you don’t already own a property and are on the hunt for your dream home, then this guide is for you!

A brief overview of the full process

Save

Start saving money for your deposit; the more you save, the better! Check online mortgage calculators to see how much you can potentially borrow.

Lifetime ISA

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA. You can put in up to £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

Get agreement in principle

This is where a mortgage lender will run credit checks and other financial assessments to see how much risk is involved. If you are successful at this stage, you will get a certificate or a letter to confirm what the mortgage lender is willing to lend you.

Find a place

Look online; book a viewing; see it in person. This can be a lengthy process but it’s worth the time to find the right place for you. Have a list of criteria you need from your new home before you see any property.

Offer

Once you find the ideal home and have your agreement in principle, you can make a formal offer. Your estate agent will make sure the offer is acceptable and send over to the seller. At this stage you will either be accepted or rejected.

Speak to your solicitor

At this point you will need to instruct your solicitor to carry out conveyancing work on your behalf. They will then deal with the legal paperwork.

Apply for the mortgage

The next step is to apply for the mortgage. Usually, you would apply with the same lender who gave you the agreement in principle. The best thing to do is to speak to your mortgage broker to see if they can find a better policy.

Patience

It can take a while for the contracts, legal documents and searches to be completed. It can be several weeks before all is processed.

Pay the deposit

This stage is where everything has come back and you are now required to send over the deposit. If you have money in ISAs or a help to buy scheme with the government then you may need to speak to your bank or building society on how to get to that money.

Exchange

Time to sign and exchange the contracts. This needs to be done before you can get your completion date. Usually, it is about a week difference between exchange of contracts and completion.

Pick up the keys

Once all is confirmed then the sale of your new home is complete and you can then arrange with the estate agent to pick up the keys to your very own home!

Introduction to Mortgages

As far as financial commitments are concerned, purchasing a house is the biggest commitment most of us will make in our lifetime. You need to identify whether you are ready to make such a commitment, and take the process seriously.

On first glance, mortgages can seem daunting and complicated; this doesn’t need to be the case. Even though your broker will be an invaluable asset to finding the right mortgage for you, they won’t be able to make the decisions for you. The more you are educated on the process of buying a home; the better understanding you will have for your specific needs.

There was a time where for better or for worse, you could get a mortgage even if it wasn’t financially responsible of the lender. Over time with less availability and the credit crunch, it has become much more difficult for people to get approved for a mortgage. Before making any decisions, we recommend you ask yourself the following questions:

Can I afford a mortgage?

The very start of your mortgage journey should be seeing how much you can borrow. There are mortgage calculators available that can give you an idea of what different lenders would offer to you. They will ask questions regarding your household income and commitments. Even if you have paid off credit card recently, this can affect your credit score and put you at a higher risk for lenders. As a rule, the more you earn and the less you owe; the more you can borrow. This will also give you an idea on how much you can expect to pay each month. Another factor that effects the monthly cost is the amount you put up front.

Do I have a sufficient deposit?

The deposit towards your new home is the percentage of the house price you need to pay upfront. The somewhat standard deposit requirement is 10% of the initial purchasing price and then the 90% is the amount mortgaged. You can put more down as the deposit if you can and the more you pay upfront, the less you will pay a month. Some lenders offer first-time buyers as low as 5% deposit mortgages which means you would need to save half as much, but you’ll pay more each month.

How much do I need to save for a deposit?

Dependant on which mortgage you are looking for, the amount you need will change due to the cost of the property, and the amount the lender wants as a deposit. You also need to factor in other fees like broker fees and surveyor fees. Another aspect of the deposit is the interest rates. If you pay more upfront you can get offered better interest rates, which could save you thousands on the purchase of your house. If you wanted to buy a house worth £200,000 with a 5% deposit you would have a £190,000 mortgage. A fairly representative interest rate of 3% means you are paying £5,700 of interest per annum. If you paid 10% then at £180,000 you would pay £5,400 per annum and at 20% you would pay £4,800 in interest per annum.

What are the best ways to save the deposit for a mortgage?

There is not a one size fits all solution to saving for a deposit on your first home, but there are lifestyle changes you can make to start saving as soon as possible. You don’t need to do all of the changes below but the more you can do; the quicker you can save.

Lower your existing bills

There are bills in life that we can’t just stop paying. These are things like utility, internet, and mobile phone bills. What we can do is look for cheaper alternatives. Lowering the amount of money, you have outgoing, can leave some space to save the difference. Check comparison sites to find the cheapest energy prices on the market. You may have to sacrifice things like the latest phones or technology, but even a small sacrifice can have a big difference.

Monitor your spending

With the increase in takeaway restaurants offering delivery to your door, and buy now pay later offers, it can be very easy to spend more money than needed. It is advisable to do an audit on your outgoings often to make sure you don’t have commitments you may have forgotten about. Another expense that can add up is spending on clothing. Cutting back on unnecessary purchases could save you hundreds a month.

Use money saving apps

Several apps out on the market, including some banking apps, help identify debit payments you have set up that you may have forgotten about. Making it much easier to locate and cancel them. There are also features that round up purchases to the nearest pound and add that to a savings pot. The little amounts each month can add up.

Move back in to your family home

This is a more drastic solution and is not viable for many people, but the biggest commitment most have each month is rental costs. Rental properties can cost hundreds if not thousands a month, so the longer you can go without being in rented accommodation, the more you can save.

Look at an extra income

If you have some free time outside your normal work commitments, you could look at some additional work. Make sure that any additional income you generate is declared for tax reasons and if its self-employed work that you complete a self-assessment. Working the evenings and weekends will be a great way to fast track your deposit savings.

What mortgages are on offer?

The types of mortgages you can be offered is determined by criteria such as the deposit amount you have; the amount you are looking to borrow; your credit history. These are all worked out and the resulting calculation is what the mortgage provider is willing to lend you. They will work this out from your household income and your outgoing commitments. Having large loan and credit card debt will decrease the likelihood of being approved.

What mortgages are on offer?

The types of mortgages you can be offered is determined by criteria such as the deposit amount you have; the amount you are looking to borrow; your credit history. These are all worked out and the resulting calculation is what the mortgage provider is willing to lend you. They will work this out from your household income and your outgoing commitments. Having large loan and credit card debt will decrease the likelihood of being approved.

Fixed rate mortgages

A very common type of mortgage policy, a fixed rate mortgage is usually a fixed term where the monthly payments do not go up or down with the current interest rates. They can be fixed from two to five years, in rarer circumstances up to 10 years. At the end of this fixed rate term, the mortgage will move onto a standard variable rate. This will more than likely be at a higher rate so you should look at switching mortgages at the end of the fixed rate.

Discounted variable rates

Similar to the standard variable rate set by the lenders and the market, the discounted variable is a fixed below the standard variable rate for up to 5 years. If the standard variable rate changes, then the mortgage rate will too.

Tracker mortgages

There is a base rate set by the Bank of England; a tracker mortgage uses these rates to determine how much you will pay. This means your monthly payments can go up or down anytime the rate is changed. With this sort of mortgage, you need to be sure you can keep affording to pay if the rates do go up.

Offset mortgages

The less commonly known mortgage policy is the offset mortgage. For this type of borrowing, you link your mortgage to your savings account. The savings balance is used to reduce the interest that is charged on the mortgage. This offset doesn’t pay for the mortgage in anyway, it is just used alongside to take the interest payable minus the savings balance.

What schemes are available for first time buyers?

There are several options out there for the would-be first-time buyer; some will work better for others and it is important to check availability and affordability of each scheme. Use mortgage calculators, local government websites and resources, and speak to a professional before securing any type of agreement with any lender.

Stamp Duty

The stamp duty is a land tax that you pay when you purchase a property or land that falls above a certain value. Stamp duty is required when buying a property in England and Northern Ireland but there is also a similar land tax on land and building transactions in Scotland and Wales. First time buyers within England and Northern Ireland can be offered a stamp duty relief on qualifying properties, where they pay no stamp duty on homes for the first £300,000 of the property value. With some lenders you can have the stamp duty applied to the mortgage so you can pay it monthly; however, this is ultimately down to the lender’s discretion.

Joint Mortgages

If you are finding it difficult to buy a home on your own, you can use a joint mortgage with friends or family members. If multiple people purchase together, then it can also be easier to raise the deposit. You can use a joint mortgage if you are joint tenants, so all parties of the mortgage have an equal share of the property. You should definitely seek financial advice from a broker or independent financial advisor before heading down this route. It can become particularly tricky if one person wants to sell or leave the property.

Shared Ownership

One of the more popular types of mortgages, shared ownership is where you buy a percentage of the home with a local authority or housing association and pay rent on the percentage on what is outstanding. If your household income is less than £80,000 in England, or £90,000 in London, you could qualify for this scheme. The amount of the property you can mortgage differs from property to property, you can opt to mortgage as little as 25% and as much as 75%, the rest is then paid as rent. This option is particularly popular due to the lower deposit requirements.

Joint Borrower sole proprietor

A joint borrower sole proprietor (JBSP) mortgage is a type of mortgage where multiple individuals can be named borrowers, but only one person is listed as the sole proprietor of the property. This means that all borrowers are equally responsible for repaying the mortgage, but legally, only one person is considered the property owner.

How can you increase your chances of having a mortgage approved?

Securing a mortgage can be daunting, but you can enhance your chances of approval by taking proactive steps. Start by checking your credit file with major bureaus like Experian, Equifax, and TransUnion to identify and fix any errors. Improving your credit score by paying off debts, avoiding new credit inquiries, and maintaining a low credit utilisation ratio can also strengthen your financial profile, making you a more attractive candidate to lenders.

Check your credit file

Every loan, higher purchase, and credit card we apply for has an effect on our credit score. There are three credit reference agencies in the UK and all credit checks are done with at least one of them each time you apply for credit. You should check with each of them to see what records they have on you, see what is adversely affecting your score, and what you can do to increase your score with them. Some lenders check with one, two but most check all three of them.

Experian

The largest credit reference agency in the UK and Ireland, Experian is used by a large number of companies in many different industries to run credit checks on people. They score users on a scale up to 999. They score very poor from 0-560, poor from 561-720, fair from 721-880, good from 881-960, and excellent from 961-999. The higher your number, the more likely you will be accepted and get better rates.

Equifax

Equifax score is from 0-700 and is used by more banks and building societies to check your eligibility for a mortgage than Experian. They have updated it to out of 1000 but most still only see their score out of 700. The scale is very poor from 0-279, poor is 280-379, fair is 380-419, good is 420-465, and excellent is 466-700. The new system as of 2021 has removed very poor and added a very good section. The change has also moved people from poor to fair and more scores are considered good or above. You really should talk to a mortgage advisor for more clarity.

TransUnion

TransUnion uses a 5-band rating of 1-5 and is similar to Equifax in some ways. TransUnion is the second largest credit reference agency and has a much larger range for very poor, or rating 1. The scale starts at 0- 550 for rating 1 or very poor, 551-565 for rating 2 or poor, 566-603 for rating 3 or fair, 604-627 for rating 4 or good, and finally 628-710 for the top rating of 5 or excellent.

Fix errors on your credit report

Once your reports have come through, check they are accurate. They are not always up to date with the latest information and could be showing data that doesn’t correspond with your current situation.

Residual debts

You may have taken out a loan previously to buy a car or consolidate your debts and you have since paid this off. If this is showing on your account as outstanding or still open then you need to contact the lender to get this corrected. Having an outstanding balance on your credit score can show up as a default or as a concern to a potential mortgage lender.

Address

Make sure your address is correctly entered and up to date. Where you live can affect your credit score and things that the previous tenants did might be showing against you. For instance, if the previous tenants didn’t pay the water bill, this will be sent to the household. If you are still registered at that address then it could show up on your file. Make sure your address is correctly stated.

Fraud

Identity theft has always been an issue as long as there has been lenders. Having many credit applications happen in a short time frame can put a mark against your account and make it much harder to secure a loan. If there are checks or balances outstanding on your account you do not recogniser then you could have been a victim of fraud. You should get in contact with the lender as soon as possible and get in touch with your local police.

Closed accounts

Moving bank accounts is advisable when banks and building societies are offering incentives to move. They may have better overdraft charges, or offer better savings rates if you move everything across. Having many bank accounts open at one time is not always an issue but it could flag up as an issue with lenders. Make sure old accounts are closed properly and if you closed an account but the bank incorrectly indicates that they closed it, then contact them to get this rectified.

Defaults

If you have not been able to make payments on a previous loan or credit agreement, then this can be marked down as a default on your credit account. These remain on your credit history for 6 years and can drastically affect your ability to borrow. If you have had a default that is over 6 years old then contact the lender to have this removed from your score. A default will have heavy ramifications on your ability to get approved for a mortgage.

Improve your Credit Score

Although there are 3 different major credit reference agencies, there are some ways to increase your credit score across all three. There are actions you can take to increase your scores across them and there are ways to increase specific credit scores.

Experian boost

The first thing you can do to help get approved for a mortgage is to get your free report from Experian and use their boost facility. Experian has implemented a system that allows you to add other commitments you have that are usually not included. You can add outgoings such as rent, council tax and subscription services which can increase your score.

Check regularly

It may seem obvious and somewhat tedious, but keep track of your credit score regularly. At the very least check it annually; ideally monthly. The quicker you can spot any issues, the quicker you can fix them. It may not increase your score, but it will stop it dropping.

Voter registration

The electoral roll is required for you to vote in any democratic election. From local council to the Prime Minister, if you want to vote; you need to register. This also affects your credit report and by not being on the electoral roll you will make it much harder to get accepted for a mortgage. The fact you are registered will indicate to the credit reference agencies your address is verified and shows stability.

Pay on time

A late payment, even if it’s only once, can have an effect on your credit score. Even if there are circumstances out of your control, you should try to pay these commitments before others. Having these payments set up on direct debit will remove much of the human error side of payment, but if there is going to be an issue paying a creditor, tell them as soon as possible. There are regulations in play for them to at least explore options.

Save more

Saving for the deposit is not easy, and it is very easy to say just save more. The deposit shows how serious you are to purchase your first home and will also reduce the amount left to pay on the mortgage. Try to save more than the minimum and you could get better rates of interest. Or you could pay off the mortgage sooner.

Credit builder credit cards

The idea of a credit score is for the credit reference agencies to provide a prediction on your future spending habits. By using your financial history, they aim to make a calculated risk on lending you money for your mortgage. If you have made some problematic financial decisions in the past, you will need to show you are now responsible. They best way to show that is to use a credit builder card. These cards are for people looking to increase their score but can’t get accepted for most credit cards. By showing you can pay back the credit amount consistently will show you are more reliable. Be careful though, the APR on the balance can be over 35% so make sure you pay more than the minimum each month.

Debt to income ratio

In the simplest terms, you need to be receiving more money than you are spending. This is good advice even if you aren’t looking for a mortgage. The more you have going out means the less you have at the end of the month, thus you could be stretching yourself thin. If you are living at the edge of your means then if anything was to happen, you are more likely to default on the payments. Cancel anything you can and only pay for the things you need.

What other cost considerations are there when buying your first home?

We have gone through the deposit in length, but there are many other costs to consider. Not just what you need to pay up front, but any ongoing costs while you own the home.

Up-front considerations

Valuation fees

The valuation fee is a charge from the mortgage lender to do a basic evaluation of the property. This is mainly just to check how much the lender is willing to lend to you. This charge can be relatively small, or cost over £1,000. Some mortgage lenders may not charge you a valuation fee depending on the mortgage they are offering.

Surveyor fees

A very important step to potentially find out the condition of the property, the survey is a way to protect yourself from a bad investment. The surveyor will check if there are damages or issues that will need addressing, some of which can be extremely costly.

Legal

There is a fair amount of legal paperwork that needs to be done when purchasing a home. You will require a licenced conveyancer or solicitor to do this legal work. They will help you navigate the legal issues as they arise.

E-transfer fee

This is a relatively small fee charged to you that covers the cost of transferring the mortgage money from the lender to the solicitor.

Broker fees

If you are using a broker, there will be fees involved. We do heavily advise you seek a mortgage broker as it will be cheaper long term. The broker acts as an intermediary between you, the first-time buyer, and the lender. The broker will have access to a network of lenders in the market and will be able to find the right lender for you. Instead of you going from lender-to-lender which is very time consuming.

Moving costs

Usually, the last part of the house buying process, moving into your new home! If you are moving around the corner and have little to move then you could save money by doing it yourself. If you are moving across the country and taking an entire life’s worth of stuff, you will need to hire a mover. Depending on how much you are moving, and how far you are moving, the costs will vary.

Ongoing costs

After you’ve found your home, been accepted, and completed on your mortgage; you finally move in. If you moved from your family home, or an inclusive rental property, you may not have paid certain bills. There are insurances and liabilities you haven’t had to consider in the past.

Insurance

Your home is the most expensive asset you will most likely ever own. Then you have to add the number of items and memorabilia you have within your home. We hope nothing bad ever happens but in the unlikely event of burglary, contents insurance is available. This insurance is paid monthly and can cover valuables in your home. Another insurance most homeowners have is life and critical illness cover. This pays out on the event of death, terminal illness and certain ailments, to a beneficiary. It is usually a lump sum payment to cover the remaining cost of the mortgage so your partner isn’t put into financial trouble.

Utilities

There are everyday services that every household in the UK needs to pay. Utilities cover from internet access, to water rates. You should check the average cost of bills in the area you are moving to, to give you an idea of how much you will need to pay each month. Gas and electric are usually paid monthly based on your usage; water can be paid monthly, quarterly, or annually, and can be based on the local area usage. Check internet providers and speeds before you buy a home to make sure it meets your needs.

Council Tax

The local council is responsible for waste collection, road maintenance, and emergency services. The council has a rating system based on your postcode and charge each household annually for these services. They can be paid annually or over 10 months. You can check local council tax rates on the relevant local council websites.

Upkeep

Your home won’t stay brand new forever, and eventually will need some maintenance. There are some projects you could do yourself; there are others that you should call a professional for. In rented accommodation, the landlord or letting agent is responsible for repairs and calling out plumbers or electricians. When you own your own home, it is your responsibility to sort out issues, and you will have to pay.

Finding the right house

Now we have an understanding on how to get approved for a mortgage and what legal hoops there are. The fun part is finding the right home for you. The initial emotional pull of how a house may look online can form a strong belief in a property being the perfect home. Let us take a step back to make sure this really is the dream home.

Location

Where your new home will be is the most important part of the home buying journey. You could find a property with great space, several bedrooms, and well within budget; yet not fit for purpose.

Accessibility to required services

If you are moving with a family, or with the knowledge of starting a family, you want to be able to access certain services. It could be that you are close to emergency services, or that you need to find a nursery for your child. If you want to be close to the high street, then a rural property is not going to be sufficient.

Schools

With how catchment areas work in the UK, you could move into a great home but fall within a different school district. If you have a school in mind when you are purchasing your first home then make sure you check if it still falls within that school area. Public transport may also become a factor as the children get older. The secondary school could be in a different part of the county and if the public transport doesn’t come as far out as your home, then you will need to arrange a way to get them to school.

Shopping and facilities

Living further into the countryside means you will also be farther away from shops and other high street facilities. Going to get a haircut could become a specific day out, or going to the supermarket becomes restricted to getting everything you need each trip. It is easy to check online using maps to determine what is and is not available.

Family

Our families are important. Just because you are moving out doesn’t mean you want to see parents and grandparents less. If you are moving but want to keep the close relationships you have then moving to far away could restrict the amount you see them.

Crime rates

There isn’t any part of the UK that is completely crime free. When you are looking at homes, you should still research the area to see if it is a safe place to live. With most new builds being built as part of a housing estate, it may not have exact records for the specific postcode. You can check the surrounding area to get a better idea.

Weather considerations

Hopefully the house is not built on a flood plain, but it could happen. You can check historical data to see whether or not that particular area has suffered from flooding in the past. It can also affect things like contents insurance costs.

House space requirements

Bigger homes for bigger families

If you are buying your home for your growing family, then you will need to look at houses with more bedrooms. Not only focus on the number of bedrooms but also any additional rooms the family can all enjoy together. Places like an extra living area or nursey. Don’t forget; the bigger the home; the more it will cost.

Extra storage spaces

Make sure the new home can hold all your belongings. Before you move in, measure up the rooms and check for additional loft space. Another additional storage area could be a garage.

Garden size

How important is the garden to you? Would you like to spend more time outside or are you more concerned with the indoor facilities? If you want a place for children to play, or so you can host friends and family, make sure you inspect the garden.

Viewing a house

Damp

With a new property, there should be a lower risk of damp being present. You really should check walls for any moisture and check the corners of rooms. It is not always visible, so also test if you can smell mouldy air. Damp can ruin structural integrity.

Cracks

If the paint is cracking and it’s not due to damp, there could be something wrong with the structure. If there are small flaky cracks then it’s not necessarily anything to worry about. But bigger cracks might be caused by the walls shifting.

Windows

Check the seals to see if there are any gaps in the sealant. If a strong draft is coming in through the gaps in the window, it will make your home less energy efficient. This will increase your utility bills and also be worse for the environment.

Snagging surveys

The best way to check for any issues in the new build property is to sort a snagging survey. The ideal time to have a snagging survey completed is after the building work is done but before your completion date. Unfortunately, some property developers will not allow a snagging inspection to be carried out before completion. They could deny access to the property until this date.