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The Ultimate Guide For First-Time Buyers In The UK

mlm-editorial, 10 months agoClock icon4 min read

The Ultimate Guide For First-Time Buyers In The UK

First Time Buyer’s Guide: Everything You Need To Know From Saving for a Deposit to Completion

For those new to the property ladder, the world of mortgages, interest rates, conveyancers and brokers can be incredibly daunting. So when it comes to buying your first home, it pays to be in the know.

In this guide for first time buyers, we’ll take you through the steps necessary for buying your first home — equipping you with the knowledge and savvy that you need to find yourself a good deal, and secure your dream home.

 

1. Mortgages and deposits

 

Mortgages are loans specifically designed to help you buy property. They are secured with a deposit of the home’s purchase price, and borrowed over a period of 25 or more years. 

 

After you have moved into your property, and depending on the type of mortgage that you take out, you will either:

  • a) Pay back the mortgage and interest monthly (repayment mortgage) 
  • b) Pay back the interest monthly, and then pay off the final amount at the end of the mortgage term (interest-only mortgage).
  •  

How much deposit do I need to buy a house?

 

The amount of deposit that you will need to secure a home will depend on the property’s value. Some lenders will require a deposit of 10-15% or even 20% of the property’s purchase price, whilst some will be happy with a lower deposit of 5%. 

Generally speaking, the higher the deposit you pay, the cheaper your mortgage will be. This is because you are also charged interest over the rest of the capital, as lenders see those who put down lower deposits as being more high-risk. 

For example, if you put down a 5% deposit, you will have a 95% loan to value (LTV) mortgage, whereas with a deposit of 20%, you will have an 80% loan to value mortgage. You only pay interest on the amount that is borrowed — so if you borrow less, you’ll have less interest to pay.

 

With the average property price in the UK being £256,400:

 

% Deposit

Deposit amount

5%

£12,820

10%

£25,640

20%

£51,280

 

When saving, you should also account for the fees associated with buying a home, like solicitor’s fees, surveys and moving costs.

 

How can I save for a mortgage deposit?

 

It is always recommended that you save for a deposit for as long as possible. It is thought that in the UK, it could take as long as eleven years to save a deposit.

The best way to save for a deposit is to start as early as possible, squirrelling away money from bonuses, birthdays or your monthly income. Whilst making savings from your monthly income is ideal, it is often unrealistic due to the rising costs of living in many areas of the country. Look at your finances carefully to discover areas where you can cut back to save.

 

Saving with a Lifetime ISA

 

A Lifetime ISA is the best way to save money for a property or for retirement, and they are available to anyone who is between the ages of 18 - 39. 

There are two types of Lifetime ISAs — the cash LISA and the stocks and shares LISA. The cash LISA means your savings are protected, whilst the nature of a stocks and shares LISA means that your savings are invested so there is an element of risk on what you might receive back.

 

Benefits of the Lifetime ISA

  •  

    • 1) Can be opened with as little as £1
    • 2) Pay in up to £4,000 a year
    • 3) Receive a government bonus of 25% per year
    • 4) You can still use other ISAs (check with your bank)
    • 5) You can transfer to another provider
    • 6) Tax-free interest
    • 7) Protected savings with a Cash LISA
    • 8) Couples or housemates can have one LISA each — pool them for a deposit 
    • 9) If you buy with someone who has owned property before, you can still use your LISA as a first time buyer
 

Disadvantages of the Lifetime ISA

  •  

    • 1) If you don’t use the money to buy your first house or for retirement, you will lose the 25% government bonus
    • 2) If you don’t use the money for property, you’ll have to wait until you’re 60 to withdraw without penalty
    • 3) Limits on age
    • 4) £450,000 cap on first home
    • 5) Savings at risk with Stocks and Shares LISA
    • 6) LISA needs to be open for 12 months or more before you use it for a home
    •  

How can I boost my chances of being accepted for a mortgage?

 

Mortgages aren’t just about financial stability — though of course, that’s important. For lenders to approve your mortgage application, they’ll want to know that you’re a reliable investment. 

To prove this, you will need to increase your credit score. You can do this by:

  • - Getting on the electoral roll
  • - Paying bills on time
  • - Keeping credit applications down

You will also need to show that your spending is reliable. It has been known that people have been turned down for mortgages after regularly spending at a casino or as a result of huge outgoing payments at bars. 

You may also find it easier to be accepted for a mortgage if you are in full-time employment. If you are self-employed, you’ll need infallible proof of what you earn: be prepared to show your business account and tax returns.

 

2. Choosing the best type of mortgage for you

 

Types of mortgages

 

Repayment

You will repay the amount that you have borrowed, plus interest, over a set period of time. On average this is anywhere between 20 and 40 years.

 

Interest-only

You will only pay back the interest on your mortgage each month, but then at the end of your term, you will need to pay back the remaining capital as a lump sum.

 

Repayment mortgage types

 

Tracker

The amount of interest that you repay each month will change depending on the base rate from the Bank of England. 

Introductory tracker rates can be lower than other mortgage deals, and it can be easier to overpay on your mortgage, meaning that you can avoid paying back more interest.

 

Offset

You will pay interest on the amount that is borrowed, minus the money that is in a linked savings account. 

Offset mortgages allow you to reduce your monthly payments, and will deduct more interest than usual on your savings.

 

Fixed-rate

The interest rate that you pay every month will stay the same for an agreed period of time, usually 2 or 5 years.

With a fixed rate mortgage, you’ll be protected against sudden increases in monthly mortgage rates if your interest rates rise.

 

Shared ownership

You will buy between 25% and 75% of your home and your repayments will reflect this. Then, you’ll pay a reduced rate to a housing association that owns the part that you don’t own.


 

3. How to find a mortgage

 

Mortgage brokers

 

There are two ways to get a mortgage: either doing it DIY, or going through a mortgage broker.

Mortgage brokers are regulated and qualified mortgage advisers, trained to find you a good deal, and to handle some of the mortgage processes. Going through a broker can also add an extra layer of protection in case things turn south.

For first-time buyers, mortgage brokers are a fantastic way to lighten your load. What’s more, they often don’t charge you, as they earn their money through commission from lenders. To avoid being caught out, ask them how they make their money up front.

Brokers also often have special deals with lenders that are only available through them, and they have years of experience understanding buyers and what mortgages would suit their lifestyle. This means that it is definitely worth exploring your options with brokers in your area, as well as checking direct-only deals yourself through your bank or building society.

 

How do I know if they’re the right broker for me?

 

  • - Ensure that they check all the lenders
  • - Find out how they make their money
  • - Be assured of their qualifications

 

Get a mortgage agreement in principle (AIP)

 

You can get an idea of what you can borrow before you find your property by applying for a mortgage agreement in principle. Whilst these aren’t a requirement, many buyers find them useful — especially in fast-moving markets.

A mortgage AIP is a conditional offer on a mortgage, based on an income and credit check. You may be asked for one by a vendor or estate agent before even being able to view a property, to prove that you are serious. 

However, an AIP is not a guarantee that you will receive a mortgage from the lender. In addition to this, if you have applied for too many AIPs in a short period of time, it could negatively affect your credit rating.

 

What comes first: the mortgage or the property?

 

Before beginning a formal application for a mortgage, you’ll need to find a property. Lenders will have to approve the property you have chosen, as well as the application for your mortgage, so you should have a property in mind before applying formally.

 

4. Finding your perfect home

 

Once you have your agreement in principle, you can begin house hunting. Check out property listing websites like Rightmove, Zoopla and Purple Bricks. Here, you can filter by price, area, bedroom amount and you can even select your preferred area on a map.

You can also begin to form relationships with your local high street estate agents, as they may be able to tell you about properties that aren’t yet listed online. 

 

Focus your search

 

Begin thinking about the type of home you want. Ask yourself the questions:

 

  1. How many bedrooms and bathrooms will you require?
  2. Will you be working from home?
  3. Do you need parking or a garage?
  4. Would you like a garden?
  5. Do you need a property to move straight into, or would you rather have a fixer-upper?
  6. What is the area like?
  7. What are the neighbours like?
  8. Are there good local amenities? E.g. schools, supermarkets, hospitals

 

Making an offer

 

It’s important to note that the process of making an offer on a home differs in England, Scotland and Wales. This section refers to the process in England and Wales.

 

Making an offer in England and Wales

 

If you’ve found the perfect place, you should make an offer. Decide how much you want to offer, thinking in terms of the asking price but also other properties in the area, your budget and any home improvements you may need to make.

Then, give the estate agent a call, followed up by an email, to formalise your offer. You can also send proof of your deposit, and provide your agreement in principle. Then, the agent will inform the vendor and you may need to negotiate your offer, or it may be accepted straight away. You can still change your mind, even if they accept. If you decide you’re happy to go ahead, you should find a conveyancer and apply for your mortgage.

 

Making an offer in Scotland

 

To make an offer on a property in Scotland, you will need to ask your conveyancer to submit a Note of Interest. This does not tie you to the property, but it is a letter asking for you to be kept up to date with any developments relating to the home. In particular, you will want to find out if a ‘closing date’ has been imposed — this is the deadline for submitting formal offers.

After confirming with your lender that you are able to receive the agreed mortgage amount, you’ll be able to place an offer. Ask your solicitor to write an offer letter to the vendor’s solicitor. The vendor’s solicitor will open all the offer letters on the specified closing day, and you will receive a response to your offer shortly after this. 

 

5. Applying for a mortgage

 

Once you have found your property, you now need to formalise your agreement in principle. With the help of your mortgage broker, you can get all your documents together, ready for your lender to approve. 

 

You will need:

  • - Photo ID
  • - 3-6 months of bank statements
  • - P60 tax form
  • - 3-6 months of Utility bills 
  • - Proof of benefits (if applicable)
  • - Contact details for the solicitor, estate agent and vendor

 

If you are self-employed you will also need:

  • - 2-3 years of tax forms
  • - SA302 tax return form
  • - Bank statements to support tax return documents
  •  

Lender’s property valuation

 

To approve the home that you want to buy, your lender will require a surveyor to inspect and value the home that you are buying. If the lender’s valuation and the property price  differ by some margin, they may not approve the property for a mortgage.

This mortgage valuation is basic and doesn’t include structural analysis. Therefore, some of the property’s problems may not be highlighted in this survey.

 

6. Complete a building survey

 

It’s often a good idea to have a survey and valuation done for your peace of mind — even if you are making an offer on a new build home. Your mortgage adviser will have advice on valuation schemes.

A Homebuyers Report gives any information about issues that can affect the property’s value. You will receive a full report along with all the findings, so you can make an informed decision on whether to proceed.

A building survey is more detailed and can be tailored to your needs. Before the survey takes place, the surveyor will ask you what areas you would like them to focus on. 

 

7. The legal stuff

 

Before you exchange, you’ll have to hire a conveyancer to carry out legal work for you. Their main job will be to:

  • - Check the document’s that have been sent by the vendor’s conveyancer
  • - Carry out a local and drainage search of the property
  • - Check your mortgage offer letter and ask you to sign

 

Finding buildings insurance

 

You will also need to buy buildings insurance to cover your home during this period. The conveyancer will ask for proof of this.

 

Paying your deposit

 

You’ll pay your deposit to your conveyancer, who will then arrange for it to be sent to the vendor’s conveyancer. 

Before you do this, make sure that you’re happy and have:

 

  • - Mortgage offer in writing
  • - All searches completed by the conveyancer
  • - Agreed completion date

 

8. Exchanging and completing

 

Then, the next step is to sign and exchange the contracts, and your new home is yours! However, before you get the keys and move in, you’ll need to transfer any remaining funds and arrange for the mortgage deeds. 

From exchange to completion, the process can take anywhere between 7 to 28 days, although there can be significant delays due to the legal process involved. If this is the case for you, be sure to stay on top of your solicitor. If the vendor of the home that you have chosen needs a quick sale, this waiting time could lose you your home.

 

Buying your first home

 

The process of buying your first home can be daunting, with plenty to learn along the way, as well as lots of boxes to tick and hoops to jump through.

Remember, working with a mortgage broker can save you a lot of hassle. If you’re looking for an adviser in your area, check out MyLocalMortgage today.





 

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