Buying your first home is SUPER exciting. Sometimes, it’s a bit daunting too.
It’s a big moment in your life. It’s probably also the most expensive thing you’ll ever buy. So, it’s important to do it right.
In this guide, we explain the whole buying process – from how to get a mortgage to other fees you should expect to pay.Most people don’t have enough money to buy a property outright. So, they take out a mortgage to fund the purchase.
Basically, it’s a loan that needs to be paid back over a set period of time, usually between 25 and 35 years, by making monthly payments.
Each lender is different. But they will all consider your income and outgoings in a bid to work out how much money you can lend.
To secure a mortgage, you’ll need a deposit. Typically, this is a minimum of 5% of the total property cost.
The mortgage is taken out against the property. Fail to meet your mortgage repayments and your home will be repossessed.
As you would expect, the amount you can borrow will determine the home you can buy.
Once you know your budget, you can start looking for the right home.
Online affordability calculators are a quick and easy way to see how much you could borrow.
Simply tap in your income against your outgoings to see what you’re left with.
Remember, these should only be used as a useful indicator. For an in-depth financial assessment, speak to a mortgage adviser as they will take your lifestyle into consideration so you don’t over-stretch yourself and struggle to pay back your monthly mortgage repayments.
Securing a mortgage can be much quicker if you make yourself more acceptable to a lender.
Before issuing a mortgage, lenders ‘stress test’ your affordability to ensure your finances are in good order – so they can work out if you’ll be able to afford the repayments, when taking into account your other financial commitments.
They do this by looking at your income against your expenditure, so it’s important to show you can keep your finances in order.
Before applying for a mortgage or making an offer on a property, it’s wise to get a Decision in Principle (DIP), a certificate stating how much a lender will lend you.
Having a DIP shows the seller and estate agent that you’re a serious buyer and ready to move quickly.
To help more people buy their first home and get on the property ladder, the Government introduced a number of different Help to Buy schemes in 2013.
Who’s it for?
Available on new build homes only and open to first time buyers who meet the necessary scheme criteria.
How does it work?
There are different Equity Loan schemes for England, Greater London, Wales and Scotland.
The following details are in reference to the Equity Loan Schemes for England and Greater London.
The maximum property value that can be bought with the scheme’s help is:
When does it end?
The new Help to Buy Equity Loan scheme will run until 31st March 2023.
How does it work?
The Help to Buy Shared Ownership scheme gives you the chance to buy between 25% and 75% of your home’s value. You then pay rent on the remaining share.
Typically, you secure a mortgage for the purchase price of the property percentage (25/50/75%) and pay a deposit of 5% on this amount.
Who’s it for?
If you can’t quite afford the mortgage repayments for 100% of a home, it could suit you.
Over time, you could increase the size of your mortgage until you own the whole property. This process is known as ‘staircasing’ and allows you to at least part-own a property to live in, providing more long-term security than simply renting.
To be eligible for this scheme you must meet certain criteria:
When does it end?
To date, there is no published end to the Help to Buy Shared Ownership Scheme.
The Help to Buy ISA closed to new applicants on 30th November 2019. But if you already have money in a Help to Buy ISA, you can keep saving into the account until 30th November 2029. From this date, all accounts will close and you must claim your bonus before 1st December 2030.
How does a Lifetime ISA work?
From 1st December 2019, anyone over 18 and under 40, can apply for a Lifetime ISA to save towards a deposit for your first home.
With a Lifetime ISA, you can save up to £4,000 per year and the Government will give you a 25% bonus on your savings, up to a maximum of £1,000 per year.
You are allowed to save up to £4,000 per year until the age of 50.
You can use the savings and bonus from your Lifetime ISA towards the purchase of a first home, providing that the property is valued under £450,000.
Who’s it for?
If two first-time buyers want to purchase a property together, they can combine savings and bonuses from both of your Lifetime ISA accounts, as was the case with the Help to Buy ISA.
Saving the money to put down a deposit can be a struggle. But parents and family members do often help out.
If you’re planning to do this, there are certain procedures to follow as the money must be ‘gifted’ officially. This is because ‘gifted’ money does not need to be paid back, whereas a loan does.
Mortgage lenders tend to look more favourable on gifted money. So, ask whoever is providing the money (parents, grandparents etc) to write a letter detailing how much they’ll be gifting and stating that the money does not need paying back.
If you are loaning deposit money that needs to be paid back, tell your mortgage adviser so they can take these payments into consideration when working out your total repayment affordability.
An attractive option for first-time buyers, this is a type of mortgage where a close relative can act as a guarantor for the monthly repayments.
When working out how much the borrower can afford to lend, the guarantor’s income is also taken into account. Sometimes this allows you to borrow more than if you were applying on your own.
However, if you’re unable to make your repayments it does mean your guarantor will be expected to make them on your behalf. Should you not be able to pay, the guarantor would need to be able to afford all of their own current commitments as well as your mortgage payment.
As well as your deposit and mortgage repayments, there are other costs involved with buying a property.
It’s important to take these additional costs into account when planning how much money you’ll need available to complete a deal as a first-time buyer.
Stamp duty
When buying a property over a certain price, you have to pay Stamp Duty.
The amount of Stamp Duty depends on the purchase price of the property.
First-time buyers are exempt from paying the tax on properties up to £300,000.
In England, this is called Stamp Duty Land Tax (SDLT). In Wales, it’s called Land Transaction Tax (LTT). In Scotland, it’s known as Land and Buildings Transaction Tax (LBTT).
Insurance
You MUST take out buildings insurance when getting a mortgage to provide you with cover for any damage caused to your home in the event of a fire or flood etc.
Some people also take out contents insurance to protect their belongings.
Other types of insurance are also available, including income protection, life insurance and Critical Illness Cover (CIC), which can protect your finances should something unexpected happen.
Legal fees
To buy your first home, you’ll need to use a solicitor/conveyancer to deal with all the contracts, documentation and searches.
Valuation fee
This cost depends on the type of valuation you choose. Opt for a more in-depth survey, and the fee will be higher. You may choose to have a structural survey or a homebuyers survey report, which will add additional costs compared to a standard mortgage valuation.
Product/arrangement fees
Lenders often take an administration charge for arranging the credit of your mortgage.
Some mortgages come with a product fee that needs to be upfront. Some fees can be added on to the cost of your mortgage.
Mortgage adviser fee
If you use a mortgage broker (like us), they charge a separate fee for their specialist knowledge and for searching the market for your mortgage deal.
We charge a fee for mortgage advice. The fee is up to 1%. But a typical fee is 0.3% of the amount borrowed. The actual amount you pay does depend on your circumstances.
Removal costs
Although this is not always necessary for first-time buyers, it’s worth considering if you’re unable to carry out the move yourself.
When you’re ready to apply for a mortgage, get in touch to discuss your finances and lifestyle with one of our mortgage advisers.
We’ll talk you through the whole mortgage process and explain each stage of the application in plain English that’s easy to understand.
We can look at your expenditure together and have an honest and thorough chat to find and apply for the right mortgage for you.
We’ll also explain all the different fees you’ll need to pay (and what they’re for).
Remember, every lender is different and one size doesn’t fit all. If you don’t fit one lender’s criteria, it doesn’t mean you won’t be right for someone else.
With our experts on your side, you can be sure your application will go straight to the right lender for your individual needs.
Applying for a mortgage
Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
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