It’s fair to suggest that buying a home for the first time just isn’t as easy as it used to be. Whether it’s because of the housing crisis back in 2008, the increasing amount of different deals on offer or even the soaring rental prices, first-time buyers in 2016 don’t have it easy.
So it’s entirely understandable for potential first time buyers to be very confused when approaching the market for the first time.
There is so much for first-time buyers to contend with; from deposits to mortgage rates, from lenders to brokers, the housing market is understandably difficult to navigate for newcomers.
Here at Search Mortgage Solutions we want to provide as much advice as possible to help you find your perfect first time home. That’s why we have put this step-by-step guide to buying your first home.
1. Organising a Deposit
While it is currently pretty difficult to save due to soaring rental prices, organising a sizable deposit is always your best bet at finding the perfect home.
While there are more low-deposit mortgage deals out there than ever, the best deals still lie in those with bigger deposits.
Consider how long you are willing to save and make a rough estimate of what could be achieved in that time.
2. Ways to Save
No matter your situation, we can all agree that it is difficult to save. This is because, for any number of reasons, we end up dipping into our beloved savings to clear up some current issue.
However, there are a number of saving schemes currently available which are specifically created to help you save for a deposit.
For example, take a look at the Help to Buy ISA. This scheme, organised by the UK government to help first-time buyers rewards you for saving.
You can save up to £12,000 in this account and for every £200 you deposit; the government rewards you with £50 tax-free. Essentially this means you can earn an extra £3,000, a total of up to £15,000.
If you are saving as a couple, you can apply individually, meaning you can double the money you save.
To ensure you use the ISA specifically for a deposit, the government will not give you the extra cash if you either withdraw before using on a deposit or use the money for a different home which you originally planned.
If you wish to sign up you must be buying a home worth anything up to £250,000 (or £450,000 in London), not attempting to buy a second home, not planning to rent out after purchasing or not using an existing mortgagee to fund it.
The ISA will be available for use for as long as you want it, however, the free government bonus money expires on 30th November 2019, so if you are planning to take advantage, get applying right away!
For more information, take a look at this handy guide from the Help to Buy ISA official website.
3. Additional Costs
While saving up for a deposit and your first mortgage payment is paramount, there are also a number of potential fees to consider.
For example, there is stamp duty which is essentially a land tax. It’s an extra expense which comes with homes purchased over £125,000. Rates are as Follows:
- 0% on homes priced up to £125,000
- 2% on homes per each £125,000 up to £250,000
- 5% on the next £650,000 up to £925,000
- 10% on the next £575,000 up to £1.5m
- 12% on the remaining amount taking the price above £1.5m
There is also mortgage arrangement fees which go to your lender, which is something to weigh up before agreeing to a deal in the first place.
On top of this, there will be solicitor to check your deal is above board, charges for a survey of the property to ensure everything is as sold and Land Registry Fees which you need to pay to officially register your ownership of the property.
More on Land Registry Fees can be found on the gov.uk site, including a helpful Land registry calculator, thankfully free of charge.
Depending how you go about finding your final mortgage deal, there may also be brokers fees to pay. However, if you want to avoid this, it’s worth speaking to us. Here at Search Mortgage Solutions we offer our services without a broker fee.
Unlike renting, where the landlord is responsible for the care of the building you live in, you will be entirely responsible for the look of the home you buy.
What this means is there will probably be some things you’d like to change, be it a lick of paint, some new wallpaper or perhaps even to link to rooms by knocking down a wall.
This means you also need to consider saving some money for the initial changes you plan to make, be it decorating, new furniture or even the removal of something you dislike.
There is also the issue of house insurance. It’s important to have a property’s insurance set in place before the exchange date between owners. This is to protect the investor (you) and for your mortgage lender.
Interestingly, you don’t need to insure the property for its current price, instead only the cost to actually rebuild it.
4. Check Your Credit
The most common thing for which mortgage applications get declined is because of bad credit history.
Our credit history can be affected by all manner of things, from previous loans to missed bill payments from current debt (like on credit cards) to simply having to proof of previous credit at all.
You need to make sure your credit is in check before applying, so to make yours as healthy as possible, you should:
- Reduce or pay off any existing debt.
- Have a track record of paying back loans or credit deals.
- Show a resilience to only take out credit when needed. Taking out credit cards needlessly reflects poorly on your history.
- Always pay any bills you have on time.
There are handy online tools to test your credit rating in case you are unsure about how your rating will look to lenders. Check out Credit Karma.
5. Search the Whole Market
The current mortgage market broader than ever before. The years of signing with your current bank are long gone, with so many lenders emerging on top of the traditional big banks.
It’s really worth trying every possible avenue for deals because you never know what you might be missing out on. Some lenders even do special offers which are exclusive to first-time buyers.
As discussed in the point above, this can be one of the hardest stages of the process as it can be confusing to understand the difference between deals. This is why it is often helpful for first-time buyers to seek the advice of mortgage brokers.
Mortgage brokers are experts in the property market who understand it better than anyone. They can help guide you through every stage of the process, starting with the search for a suitable deal for you.
6. Consider Seeking Advice
Advice from sources like brokers can be very helpful throughout the process of buying a home, not just the initial search period.
Brokers are entirely independent, however, they do make links with certain brokers which can lead to improved deals not advertised on the market.
They can also help with the dreaded process of filling out the mortgage application, which is well known as being confusing, particularly to first-time buyers. They have also recently been extended in length, making the process slightly more confusing, so you need as much help as you can get.
You can read more about the ways in which the application process has been extended and complicated, as well as the reasons why in this article from This is Money.
7. Speak with Family
If you have family members such as parents and grandparents who have or have had a mortgage, it is certainly worth discussing with them before committing to any deal.
A number of different lenders currently offer deals which are aimed at families who want to help their children get on the property ladder.
These deals include mortgages with a guarantor, which essentially mean that a fairly member agrees to make mortgage repayments if the borrower (their children or grandchildren for example) can’t.
Another is joint mortgages, which are for children and parents who decide to buy a property together.
There are also family offset mortgages. These are for parents who have gathered savings which help to bring down the costs of their children’s mortgage deal.
This article from the Telegraph takes you through one such example where 70-year-olds help their grandchildren to get onto the property ladder for the first time.
8. Shared Ownership
Not dissimilar to some of the family deals, there are also a number of different shared ownership or shared equity schemes available.
Shared ownership schemes are generally offered by housing associations. These essentially lend you a sum large enough to buy the property, (say 80%) then you pay rent back to the association on the remaining 20% of the property.
Shared equity schemes are slightly different. You essentially borrow enough to buy the whole property. You then take out a loan with the lender to fund the deposit on your new home, which is always part of the deal. The sum you owe rises (or falls) in line with the value of the property.
9. Making an offer
You’re almost at the finishing line, you’ve been approved, you have all the money in place and you have exhausted all your options to find the best deal. All you need now is to get it over the line.
Usually, you will go through an estate agent to find the right house, but thankfully this won’t be an additional fee. Only people who are selling a home pay the estate agent. The fee ranging between 0.5%-3% plus VAT of the selling price.
10. Surveyor and Solicitor
This is where all those additional fees come into play. The solicitor will work through the deal to make sure it is indeed water tight. Solicitors all have their own fees, however, it is standard practice for them to ask for 10% of their fees upfront.
The surveyor’s role is to value the house. They also search for anything (such as structural damage) and give a quote as to how much it would cost to repair.
If the survey reveals that there is £10,000 worth of damage, it is reasonable to then ask the seller if they would cut their selling price by this figure.
There are a number of different surveys which you can pay for depending on the house. These are:
- Condition Report – The cheapest and most applicable for new builds. No extra advice or valuation is provided, just an explanation on how sound the building is. Will cost £250.
- Homebuyer Report – Much more in depth than the above survey, this thoroughly checks everything inside and outside a property and includes a valuation. Typically, at least £350-400.
- Building Survey – By far the most comprehensive is the building survey. This is particularly good for older buildings that potentially need repairs. Minimum cost £500-600.
11. Late Issues
If there are late issues, such as a surveyor finding problems with the structure, the seller may pull out of the deal. If this does arise, it’s hugely important to keep in close contact with them via your solicitor or via the estate agent as much as possible as often these things can be cleared up.
Once you and your solicitor are happy with a contract, a seller might well as for a holding deposit to make sure you are actually serious. This could cost anything up to £1000.
Once agreed, this is the stage in which your building insurance needs to be in place.
Once this is all settled, the typical exchange period for sellers and buyers tends to be 4 weeks. During this time, the remaining money owed to buy the property is exchanged from your lender to the building society of the seller.
Your solicitor will register the sale with the Land Registry for properties in England and Wales.
Homes costing over £125,000 will have just 30 days to pay the additional fee of Stamp Duty, as mentioned in point 3. This is arranged by your solicitor.
YOU’VE DONE IT! You have finally made that massive first step onto the property ladder. Sit back, relax and enjoy the comforts of your brand new home!