Buying your first home is a big deal. It’s probably the biggest purchase you’ve ever made – which is both exhilarating and daunting. One thing is for sure, it’s not a decision to be made lightly. There are a few steps that every first-time buyer can take to prepare for the process. We’ll outline some of them in this article.
1. It’s never too early to start saving
To get the ball rolling, you need to determine how much cash you can put towards the cost of your new home. As a general rule, the bigger your deposit – the better mortgage rates you will be offered – and the lower your monthly mortgage payments will be.
Ideally, you should try and save a minimum of 10% of the property cost. This is usually the necessary amount to get a mortgage – though some lenders do deals for a 5% deposit. A deposit of 25% will give you access to the very best deals.
Basically, it’s never too early to get saving. You can check out more of our tips for doing so here.
2. Finding the right mortgage takes time
The majority of first-time buyers rely on a mortgage. This is a loan from a bank or building society against a property. As a borrower, you will pay back the loan in addition to accrued interest.
To find the right mortgage for you, we always recommend speaking to a qualified mortgage advisor. Working within the industry, they can quickly identify a deal that would be best for you. We work with some excellent local mortgage advisors, contact us today for an introduction.
The type of mortgage you choose will depend largely on the size of your deposit. Lenders have rigorous checks in place to ensure you will be able to keep up with payments, and you’ll need to show proof of your income and outgoings (living costs, bills etc.) You’ll also need to give evidence of your financial profile, such as payslips and bank statements. A mortgage advisor can help you with all of this.
3. You can improve your chance of getting a mortgage
Once you’ve made an offer on the property you want to buy, you’ll need to make a formal application for a mortgage. Every mortgage lender has a different set of criteria, but there are a few ways to improve your chances of securing your first-time buyer mortgage. These include:
- Saving a large deposit
- Cancelling unused credit cards
- Building a good credit history
- Maintaining a steady job
Lenders will take many factors into account when considering your application, including savings, outstanding loans, bonuses and income – alongside habitual spending and outgoings. The lender will want to see proof that you are able to keep up with your mortgage payments now and into the future.
4. Government home ownership schemes can make a big difference
There are numerous home ownership schemes available from the government. If your deposit is small, you could benefit greatly with a Help to Buy: Equity Loan, subject to eligibility, terms and conditions – which offers first-time buyers the opportunity to buy a new home with a 5% deposit. This scheme allows first-time buyers to borrow an equity loan of up to 20% of the sale price of a new build home.
The equity loan scheme is changed on 31st March 2021, and it is now only available to first time buyers. The maximum purchase price that would be eligible for Help to Buy: Equity Loan assistance varies depending on where you live within the UK. In the East Midlands, the maximum purchase price that would qualify for the new Help to Buy: Equity Loan scheme would be £261,900. Remember, the Help to Buy: Equity Loan scheme is only available on new build homes. Find out more here.
There is also the Shared Ownership scheme, where you own a share of a property with another party – usually a housing association. You can buy between 25-75% of the home’s value and pay rent on the remainder – with the ability to buy more shares over time as your affordability increases. We discuss the scheme in lots more detail in this blog post. Getting started is as easy as contacting your local Help to Buy: Equity Loan agent.
5. You may not have to pay Stamp Duty as a first-time buyer
Stamp Duty Land Tax (SDLT) is a tax paid when you buy property or land over a certain value. SDLT rates depend on the value of a property; the higher the value, the higher the amount of tax you will be required to pay.
Fortunately, first-time buyers pay no SDLT on a property worth £300,000 or less. For homes that cost between £300,000 and £500,000, a rate of 5% will apply – but only on that slice of the purchase price.
First-time buyers purchasing property for more than £500,000 will not be entitled to any relief and will be expected to pay SDLT at the normal rates.
For further advice on preparing to buy your first home, get in touch with a member of our team today.