Eight top tips for first-time buyers

When you are buying your first home, it is wise to be armed with as much relevant knowledge as possible. First-time buyers should make a careful examination of the property market and mortgage options, to put themselves in the strongest position when choices have to be made.

Follow this step-by-step guide to land your new home!

Tip 1: Examine your finances

Make sure that you are in a position to commit to making monthly mortgage payments for years to come; this will depend on matters including job security, employment income and how long you imagine wanting to stay in one place for. While mortgage repayments may cost less than having to pay rent, it is important to find the most suitable mortgage provider and product.

While many first-time buyer mortgages exist, (see point 6) a mortgage deposit of 10% is required to obtain a reasonable mortgage interest rate; to access the best rates a 20% deposit or more is required. Of course, larger deposits will attract better interest rates and therefore lower monthly payments.

It is a good idea to identify a specialist mortgage advisor who will require a few personal details to enable them to find the most suitable options available from a range of mortgage deals. Work out how much you could borrow by doing an affordability assessment, compare quotes and repayments; it is also prudent to have an emergency fund available to cover other costs and not overstretch finances.

Tip 2: Credit Score

Check your credit score and improve your credit rating. A lender will check an applicant’s credit score to enable them to assess future behaviour and therefore their risk. Checking an individual’s credit score can be done by contacting the three credit referencing agencies. Improving a poor credit rating takes time; it may help to make regular purchases on a credit card, ensuring a full repayment is made every month. It is also important to be registered on the electoral roll.

Tip 3: Consider government schemes

There are various schemes to help people buy a home. These include:

The Mortgage Guarantee Scheme

Launched in April 2021, this scheme was designed to encourage lenders to offer 95% loan to value mortgages on homes worth up to £600,000. It allows first-time buyers with just a 5% deposit to buy a house: the government covers the proportion of the mortgage over 80%. Applicants must pass the usual affordability checks. The scheme is a temporary measure and will operate until 31st December 2022.

Lifetime Isa (LISA)

This government scheme was launched in 2017 to help people save for a house. Participants can invest up to £4,000 in each tax year and receive a 25% bonus from the government.

Help to Buy ISA

This scheme is now closed to new applicants, but it can be used by those who joined before the deadline.

Shared Ownership Schemes

Here, a house buyer buys a share of the property, not the whole, and must pay rent on the remainder. Such schemes are usually administered by housing associations. Participants typically purchase a share of the property between 10% and 75% and have the opportunity to buy more of the remaining share over time. Eligibility varies according to the housing authority, employment income and local variations.

Key workers

There are opportunities for special help which vary according to area; a specialist mortgage is required.

Help to Buy

This is an equity loan scheme available to first-time buyers of new build property in England. Similar schemes operate in Wales, Scotland and Northern Ireland. Qualifying participants can obtain a mortgage and an interest free loan: applicants need a 5% deposit and must satisfy other criteria. The government scheme provides the interest free loan for the first five years of the agreement of 20% of the purchase price, and the applicant arranges a mortgage of 75% for the remainder which enables access to attractive lower interest rates. The loan is paid back on sale of the property with the government receiving 20% of the sale price at the time.

Guarantor schemes

Family/parents can act as guarantor, offering a helping hand to get their children onto the property ladder. First-time buyer mortgages are available which can take parental income into account; a parent guarantees to cover the mortgage and becomes liable for arrears.

Friends buy together

Some lenders will allow up to four people to join together and obtain a joint mortgage, depending on an affordability assessment based on a few personal details and completing background checks.

A joint mortgage

A joint mortgage could be taken out with another party.

Tip 4: Get a mortgage

Identify the right type of first-time buyer mortgage to suit requirements. Consider using a mortgage broker who may be able to source the best deal to suit your circumstances, but be aware that some brokers are tied to lenders while others can search the whole market. Confident home buyers may also carry out their own research.

Mortgage brokers can carry out a wide-ranging search of lenders to identify the most suitable mortgage after making an affordability assessment of how much you could borrow and examining other eligibility criteria. Having a short list of options allows you to compare monthly payments, but be aware of product fees. Consider current interest rates; some mortgage deals offer a lower initial interest rate which enables many purchasers to take the next steps onto the housing ladder.

Consider the mortgage term; for first-time buyers this is usually 25 years, but it is important to think about the age of the mortgage holder at the time of the term expiry as some lenders do not allow the mortgage to be taken into retirement. Borrowers should also remember that the longer the term, more is being paid in interest; while a long term reduces the monthly payments, shortening the term is a financially better choice. If permitted, making mortgage overpayments is another option which has the benefit of giving flexibility over savings. Investigate mortgage costs, product fees and latest deals to give a better indication of what is value for money.

While the options are a repayment mortgage or an interest-only mortgage, there are currently far fewer options with the interest-only route. Although signing up to a repayment mortgage may cost more, the overall debt is being paid off each month rather than purely the interest. Options with repayment mortgages include fixed or variable interest rates. Some first-time buyer mortgages offer lower initial interest rates.

Tip 5: Make a full mortgage application

Obtain a personalised quote and on accepting it, secure mortgage approval by making a full mortgage application. It is common for first-time buyers to obtain pre-application approval (or a mortgage agreement in principle) for a mortgage prior to their search for a property.

While this allows them a realistic budget for a purchase price, it is not the final offer and a lender will complete background checks and a credit rating report when a sale price is agreed. Too many credit checks of income via a credit referencing agency may affect a credit rating and some lenders offer a `soft’ check initially which is not visible on a credit file.

The next step is to contact local estate agents and start viewing properties. To enable useful comparisons between houses, it is important to make an assessment in terms of price, condition and potential repair costs, as well as location regarding proximity to work, schools, amenities and local shops. Consider special deals such as household goods or kitchen appliances being included in new build property. Check a property’s energy performance certificate to assess the current energy costs of ownership.

Tip 7: Second inspection

Make a closer second inspection of the property’s condition. An in-depth viewing should involve looking at structural issues such as signs of damp, major cracking and potential maintenance costs. It is also prudent to think about noise levels, and visiting the property at different times of the day and night may prove revealing.

It is also useful to check the planning portal on the local authority’s website to find out whether major development schemes are planned nearby; while these may be detrimental to nearby properties, they may also boost prices depending on what is planned. Also investigate any flood risk in the area. When you want to buy a property, start the negotiation process; when you have an offer accepted, appoint a conveyancing solicitor to deal with all the documents.

Tip 8: Do the sums

Calculate the fees payable on the whole transaction which will include:

  • an arrangement fee for the first-time buyer mortgage
  • possibly a reservation fee for the mortgage
  • a valuation fee for the home inspection and possibly a survey fee
  • legal fees
  • Stamp Duty depending on the price of the property
  • buildings insurance
  • consider critical illness insurance policies
  • property valuation fees
  • Land Registry fees

Other costs to bear in mind include removals and contents insurance.

Market overview

Tim Kampel, director of property service provider Box Property Solutions said:

“I am of the opinion that at the moment demand is massively outstripping supply. Properties are getting multiple offers at the asking price and above, so now probably isn’t a good time to be a first-time buyer. If you are, then you would need to be registered with all estate agents and build relationships with them to make sure that you are first in the door. A mortgage offer should be shown without even being asked for, to demonstrate that you are serious, just to get to view a property.”

“The other option is to wait. Wait until supply begins to exceed demand and then you will have better bargaining power and be able to use your situation to your advantage by making offers based on your ‘nothing to sell’ situation. The market needs to shift before this can happen and we are potentially a way off this. At the moment, there just isn’t enough stock coming on the market and build costs and supply issues are not helping at all.”

Summary of points:

Contact a mortgage advisor who specialises in the first-time buyer mortgage market to identify the most suitable mortgage product. Once satisfied that the mortgage repayments are affordable and a mortgage offer is approved in principle, start to view properties. When you have found a property, make a thorough inspection before making an offer, keeping an eye on the associated costs of the purchase to stay in budget. When your offer is accepted, appoint a solicitor to act for you during the buying process.

What do you think?

If you agree or disagree with the above information, or would like to share your experience of buying your first home, we would like to hear about it – let us know!

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