Buying your very first property is one of the biggest and most complex decisions you will make in your lifetime. Whilst it is a very exciting time, it can also be stressful and daunting, particularly as a first-time buyer, as there are many different aspects to the property buying process. Unlike specialised property finance products such as development or auction finance, mortgages provide more favourable repayment terms. However, they are still challenging to acquire.
In order to help with purchasing your first home, you will need to look at things in a very different light to how you may have viewed the rental market. There is a great deal more things to consider and the commitments and obligations once one becomes a property owner as opposed to a tenant are significant. It is therefore crucial that as a buyer, you consider and account for the various factors which will play a part in preparing to move into the realms of a property owner; doing so can make things much easier in both the short and longer terms.
Who is Considered a First Time Buyer?
First time buyers are typically defined as those who are purchasing their first property. This means that the party in question has not owned a residential property in either a freehold or leasehold capacity in in the UK or abroad ever previously in any capacity. One of the benefits of getting a ‘traditional’ mortgage rather than say purchasing a property at auction, is that as in cases of self-build finance, typical mortgages are deemed to be Regulated Mortgage Contracts, affording the borrower a greater degree of protection.
Spend Time Researching Mortgages
It is very much worth spending time thoroughly researching what is around on the market in order that to determine which mortgage or mortgage product will best suit your circumstances as a first-time buyer. There are many different mortgage products on the market in the UK with various benefits and not all products will be suitable in your circumstances.
It may be worth speaking to a number of different mortgage brokers, who can help you to find the most suitable mortgage and give guidance on applying. Alternatively, you could compare various mortgage products on one of the main comparison websites, as well as looking at the online mortgage calculators available. Property finance however, does require an increased degree of research and time compared to lower value personal finance.
These can help to break down mortgage types and average rates, making it easier to understand as well as being less overwhelming to take in. However, doing the research oneself can be overwhelming and daunting, with many people not knowing exactly where and how to start their research.
Preparation is Key
Thorough preparation prior to making a mortgage application is essential. You should research the information and factors mortgage lenders consider for first-time buyers. This means taking time to consider the criteria and main assessment points that lenders will be looking at to determine whether or not to accept or decline your mortgage application. These factors and considerations will usually include the following:
- Your credit report and overall score
- Your salary
- Your employment status
- Deposit size
- Your monthly outgoings
- Their mortgage policy rules
- The amount you want to borrow
- Your general monthly and annual spending habits
Depending on the lender, they may also look at other criteria in order to determine your eligibility, therefore you should remember that the above criteria is not necessarily exhaustive and there may be other requirements in order to be approved for a mortgage by a particular lender.
Across the country there are a number of government backed-schemes aimed at helping people, such as first-time buyers to get onto the property ladder. The two best known schemes are:
Help to Buy Scheme - Launched in 2013, this scheme is intended to help both first-time buyers and home-movers but it is strictly limited to new-build homes. Those looking to buy a home under this scheme will only need to find money equivalent to 5% of the property’s value as deposit. For more details on this scheme, you can look at the Help to Buy website.
Shared ownership scheme - This scheme allows you to buy a share of your property, and then pay a reduced amount of rent on those shares that you do not yet own. Over time however, you buy these back in segments until they are all paid off, at this point, you gain ownership of the property.
Saving for a Deposit as a First Time Buyer
The more money you have saved for a deposit, the greater the likelihood that you will be able to access mortgage products with better interest rates. As a result, it is important that you take the time to save as much as you possibly can. If you are a part of the Help to Buy scheme, you may only need to save for as little as 5% of the property’s value, but it could be up to 20% if looking to purchase a property outside of this scheme.
Saving for Other Costs
Whilst saving for a deposit is vital as a first-time buyer, it is not the only cost you need to factor in as a first-time buyer. There are other costs that you have to consider to, such as:
- Removal costs
- Solicitor's fees
- Furnishing and decorating costs
- Valuation fees
- Buildings insurance
- Stamp duty (you can use stamp duty calculators available online to estimate how much you would pay). First-time buyers are exempt from paying Stamp Duty on the first £300,000 up to the value of £500,000
- Surveying costs
- Arrangement fees
Assess and Scrutinise Your Spending Habits
For most people, saving to buy their very first home takes time, and it usually means spending time having to sit down and look at their spending habits in great detail to see where they can make savings. You should do this at least six months to a year prior to making a mortgage application, to help to save as much money as you can. This will allow you to see if there are ways you can cut costs on less essential items. In addition, when looking at your spending habits, you should also try to prioritise putting aside money to settle any outstanding debt you have before making that mortgage application to yet further increase your chances of acceptance for your mortgage of choice.