Navigating the process of buying your first home can always seem a little nerve wracking at first being completely new territory, so we have answered a few frequently asked questions that can help make the journey just a little bit smoother.
What costs do I need to consider when working out my affordability?
There is one cost that is obviously the purchase price of the property. Not only will you have to consider what you can afford to borrow mortgage wise, but you have to think about your deposit and how much you have saved. Up until relatively recently it was standard for a 10% deposit to be required by lenders however following the introduction of 95% loan to value mortgages, first time buyers may be able to get themselves on the property market sooner. Of course, mortgage deals with the lowest interest rates are typically reserved for those with higher deposits, although there are some competitive deals for those with just a 5% deposit.
Another thing to consider when getting a mortgage is broker fees, as well as the valuation fee which will be required by your lender.
There are also the conveyancing costs. Shopping around on the internet you will likely stumble across some much cheaper options, however it is vital to consider that something that seems like good value may suddenly become much more costly due to poor quality service leaving you with unprecedented additional costs, for example in the event of delays or even of a fall through meaning you have to start the process again. Pay attention to reviews, and speak to people you trust for advice and recommendations.
Stamp duty is something that only comes into play for first time buyers if they are purchasing a property over £300,000. After this, you will be liable to pay 5% on £300,001 to £925,000. So, for example, if you were purchasing a property for £350,000, you would have to pay £2,500 in stamp duty.
When the day of completion finally arrives, you may want to employ a removal company to help with the move, which again will come with a cost to factor in.
Do I fall under the category of a first time buyer?
Whilst the definition of a first time buyer at first is seemingly obvious, questions surrounding other factors can lead to the definition becoming slightly more complicated. For example, what if someone has owned property before that wasn’t a residential dwelling, or a couple buying together where just one party has owned before?
If you are a single person who has never owned property anywhere in the world you can quite confidently class yourself as a first time buyer. Also, if you have owned a commercial premises but never a property used as a home, you also fall under first time buyer status. Keep in mind however, if the commercial property had living quarters with it, you would then lose this status.
If you have inherited a property, although this will technically be your first time buying a property, you will not be classed as a first time buyer. The rules focus on whether or not you have ever owned a property. Same goes for if someone else has purchased a property for you in your name. If you are a couple where neither of you have ever owned previously you will be classed as first time buyers and have access to resources tailored towards first time buyers. If one of you has however, you unfortunately will not.
What schemes are available to help first time buyers?
First Home Scheme
One scheme known as the ‘First Home Scheme’ means you may be able to purchase a property for 30%-50% less than the market value. However there is limited availability of properties, with properties either having to be a new home built by a developer or a property being sold by someone who bought the house as part of the scheme.
To be eligible, you must be:
Over the age of 18
A first time buyer (clue is in the name)
Have the affordability for a mortgage of at least half the price of the property
Have a total income of no more than £80,000 (for the entire household)
You have to search for properties advertised as part of the scheme by developers, who will offer the properties to first time buyers for 30% to 50% less than market value with a valuation being carried out by an independent surveyor. Everywhere other than London the property cannot cost more than £250,000 once the discount has been applied.
It is important to note that when it comes to selling the property you can only sell to someone who is eligible for the scheme, and you must give them the same percentage discount that you received based on the property’s market value at the time.
Lifetime Individual Savings Account (LISA)
A lifetime individual savings account can be a great way to boost your savings, and is suitable really for either saving for retirement, or for your first home.
A LISA is a type of savings account which you will receive a 25% bonus on from the government, paid monthly. You can put a maximum of £4,000 per year into the account each tax year, and therefore can receive a maximum bonus of £1,000 per tax year. This is based on your contributions and not your balance. To open an account you must be aged between 18 and 40 years old.
Only first time buyers are eligible for using their lifetime ISAs to buy a home. The property being purchased must cost no more than £450,000 and be used as your main residence.
Mortgage Guarantee Scheme
The mortgage guarantee scheme was put in place to increase the supply of 95% LTV mortgages, which due to an indirect impact of the pandemic were reduced in availability. The guarantee covers the lender for 80% of the loan, meaning they retain a risk of 5% of losses.
The Government’s aim is to incentivise lenders to offer the 95% LTV mortgages making it more achievable for people to make their way onto the market.
The scheme helps not only first time buyers with smaller deposits, but also current homeowners looking to upsize or relocate which in turn helps first time buyers by working towards opening up properties within the market and increasing availability.
How Do I Apply For a Mortgage?
Before you apply, it is sensible to have a look at your budget, it’ll be helpful if you do already have a price range in mind. You can try out some online mortgage calculator tools to give you a very rough estimate of what you can afford to borrow, and remember you will need at least a 5% deposit of the value of whatever property you wish to purchase.
Lenders will have varying criteria however it is safe to assume any mainstream lender will be looking for you to have a good credit score. If you know you have a poor credit score or significant debt, it is in your best interest to try and manage this first.
You may opt to work with a broker rather than heading straight to your bank, this is because a broker will be able to offer you some extra flexibility comparing various options which will prove especially useful if you are self employed or have any other special circumstances. Once you have settled on a lender you should get an agreement in principle. You will struggle to get an actual offer without a property in place of course, so and agreement in principle will be useful for showing your affordability when you come to offer on properties.
If you would like any further advice or have any questions we are always happy to help. Get in touch today, we would be happy to set you up for alerts for properties to help you with your search, as well as discuss our recommended contacts to help you along the way.