Feeling daunted by the prospect of buying your first home?
BUYING YOUR FIRST home is an expensive business and, for most of us, is the single biggest transaction of our lives. It’s easy to see why some people can feel overwhelmed by the entire process.
To help you get your first foot on the property ladder, we take a look at what you need to do to have the best chance of securing a mortgage and buying your home.
Here are some of our top tips.
Start saving for a deposit early
The size of your deposit will have a big impact on the mortgage deal you can access and the interest rate you’ll pay. The bigger the deposit, the better. The best mortgage deals are generally offered to borrowers with at least a 40% deposit, but it’s unusual for first-time buyers to have a deposit this large.
As a first-time buyer, you’ll need to save at least 5% of the property value as a deposit. So, if you want to buy a property worth £200,000, you’ll need to save at least £10,000.
Of course, this is easier said than done.
Some buyers are given money by their parents, to help buy their first home. Lenders refer to this as a gifted deposit. With a family assisted mortgage you can use family savings instead of a cash deposit, creating a no-deposit mortgage for you.
Remember that it’s not just the deposit that your savings will need to cover. The other costs of buying a home (including surveys, conveyancing, mortgage arrangement fees, moving services, et cetera) can add up to thousands of pounds. If you haven’t yet considered those costs, you might have less than you think for your deposit.
What to consider before making an offer on a house?
Get your finances in order
Once you start looking for a mortgage, lenders will want to see proof that you can afford the repayments. They will carry out what’s called an affordability assessment.
This will take into account your income, outgoings, debts and other financial commitments. They will also look at your credit history to see if you have any County Court Judgments (CCJs) or have defaulted on any previous loans or credit agreements.
They will look at your monthly loan repayments to see what your Debt to Income Ratio (DTI) is. If this is too high then they may deem the mortgage to be unaffordable.
Virtually all lenders will want to see copies of your current account bank statements. This allows them to see how you manage your money from month to month.
It’s a good idea to be mortgage ready by getting your finances in order before you start looking for a mortgage. This means ensuring you are on the electoral roll, registering any change of address and checking your credit report for any errors.
You can do this by contacting one of the main credit reference agencies.
Consider all your mortgage options
There are lots of different types of mortgages available, so it’s important to shop around and find the right one for you. It may be worth talking with a first time buyer mortgage broker to get another opinion.
Right to Buy mortgages are available to qualifying local authority tenants.
The two main types of mortgage are repayment mortgages and interest-only mortgages. With a repayment mortgage, you will pay back the loan plus interest over a set period of time, usually 25 years.
With an interest-only mortgage, you will only pay the interest on the loan for a set period of time. At the end of this period, you will need to repay the full amount of the loan.
There are also different types of interest rates to consider: fixed rates, variable rates and tracker rates.
Compare mortgage deals.
Once you’ve considered all of the above, it’s time to start comparing mortgage deals. There are a few things to look out for when doing this:
The interest rate: As mentioned above, this is the amount you will pay in interest on your mortgage. The lower the interest rate, the cheaper your monthly repayments will be.
The term: This is the length of time you have to repay your mortgage. The shorter the term, the higher your monthly repayments will be but you will pay less interest overall.
Early repayment charges: Some mortgages come with early repayment charges (ERCs), which means you will have to pay a fee if you want to pay off your mortgage early. This is something to consider if you think you may want to remortgage in the future.
Setup fees: Many mortgage deals come with setup fees, which can be anything from £100 to a few thousand pounds. It’s important to factor these in when comparing deals as they can add a significant amount to the overall cost of your mortgage. Higher Lending Charges, or HLC, are affected by the amount of deposit that you have.
Apply for a mortgage
Once you’ve found a mortgage that suits your needs, it’s time to apply for it. The application process will vary depending on the lender but you will usually need to fill out an application form and provide some documents, such as proof of identity, proof of address and proof of income.
You will also need to have a mortgage valuation carried out on the property you are buying. This is to make sure that the property is worth the amount you are borrowing.
What if I can’t get a mortgage?
If you are having difficulty getting a mortgage, there are a few things you can do:
Look at alternative lenders: There are a number of specialist lenders who may be willing to lend to people with bad credit or self-employed borrowers.
Consider a guarantor mortgage: With a guarantor mortgage, someone else agrees to cover your repayments if you cannot make them. This could be a family member or friend.
Joint Borrower Sole Proprietor Mortgage: This is a type of home loan that allows two people to borrow money together while only one of them is named on the mortgage.
Parent offset mortgage: A family offset mortgage links the new mortgage to a willing family member, usually a parent. Their cash savings are used to offset the mortgage interest. In some cases this can replace the need for you to save up a deposit.
Think about renting: If you are struggling to get a mortgage, you could consider renting instead. This will give you time to improve your credit score and save for a deposit.
You may also find this article interesting – 15 questions commonly asked by first-time buyers
