FIRST TIME HOME BUYER – HINTS & TIPS

Congratulations! You’re considering buying your first home, but where do you start?

Check out our handy hints and tips to give you all the information you need as you take your first steps onto the property ladder.

  1. CREDIT SCORE

This is probably the most important thing to consider and something that you may need to work on before you’re in a position to even think about getting a mortgage.

First things first, check your credit file. Follow this link:

https://www.checkmyfile.com/?ref=laurabarrett2&cbap=1

and sign up for the free 30 day trial to get a copy of your full credit report. If you don’t want to be charged after the 30 days, then don’t forget to cancel it!

Things to be looking for:

  • Address history – make sure you’re on the electoral roll at your current address and that all of your banking and other post all goes to that address. If you’re not on the electoral roll at your address, you can register online here: https://www.gov.uk/register-to-vote
  • Do you have any credit history?
    • Sometimes not having had any credit in the past causes as many problems for you in applying for a mortgage as having bad credit. Without any previous credit cards or other finance, you’ve not shown lenders that you’re able to repay debt and you’re therefore high risk.
    • IF you’ve never taken any credit before, it’s worth considering taking out a credit card and repaying the full balance each month. But, MAKE SURE YOU DON’T MISS ANY PAYMENTS!
  • Past relationships
    • Is there anybody mentioned on your credit file that you’re no longer associated with, such as ex-partners? It’s worth writing to credit agencies to have them removed as an associate, as any bad credit against their name can have an impact on your credit score.
  • Do not take out any pay day loans! These are frowned upon by mortgage lenders as they indicate that you are not managing your finances well. Any payday loans within the last 12 months may have a negative impact on any mortgage application.
  • Similarly, try to stay out of your overdraft as much as possible. This is another red flag for lenders that you’re living beyond your means and may not be able to afford mortgage payments going forward.
  • Do you have any blips on your credit file in the past? This can include, but is not limited to, missed payments, defaults, Debt Management Plans, County Court Judgements, IVAs, bankruptcy. Timing is everything if you have.
    • It’s important that you speak to an expert as early as possible if anything like this is showing on your credit file, and make sure you disclose everything.
    • It doesn’t mean you definitely won’t be able to get a mortgage as there are lenders that will still consider it, but it’s important you know when it’ll be possible depending on the timing of the entries on your credit report.
  1. DEPOSIT

No matter what type of property you’re buying, how much you can borrow for your mortgage or whether you’re buying through a Government scheme, you’re going to need a deposit to put down in cash in order to be able to buy a property.

SAVINGS – have you been able to save a deposit? Did you know that it can be topped up for free in a Help to Buy ISA (if you opened one before November 2019), or a Lifetime ISA. If you open a new Lifetime ISA, you can use the savings and the 25% Government “top-up” after 12 months. More information can be found here: https://www.gov.uk/lifetime-isa

GIFTS – Are you lucky enough that you have family members that could help you by gifting you a deposit? This is also allowed by mortgage lenders, and they will simply have to sign a declaration that the money is a gift, that they won’t have claim any legal ownership of the property, and that it does not need to be repaid. You can use a gifted deposit for all or part of your deposit, and could top up with savings.

HOW MUCH DO I NEED? – this is totally up to you and depends on your circumstances. As a general rule though, the more deposit you have, the lower the amount of interest you will pay on your mortgage. As an absolute minimum though, you’ll need 5% of the purchase price. So if you’re buying a property for £200,000, you’ll need at least £10,000 deposit.

  1. GOVERNMENT SCHEMES

There are a few government schemes out there that are designed to assist first time buyers get on to the property ladder:

HELP TO BUY

As a First Time Home Buyer, you may be eligible for the Government Help to Buy (equity loan) scheme.

This scheme applies to only new build properties and the developer needs to be registered with the relevant Help to Buy agency to be able to offer it to buyers. The scheme changed recently and there is a now a maximum property purchase price limit which varies depending where the property is located.

In the North West, if the property is being purchase for more than £224,400, you won’t be able to use the scheme, even if it’s a new build property.

The scheme allows First Time Home Buyers to put down a minimum 5% deposit down on the property and take up to 20% of the purchase price as an equity loan (or 40% if you’re in London). You then take a mortgage for between 25% and 75% of the purchase price to make up the balance.

The equity loan is interest free and requires to repayment for the first 5 years. After that, if you don’t repay it, you will have to pay only the interest on that loan.

But it’s worth noting that the loan is always 20% of your property value, so if your property increases in value, so too does the amount you need to repay. There are also additional costs involved as solicitors will often charge extra legal fees on your purchase if you’re buying via this scheme. If you ever want to repay the loan, you need to pay for your own survey and valuation of the property, admin fees to the Help to Buy agent to get an agreement of the redemption figure and additional legal costs again.

All that said though, if you have a low deposit, this is a great way to get on the property ladder, but get advice early on from an expert Mortgage Broker who can tell you whether you’re eligible, and advise on the costs involved.

SHARED OWNERSHIP

This is another option, again available on new build properties, where you buy a percentage of the property, and then pay rent to the developer for the remaining percentage. You only own a percentage of the property & the rental charge is taken into account by mortgage lenders for affordability purposes when they consider how much they will lend to you.

If you have a small deposit and you’re on a low income, it is a great way of buying a property that would otherwise be out of your reach.

  1. CONSIDER BUYING WITH FRIENDS AND FAMILY

If you can’t afford the mortgage on your own, could you buy a property with a friend or relative for you to live in together?

Two incomes are better than one in terms of borrowing for a mortgage as lenders, broadly speaking, will lend you a multiple of your combined household income. So the more income you have, the more a mortgage lender is likely to offer to lend.

You’d need to think about what will happen if one of you wants to sell at a later date, or one of you wants to move out. You’ll also need to get some legal advice about how you own the property together and what happens to the deposit when you sell or move out, particularly if one of you is putting in more than the other.

  1. HELP FROM FAMILY

If you’re fortunate enough to have family that are able to help you as a first time home buyer, there are ways other than a gifted deposit that they can help.

Some lenders will allow your family member to keep some control over their “help” money in a savings account in their name rather than handing over the cash. Depending on the amount of the savings, it may mean that you don’t even have to put down a deposit and, because the lender has greater security, you may get a preferential interest rate.

Make sure to speak to an expert about this and contact a Mortgage Broker early on as they’ll be able to advise you of the best type of mortgage for your personal circumstances.

  1. ADDITIONAL COSTS

Things you may not think about when you’re buying your first property are the other costs involved:

Legal costs – legal fees for a straightforward purchase can be anywhere between £500-£1000. Add on to that search fees, land registry fees and money transfer fees, along with additional legal costs for leasehold properties, Help to Buy purchases, gifted deposits, etc., and you should expect to pay anywhere between £1200-£1600+VAT for your solicitors.

We usually suggest setting aside £2000 for legal costs associated with the purchase of a property.

Stamp Duty – all property purchases in the UK attract Stamp Duty Land Tax. This is an amount you must pay to the Government which is calculated as certain percentages of the purchase price. As a First Time Home Buyer, you are generally exempt from Stamp Duty Land Tax up to a purchase price of £300,000, but if you’re buying with someone who isn’t a First Time Home Buyer, you won’t be eligible for this exemption.

For further information and a Stamp Duty calculator, check out the Gov.uk website here: https://www.gov.uk/stamp-duty-land-tax/residential-property-rates and make sure you get legal advice in relation to how much stamp duty you’ll have to pay.

Valuation and Application fees – some lenders may charge application or valuation fees upfront which can vary from £200 – £1000 depending on the lender. Speak to your lender about these and make sure you factor these in when you are considering whether the product you’re being offered is really the cheapest available to you.

Product fees – these are fees which the Mortgage Lender can charge you for taking out a particular product with them. Depending on how much you are borrowing, you can choose whether to add this fee to the loan or pay it upfront. IF you add the fees to the loan, then you will be charged interest on that amount as well as the amount you borrow, and there are risks involved if you pay upfront, so it’s important to get as much advice from an expert as possible about which is the best option.

  1. BUST THE JARGON AND SPEAK TO A BROKER AS EARLY AS POSSIBLE

Buying a property is a daunting process, even more so if it’s the first time you’ve been through it, so it’s important to speak to an expert as soon as possible.

Here at Stonebrook Mortgages, we aim to make that daunting process as stress free as possible, with our fresh and modern approach to mortgage advice. You won’t get any pressurised sales pitch from us and we’ll explain everything as clearly as possible without using confusing jargon. We’ll go at your pace and answer as many questions as you need us to, to make you comfortable with the advice that you’re receiving.

We’ll listen to everything you have to say to understand your situation, search our comprehensive panel of lenders for the products available, then create a bespoke and tailored recommendation of the right mortgage for you. We’ll then complete the application process for you, dealing with any additional questions from the Mortgage lender, deal with any solicitor queries in relation to the mortgage, deal with surveyors and estate agents, and any other professional that may become involved.

Our initial consultation is fee free and you won’t pay us anything until you’ve got a mortgage approved! We’ll be clear about any fees from the outset, so you know where you stand.

An initial fee free advice service, taking all the stress out of this daunting house purchase process – it’s a no-brainer, right? AND IT’S STRAIGHTFORWARD WITH STONEBROOK.

Get in touch today for some professional and honest advice!

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE