Buying your first home is a huge decision and a milestone you may have been looking forward to for years. So, as it’s likely to be the biggest financial commitment you ever make, it’s important to get it right.
The chances are that you’ll take out some sort of mortgage if you’re buying your first home. From the amount of deposit you need to put down to the type of mortgage you choose, there’s lots to think about.
To help you, we’ve put together a free, comprehensive first-time buyer guide which you can download now. You’ll find loads of useful information, from how the house buying process works, to tips to increasing your chances of getting the mortgage you need.
Download the guide here, then read on for five key things you need to know if you’re a first-time buyer.
1. You’ll need at least a 5% deposit – and maybe more
One of your first challenges will be to save up a deposit. Traditionally, you will need a deposit of 10% of the property’s value.
Rising house prices have made this step more challenging than ever. With the average house price exceeding £250,000, it’s not uncommon for first-time buyers to need to save £25,000 or more.
This is a contributing factor to UK adults taking their first step onto the property ladder later in life, with Money research revealing that the average first-time buyer in the UK is now aged 34.
Your deposit may come from your own savings, or as a gift or loan from family.
While many lenders will require you to put down a 10% deposit, you may be able to buy with just a 5% deposit using a government-backed mortgage scheme.
The scheme is available from a range of high street lenders, and you can use it to purchase a home up to the value of £600,000. For more information about how this could benefit you, please get in touch.
2. Establish how much you can borrow
To work out how much deposit you may need, you need to understand how much you can borrow through a mortgage.
Lenders typically establish your borrowing potential using an affordability check. They will consider all your income and outgoings to work out whether the mortgage you want is affordable, and there are many factors that will influence a lender’s decision.
A general rule of thumb is that you can borrow up to 4.5 times your annual income. However, criteria vary from lender to lender so, again, it can pay to speak to an expert who can help you find the right lender for your circumstances.
One way to get a clearer idea of your borrowing potential is to obtain an “agreement in principle”. Sometimes called a “mortgage in principle”, this provides an indication of the amount a lender will offer you based on details you’ve provided.
3. Fixed or variable rate?
Once your mortgage is agreed, you’ll need to start thinking about the type of mortgage you want to take out. Understanding the different types of mortgages is essential for choosing the right one for you and for calculating your repayments.
- Repayment mortgage: Your monthly repayments cover the interest and a portion of the debt. Assuming you keep up with repayments, you will own your home at the end of the term.
- Interest-only mortgage: You will only make payments to cover the interest on the loan. Your monthly repayments will be lower, but you’ll still owe the full amount borrowed at the end of the term. As a result, this type of mortgage is becoming less popular.
You then need to decide whether you’d prefer a fixed-, tracker-, or variable-rate mortgage. Fixed-rate mortgages provide you with certainty that you know what your repayments will be for a specified period, whereas tracker and variable mortgages can sometimes be more flexible.
Download our first-time buyer guide to read more about fixed-, tracker- and variable-rate mortgages.
4. Understand the home buying process
It can take months from deciding you want to buy a home to picking up the keys. Having never been through the process before, understanding the various steps involved in the house buying process can help things to move more smoothly.
- Put in an offer: Once you find the right home for you, you’ll need to put in an offer with the estate agent. When an offer is accepted, the property will usually be removed from the market.
- Find a mortgage: With an offer accepted, you need to secure a mortgage so you’re able to move forward. As you’ll read shortly, speaking to an expert can help here. The lender is also likely to instruct a survey on the property you’re buying which will highlight any issues you need to be aware of.
- Choose a conveyancing firm: Conveyancers are specialist property solicitors who will manage buying a home on your behalf. This includes drafting the contract, carrying out legal paperwork, and handling the exchange of money. Your solicitor will also carry out searches on your behalf.
- Exchange contracts: This is where your solicitor and the seller’s solicitors swap contracts. This is when the contract becomes legally binding and you, or the seller, can no longer pull out of the sale.
- Complete the sale: Your conveyancer will request the mortgage money and your deposit and pass this to the seller. You can then pick up the keys to your new home!
Buying a home can be a daunting prospect if you’ve never done it before, which is why it can pay to…
5. Work with an expert
As well as interest rates and the repayment method, there are other things you need to think about when taking out a mortgage, including:
- Mortgage fees or charges
- Whether you can make overpayments
- The ability to port your mortgage to another property if you decide to move.
With so many different things to think about and dozens of lenders to choose from, including those without a high street presence, it can be difficult to find the right deal for you. This is where a mortgage broker such as Altura can help you.
We will:
- Help you identify which lenders are likely to approve your mortgage application based on your circumstances
- Access the right deal for you to ensure you benefit from a competitive interest rate and that you don’t pay more than you have to in fees
- Help you get your paperwork in order, speeding up the process
- Work with you throughout the buying process to make sure things go smoothly
- Keep in touch with you once you’ve moved in to ensure your mortgage always remains suitable for your needs.
To find out more, download our free first-time buyer guide now. Or, to find out how we can help you, please email [email protected] or call us on +44 (0) 20 3411 0079.
