A Guide For First Time Buyers

When you’re buying a house for the first time, there’s a lot that you have to consider. It’s quite possibly one of the biggest decisions you can make in your life, so making sure that you’re clued in on the process is a must. If you’re wondering what the process of buying a house is, read our guide for first time buyers below.

Saving for a Deposit

One of the first steps in the house buying process is saving up a deposit. The average first time buyer deposit is around 20% of the house price, which could mean finding £20,000 or more. Although this may seem like a large amount of money (and it is) it’s completely doable if you put your mind to it. Be realistic about what you can save each month, work out all of your outgoings and see if there is anywhere that you can cut back – even the little things will add up! If you’re really struggling, ask yourself is there anyway that you can save a large portion of money each month? It’s common nowadays for first time buyers to move back in with their parents or a family member in order to save on rent. Although this probably isn’t the ideal situation, doing something like this will help you save a lot faster, so you can be assured that it won’t be too long before you’re close to having your own space once more!

A handy tip is that it’s always easier to save on payday. If you put as much as you can afford into a different account straight away, then you’ll learn to live without it. It’ll feel like you never had it in the first place! 

Looking For A Property

Finding your first home is something that’s high on the priority list, so you need to ask yourself what it is that you want.

There are a few things to consider:

• Should I buy a flat or a house?
• Freehold or leasehold? (If you’re wondering about the difference between freehold and leasehold – freehold property is where you own the land that your house is built on. A leasehold means that you own the property, but you’ll have to pay rent to the freeholder)
• New build or existing property?

Once you’ve decided what you want, you can begin to search for your perfect property and make some viewings. It’s a good idea to make a note of all the things that you want to ask beforehand, as it’s easy to forget things whilst you’re at the property. It’s also wise to take a friend or family member with you that can remind you to ask the important details.

Why is the property being sold? How long has it been on the market? Has the vendor found another property? Have any other offers been made? 

Taking a second person also means that there will be someone there to offer an unbiased opinion. Remember that as a first time buyer, you’re more attractive to vendors as you haven’t got anything to sell yourself so are therefore likely to want to move in as soon as possible. 

Mortgage Options

There are a variety of mortgages available to first time buyers and it’s important to be aware of all of them and what they mean. 

Fixed-Rate Mortgage

The interest rate on top of your mortgage stays the same for a particular amount of time. Once the term comes to an end, you’ll be expected to be transferred over to the lender’s standard variable rate (SVR). One of the benefits of this mortgage is that you have the security of knowing that you’ll be paying back the same amount of monthly charges regardless of whether the SVR changes or not, meaning that this is a good option for long term financial planning. However, these types of mortgages can be more expensive than those that are on variable rates as you’ll pay for the premium of peace of mind. 

Tracker Mortgages

This type of mortgage usually follows the bank rate, which is set by The Bank of England. It often tracks the bank rate by a particular margin, so it’s common for this type of rate to change. If the Bank Rate increases, so will your mortgage. Again, when the agreed time frame comes to an end you will likely be transferred to an SVR. 

Discount Mortgage

Discount mortgages are usually tracked at a discount to the lender’s SVR for an agreed amount of time. This means that the rate can vary, normally the higher the reduction, the shorter the length of time will be, after which you’ll be transferred onto your lender’s SVR.

Standard Variable Rate Mortgage

This type of mortgage doesn’t tend to have any deals or discounts and tends to be a more expensive way of clearing your mortgage. You’re also not protected from rate changes, so most people are advised to move from an SVR mortgage. 

Guarantor Mortgage

There are a growing amount of lenders that are allowing parents to help their children in getting on the property ladder by contributing financially. If parents or family members agree to make repayments if the mortgage holder suddenly becomes unable to, lenders are more likely to agree to a larger sum at a better rate. 

Off-Set Mortgage

This type of mortgage allows you to link your current account and savings account to your mortgage. Doing it this way cuts the amount of interest that you’ll have to pay as it will only be charged on the net balance. 

There are ways which you can reduce your mortgage payments, and remember that you should always seek legal advice when it comes to choosing the correct mortgage type for you.

Putting In An Offer

Once you’ve found your perfect property, you will have to put in an offer via an estate agent. You may have to provide evidence that you can secure a mortgage with an agreement principle. When your offer has been accepted, you will have to apply for a mortgage formally.

Government Schemes

There are a multitude of Government schemes available for those wishing to buy a home for the first time.

Equity Loan Scheme

This scheme is available to first time buyers and existing homeowners who want to purchase a ‘new build’ home. Under this scheme, the purchase price of the home must be no more than £600,000, and you can borrow up to 20% of the purchase price interest free for the first 5 years as long as you have a 5% deposit. After the 5 years, a yearly charged is introduced. (In London you can borrow up to 40% of the purchase price). 

Shared Ownership

Under this scheme, you can buy a share of a home from the landlord (usually the council or housing association) and rent the remaining share. You will need a mortgage to pay for your share, which can be between a quarter and three quarters of the home’s full value. You can then pay a reduced rent on the portion that you don’t own, with the opportunity to buy a bigger share of the property (up to 100%) at a later date. 

Shared Equity Schemes

This is where you own all of the property, but have a loan on part of your deposit. This is helpful as having a bigger deposit will mean that you get access to cheaper mortgage rates. 

Help to Buy Scheme

This allows both first time buyers and homeowners that wish to move put down a deposit on a property up to £600,000, with up to 20% of the cost covered by a Shared Equity Loan. The value of the loan is directly linked to the value of the property purchased, so if the value of the property increases then so will the value of the loan. You can pay back the loan at any time during the length of your mortgage, or when you sell your house. There is no interest to pay for the first 5 years, but after that you’ll have to pay 1.75% of the value, which rises every year by the Retail Price Index’s measure of inflation, plus 1%. 

Starter Home Scheme

This is a new Government plan where 200,000 new build homes are available to first time buyers under 40 with at least 20% off the market value. The discounted value will be no more than £250,000 (or £450,000 inside London). 

What Is Stamp Duty?

Stamp Duty Land Tax is tax that you must pay when you buy a property or land over a certain value in the United Kingdom. The amount that you must pay depends on the value of the property. However, first time buyers do not have to pay stamp duty on the first £300,000, up to the value of £500,000. A rate of 5% applies, but only on that portion of the purchase (nothing below £300,000). To be eligible for this discount, you must not have owned a property, whether bought, gifted or inherited, at any time in your life either inside or outside the United Kingdom. You will also have to live in the home that you’re buying, you cannot rent it out. If you are buying a property with your partner and they are not a first time buyer, then you will not be eligible for the Stamp Duty Break. 

Final Contracts And Completion

Once your offer has been accepted and you’ve gone through with the buying process, it’s then your solicitor’s job to deal with all the legal work associated with transferring the property. This includes arranging Stamp Duty, transferring money throughout the sale and acting as a general mediator between the buyer and the seller. The next step is to agree to the terms of the sale, including how much the property is transacting for, a completion date, when you can move in. After this your mortgage will be approved and contracts will be exchanged. From this point, you are locked in to a legally binding contract and you will have to put down your deposit. Once everything has gone through, you will be able to pick your keys up from the seller or estate agents on the day of completion. 

Other Costs

It is important to bear in mind that there are other costs associated with buying a house that you may not be aware of. 

• The lender will charge you for entering into a mortgage agreement, which is known as the arrangement fee. This cost is often quite high so that the headline rate can be kept as low as possible. 
• The lender may also ask you to cover the valuation fee, which is the cost of assessing the value of the property that you’re going to purchase.
• You should also conduct a survey before you sign anything, as you’ll need to make sure that the property is structurally sound before you enter into a legal agreement. 
• It is also a good idea to hire a conveyancer (property solicitor) to manage the legal side of the purchase to ensure that no mistakes are made.  

If there is anything that you are unsure of, or for more information on buying a house, contact Chancellors for help.