Advice for first time buyers

Buying a property for the first time can be both exciting and scary.  It’s great to get your own place, but there are lots of hoops to jump through before you can close your own front door.  This guide takes you through the process of buying your first home, including saving for your deposit and applying for a mortgage.

Mortgage companies often offer special deals to first time buyers.  You will be considered as a first-time-buyer if you are purchasing your only or main residence and have never owned a freehold or have a leasehold interest in a residential property in the UK or abroad.

How much deposit do I need to buy a house?

Before you can buy a property, you should consider how much money you are going to need so you know what you can afford to look at.  It’s not just about how much mortgage you can raise, but how much deposit you can pay, as well as legal fees and moving costs.  Generally, you need to try to save at least 10% to 20% of the cost of the home you would like.  Sometimes sellers will let you exchange contracts with only a 5% deposit but there will still be other costs.

For example, if you want to buy a home costing £150,000, you will need to save at least £15,000 (10%). Saving more than 10% will give you access to a wider range of cheaper mortgages available on the market.

Budget for the other costs of buying a home? 

Apart from your monthly mortgage payments, there are other costs when buying a home, such as:

• Survey costs
• Solicitor’s fees
• Removal costs
• Buildings insurance
• Initial furnishing and decorating costs
• Mortgage arrangement and valuation fees
• Stamp duty although first time buyers will pay no stamp duty on the first £300,000 for properties worth up to £500,000. 

Make sure you can afford your monthly repayments 

It is wise to put together a budget before you start looking for properties to ensure you can afford it. There are now strict checks when you apply for a mortgage.

Lenders will check you can afford the mortgage and also ‘stress test’ your ability to make your payments if interest rates were to rise or if your circumstances changed, such as a planned retirement date or the possibility of you losing your job. As part of the mortgage application process you will need to show the lender evidence of any outgoings you have, your savings and prove your income.

Affordable home-buyer schemes to get you on the property ladder

Several Government supported schemes aim to give home buyers a helping hand onto the property ladder.

If you use one of these schemes, lenders will still want to ensure you can afford to pay your mortgage. Options include the following:

• Affordable housing schemes
• Help to buy scheme: everything you need to know
• Shared ownership schemes
  • Shared ownership is where you buy a share of a home from the landlord, who is usually the council or housing association, and rent the remaining share.
  • You need a mortgage to pay for your share, which can be between a quarter and three-quarters of the home’s full value.
  • You then pay a reduced rent on the share you do not own.
  • Later you can choose to buy a bigger share in the property up to 100% of its value. 

Finding a mortgage

The are many different mortgage deals to pick from, so choosing the right one for you can be hard. It can depend on several factors, so it is a good idea to do some research and talk to experts such as mortgage brokers or your bank. 

Freehold or leasehold  

If you want to buy a house, it is likely you will buy the freehold- meaning you own the property and the land it sits on.

There are several differences between a leasehold and a freehold- it is vital you understand the difference.

Freehold

If you buy the freehold you are responsible for maintaining your property and land, so you will need to budget for these costs. Most houses are freehold, but some might be leasehold- usually shared ownership schemes.

Benefits of a freehold include the following: you do not have to

• Worry about the lease running out, as you own the property outright
• Deal with the freeholder (known as the landlord)
• Pay ground rent, services charges or any other landlord charges

You can buy the freehold from the landlord along with other leaseholders- for example, other people living in a block of flats. You can do this as long as at least half of the leaseholders agree to buy a share.

You should make sure you view the property and try and spot any potential defects or issues before investing huge amounts of money.

Leasehold

With a leasehold, you own the property, but not the land, for the length of your lease agreement with the freeholder.

When the lease ends, ownership returns to the freeholder, unless you can extend the lease. Most flats are owned leasehold, apart from Scotland where there are very few leasehold properties.

The length of lease is very important. If the lease is for less than 70 years, you might struggle to get a mortgage. Lenders will normally need it to run for 25-30 years beyond the end of your mortgage. As a result, it can also be difficult to sell a property if the lease is for less than 80 years.

You can ask the landlord to extend the lease at any time. Once you have owned your home for two years, you have the right to extend your lease by 90 years, provided you are a qualifying tenant.

Usually, you will be a qualifying tenant if your original lease was for more than 21 years.

The freeholder will charge for extending the lease. The cost will depend on the property.

If you and the freeholder can’t agree on the cost of extending the lease, you can appeal to the Leasehold Valuation Tribunal. You might need to hire a solicitor and surveyor, which will increase the cost.

If you own a leasehold property, you do not own the land. This means you won’t be responsible for maintaining and running the building. The landlord will do this or appoint a managing agent to do so for them.

There are leasehold service charges you should be aware of, such as:

• Maintaining communal gardens
• Electricity bills for communal areas, or
• Repair and maintenance of exterior walls

Other charges might include:

• Ground rent
• Administration charges, or
• Buildings insurance (arranged by the landlord) 

The mortgage application process

Whichever mortgage you apply for, your lender will want to know you can continue to make your repayments.

Even if interest rates rise, or as a result of any planned events affecting your financial circumstances. You will need to provide evidence of your income and provide information of your outgoings, including:

• Debts
• Household bills, and
• Other costs, such as clothing

Someone else can guarantee your mortgage

If you are struggling to get a mortgage to buy your first home, you might want to consider a guarantor mortgage. This means a parent, guardian or close relative agrees to be responsible for paying the mortgage if you cannot.

You should be aware that guarantor mortgages should not be entered into lightly as they are legally binding arrangements. You will need to talk to a mortgage broker to find out more about which lenders offer guarantor mortgages.

If you are thinking about buying your first property, and you’d like more information, contact your local conveyancing solicitor for more advice.

Disclaimer – our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.