Five Points to Consider for First-Time Buyer Mortgages

There comes a time in all our lives when fleeing the nest and getting yourself ‘on the ladder’ seems like the most practical and adult thing to do. Beware, the headache of being a first-time buyer soon follows. The multitude of mortgage options can be overwhelming but hopefully we can help. The key is to do your homework and then take sensible action.

1. First-Time buyer - what are the first steps before applying for your first mortgage?

Before even searching for your ideal property, and well before you find one and fall in love with it, you need to assess your own financial situation. Alongside a decent deposit, you need to do a credit search on yourself. This isn’t as harrowing as a few years ago because there are free credit checks available you can use to do this. Next, you will need to weigh-up your outgoings against your income. Today, mortgage lenders will quiz your spending habits and make their assessments from it. Documentary evidence of energy bills, mobile contracts, gym memberships and any other habitual spending like feeding the family will need to be provided. Following that, you will most likely need a mortgage advisor from your bank or building society. This will help you to better understand the process and determine what sort of mortgage you can afford, based on your current circumstances.  

2. How much deposit do you need as a first-time buyer?

As a first-time buyer, you probably have some money set aside for a deposit. The size of this deposit will determine the value of the properties you can purchase and your mortgage rate. Your savings want to be between 5% and 20% of the value of the home you would like. The larger your deposit is, the greater range of cheaper mortgages you will have access to. For instance, a house costing £160,000 will require at least a 5% (£8,000) deposit but with a 20% deposit (£32,000), you will be open to a much better mortgage rate. Though, recent government implications like the ‘Help to Buy Scheme’ have dramatically improved rates for those without such hefty deposits, meaning it’s easier for first-time buyers to not only get on the ladder but get the property they love. Other recommended options are the ‘Affordable Home Ownership’ and ‘Shared Ownership’ schemes which we can also provide finance for, here.  

3. What other costs can you expect as a first-time buyer?

As a first-time buyer, you know that departing with a deposit and monthly mortgage repayments is a given. What you may not be aware of is the other costs of buying a home:  

Mortgage arrangement & valuation fees

These are something you can’t avoid and need to budget for. An arrangement fee is what you pay for the lender to set-up your mortgage. The cost of this can vary and is sometimes a percentage of the loan rather than a flat fee. On average, you need to be budgeting around £1,000 to cover the cost. Valuation fees can sometimes come free with a mortgage but a survey needs to be carried out on the property, regardless, to ensure its adequate security for the loan amount.  

Stamp Duty

Another unavoidable lump-sum tax which applies to anyone buying a property. The rate will vary, depending on the price and type of your property.  

Solicitor’s Fees

This is simply to cover any legal work carried out when buying a home. Again, this can average around £1,000 and does require a solicitor or licensed conveyor.  

Removal Costs

This is worth bearing in mind, if you are moving in to a previously occupied property. Furniture often gets left behind and other physical features may need to be dismantled and removed before you can call it home.  

Furnishing & Decorating

You will naturally have ideas about how you want your new home to look. Make sure you have priced up the costs of your dream home and set aside a budget for any issues you may uncover whilst decorating or re-developing your new home.  

Building Insurance

A worthwhile policy which will cover damage to the structure of your home: walls, roofs and floors are all covered. It also covers damage to fixtures and fittings in your bathroom or kitchen.  

4. What are the repayments like on a mortgage?

Made up of capital and interest, you will make repayments to the mortgage company each month for the life of the mortgage, based on the deal you agreed after your deposit and rate were finalised. Once you reach the end of your mortgage, your debt is cleared and the property becomes yours outright. Many people remortgage or move to a new house before the end of their mortgage deal arrives. It’s at this point that your balance and repayments will be recalculated. There are deals in which you can pay off your mortgage sooner and reduce interest rates, you just need to speak to an advisor.  

5. What other options are out there for first-time buyers?

If the struggle of obtaining a mortgage for your first home has become more than a headache for you, you could consider a guarantor mortgage. This type of mortgage means that a parent, guardian or close relative can agree to be responsible for paying the mortgage, if you can’t. This is a legally binding arrangement that should be considered thoroughly, before diving in. If neither counterpart can keep up with repayments, it could get messy. It’s advised that you speak to a mortgage broker about this option, and to find out which lenders offer guarantor mortgages.  

First-time buyer - Summarised.

Buying your first home is a landmark event. It can be stressful and it will no doubt have a massive impact upon your finances but, hopefully, by absorbing some of our advice from above, you are better placed to make a more sensible decision about becoming a home owner for the very first time.   If you’d like to speak to an adviser regarding anything about mortgages please get in touch, we’d be happy to help.

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