For first time buyers, the prospect of buying your first home can seem daunting, and often out of reach. Here we’re going to explore the options, set out what you need to do and show you what help is available to get you on the property ladder.
Buying versus renting
Choosing whether to buy or rent can be a tricky decision, there are pros and cons to both.
One major benefit of buying a home is the freedom to decorate and make any changes you want to without having to answer to a landlord. Another pro is that when you buy an apartment your monthly payments are going towards something you will eventually own, making you the beneficiary rather than a landlord.
Saving for a deposit
In order to buy your first home you need to save a deposit. In most instances, the minimum deposit you’ll need to save is 5% of the total cost of the property you want to buy. However, the bigger the deposit you can save, the wider range of mortgage deals will be available to you. This is because the larger your deposit, the lower the risk you are seen to be to mortgage lenders.
House prices are continuing to rise in the current market, and buying a house can begin to feel like a pipe dream, with paying rent feeling like the easier option. Luckily, there is some government help available for first time buyers. The Help to Buy Equity Loan and Lifetime ISA options can both boost the savings you already have.
To give you an idea what a 5% deposit looks like, if you want to buy a home costing £150,000, you’ll need to save at least £7,500.
A Help to Buy ISA is a bank account that helps first time buyers grow their savings to add to bonuses to their deposit. First time buyers can save up to £200 a month with a Help to Buy ISA and the money will grow tax-free, and when you come to being ready to buy the government will top up the amount you’ve saved by 25%.
With a Lifetime ISA you can save up to £4000 a year and the government will add a 25% bonus annually.
Mortgages
Unless you are in the fortunate position of being able to purchase a property with cash, it’s most likely that you will need to get a mortgage.
In simple terms, a mortgage is a particular loan from the bank or building society against the property you want to buy. The borrower then pays back the loaned amount in addition to the interest accrued.
Research is key when looking for the best mortgage deals. Searching the best mortgage rates online is a good place to start, check out comparison sites and consult a mortgage broker, who may be able to access more competitive deals not available through regular research. Speak to a member of our team today for free independent financial advice.
Our Independent financial advisor will be able to advise you on:
- The size of your deposit required
- Affordability
- Interest rates
- Which types of mortgages are available to you
- And be able to answer any question you may have
Rigorous checks are also in place by lenders to ensure you can keep up with your mortgage payments, particularly if the interest rate rises or your circumstances change.
Ahead of getting on the property ladder you’ll need to show proof of earnings and incomings and outgoings, such as household bills and other living costs, You’ll also need evidence of your financial profile, including bank statements and pay slips.
Different types of mortgages
Some of the most common types of mortgage are:
A fixed rate mortgage: This means the interest rate will stay the same for a particular length of time. Once that term comes to an end, you’ll be transferred to the lender’s standard variable rate (SVR) This mortgage is particularly attractive for first-time buyers as it offers stability and safety, however they tend to be more expensive as you’re paying for additional peace of mind.
Tracker mortgage: Typically follows the Bank Rate, the benchmark interest rate set by the Bank of England for a certain period. It’s a variable rate, so your monthly repayments can change. If the Bank Rate increases, so will your mortgage payments.
Discount mortgage: Interest rate is tracked at a particular discount to the lenders SVR for a particular length of time. Therefore the rate will vary. Normally, the steeper the reduction, the shorter the period of discount will be.
Standard variable rate mortgage: Normally doesn’t include any deals or discounts. Most are advised to move away from this type of mortgage at the earliest opportunity to find a cheaper alternative.
Guarantor mortgage: Getting on the property ladder can be tough, which is why a growing number of lenders are offering mortgages that allow parents to contribute. A guarantor mortgage allows family members to pay the mortgage if you are unable to.
Offset mortgage: Allows you to link your current and savings accounts to your mortgage. Good for saving money as it only charges interest based on the net balance.
Remember to budget for the other costs of buying a home
Mortgage payments may seem like the biggest outgoing when buying your first home, but there are other costs to take into account.
These include:
- Survey costs
- Solicitor Fees
- Removal costs
- Buildings Insurance
- Furnishing and decorating
- Mortgage arrangement fees
- Home Insurance
What is Stamp Duty?
Stamp Duty is a land tax you pay on your home . The more valuable your house is, the more Stamp Duty you pay.
In England and Northern Ireland it’s called Stamp Duty Land Tax.
In Wales, Land Transaction Tax.
In Scotland it’s known as Land and Buildings Transaction Tax.
An important note is if you buy a property on or before 31st March 2021, you won’t pay any Stamp Duty on properties costing up to £500,000.
Clean up your current account and check your credit score
Prepping your current account ahead of submitting your mortgage application is key to ensuring mortgage brokers look kindly on you. How much you can borrow is determined by your mortgage lender who will do an affordability test based on your monthly incomings and outgoings.
A good tip is to go through your current account at least six months before you make an application and identify for yourself where your money is going. Expensive gym memberships, shopping habits or a tendency to end up in your overdraft at the end of the month will all have an effect on your finances. Try and curb what you can before the lender starts looking to better your chances of getting a good mortgage deal. Having a good credit score is also an indicator to a lender you are a reliable borrower when they are assessing your mortgage application, so be sure to do your research about how to improve your score.
Talk to your family
Getting on the property ladder can be tough with no help, and you may be lucky enough not to have to go it alone. The Bank of Mum and Dad was recently considered the sixth biggest lender in the UK mortgage market because so many parents are helping their children out with their first home.
Families can help without having to surrender their savings. Many mortgage lenders now offer products aimed at people whose families are in the position to help them out. It’s worth exploring your options with a mortgage broker if this is something that is available to you.
Find your perfect home
Striking the balance to find the best first home can be a big decision, and making the choice between city life and the suburbs can prove tough.
New Cross Central homes provide the best of both worlds, spacious and airy places with all the benefits of life in the city centre.
Find out more about owning your home at New Cross Central.