A guide to buying your first home
For first time buyers the prospect of getting on the property ladder feels overwhelming and out of reach. Here we simplify the essential first steps and set out what you need to do and what help you can access to enable you to buy your first home.
1. Start building a deposit
In order to buy your first home you need to save a deposit. Your mortgage deposit will normally need to be for at least 5% of the value of the property you want to buy. So if you want to buy a home costing £250,000, you’ll need to save up a deposit of at least £12,500. Ideally though you would save more than 5%. The bigger the deposit, the wider range of mortgages you’ll be able to access and at cheaper rates. This is because with a bigger deposit you’re perceived as lower risk by mortgage lenders.
As house prices have soared so has the amount you need to save. The average first-time buyer needs a £33,000 deposit, according to Halifax. The good news is the government can help you save if you choose the right account.
Saving a deposit with a Lifetime ISA
Lifetime ISAs can give your house savings a big boost. With a Lifetime ISA, you can save up to £4,000 a year with the government adding a 25% bonus annually. You can find out more with our Lifetime ISA guide.
2. Check your credit score
While you are saving to buy your first home, you can start sprucing up your credit rating ready for when you make a mortgage application. Lenders want to see you are a reliable borrower when they are assessing your mortgage application, so it helps to have a good credit score. Read our full guide to find out how to improve your credit rating.
3. Clean up your current account
How much you can borrow will be determined by your lender who will do an affordability test based on your income and monthly outgoings. It can be a really good idea, therefore, to go through your current account six months before you make a mortgage application and see for yourself where all your money is going. If you have an expensive gym membership, regular big nights out or expensive credit agreements try to cancel them and curtail your spending so that your finances look in better shape when the lender starts looking.
4. Understand the costs of buying and owning a home
When buying your first home, you’ll find it involves a lot of additional costs that you need to factor in when working out what you can afford. This includes legal fees, taxes, surveys and removal costs.
Once you own your first home, you’ll discover there are also a lot of costs involved in running it that you may never have had to deal with before. This includes ground rent, service charges, ongoing maintenance costs and utilities.
Understand the full range of costs involved with our guide on the cost of buying and owning a home.
5. Speak to a mortgage broker
It’s amazing how many people think they are a mortgage expert and arrange the biggest loan of their lives without getting any advice or shopping around. But, with a six-figure loan, a tiny difference in the interest rate can mean you end up paying tens of thousands of pounds more over the lifetime of your mortgage.
For example, a £200,000 mortgage at 3.5% will cost you almost £2,000 more over three years than the same mortgage at 3%. Similarly, the fees on your mortgage can make a big difference to the overall cost of buying your first home.
Advice on mortgage type, mortgage term and new mortgage products
It’s not just the mortgage rate you need to consider but also the type of mortgage, whether fixed or variable and the term of the mortgage (usually 25 years but it could be 35 years so that repayments can be stretched over a longer period, making them more affordable month on month).
Mortgage brokers will also be up on new mortgage products like Deposit Unlock or Green mortgages and can discuss the pros and cons of these.
Use a mortgage broker and their expertise will mean you get the best possible mortgage for your circumstances at the lowest possible rate. They can also help you navigate the mortgage market for the first time, explore options and may introduce you to lenders who you’ve never even heard of but have the best product for you and your circumstances.
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21 окт 2024
