First-time buyer guide: all you need to know about getting a mortgage and buying your first home

First-time buyer guide: all you need to know about getting a mortgage and buying your first home

Whether you’ve been living with your parents or you’re leaving the world of renting behind, not much beats the excitement of moving into your very first home. Owning a property feels like a true milestone in life and comes with a new sense of independence and accomplishment.

But before you pick up your keys and pop the champagne corks, let’s look at the journey ahead. From getting a mortgage to dealing with estate agents and navigating the legal process, our first-time buyer guide has everything you need to take your first step onto the property ladder.

HOW TO WORK OUT YOUR BUDGET

Confirming how much you can spend is the first step in buying your first home to know what you can buy and where.

Broadly speaking, as a first-time buyer you can borrow up to 4.5 times your annual salary. There are exceptions, and some lenders allow certain professionals like doctors, lawyers, teachers and emergency services workers to borrow up to 7 times their annual income.

If you have any existing credit cards or loans, a lender will usually deduct the outstanding balances from what they are prepared to lend you, so it’s worth clearing what you can to increase your buying power.

Speak to us here at Howard Mortgages to find out the maximum amount you can borrow, then add that figure to whatever deposit you have. We will explain the other costs involved, such as legal fees, surveys, removals and stamp duty (unless you qualify for first-time buyer relief), and work out your budget for buying your first home.

IS THERE GOVERNMENT HELP FOR FIRST-TIME BUYERS?

There are several government schemes designed to help first-time buyers onto the property ladder. Here’s a quick rundown:

 

Help to Buy (equity loan)

If you wish to buy a newly built home in England and you have at least 5% of the price saved as a deposit, you could borrow up to 20% of the purchase price (40% in London) with a loan that’s interest-free for the first five years. You take out a regular mortgage for the remainder of the purchase price. 

The deadline for this has been pulled forward and you must now reserve your home with a registered homebuilder and submit your mortgage application under this scheme before 8pm on 31st October 2022

Help to Buy (mortgage guarantee)

If your income supports larger mortgage payments but you don’t have a large deposit, this UK-wide scheme encourages lenders to offer 95% mortgages by providing them with a government-backed guarantee.

Right to Buy

Right to Buy has existed since the 1980s as a way for council tenants to buy their homes with a maximum discount of up to 70% of its market value or £84,600 in England and £112,800 in London if they are also first-time buyers. On 9th June 2022, the Government announced plans to extend the scheme to housing association tenants.

Shared Ownership

First-time buyers in England can buy a share of a housing association home, initially buying between 10% and 75% and paying rent on the rest. You’ve got the option of increasing your share up to 100% when you can afford to.

Stamp Duty Relief

From 1 July 2021, first-time buyers were offered a discount that means you’ll pay less or no Stamp Duty if you, and anyone else you’ll own the property with, are first-time buyers.

If your buying partner has owned a home before, you could still qualify for first-time buyer relief if you are the only registered owner (there are special mortgages that allow you to do this).

Stamp Duty is known under different names across the UK, and each country has its own threshold.

In England and Northern Ireland, first-time buyers pay no Stamp Duty on the first £300,000, as long as the purchase price is no higher than £500,000.
In Scotland, first-time buyers pay no Land & Buildings Transaction Tax (LBTT) on the first £175,000 of the purchase price.
In Wales, first-time buyers pay no Land Transaction Tax on the first £180,000 of the purchase price.

As you can see, there’s some really valuable help that can make a big difference to the sort of property you can buy. If you’re unsure whether you qualify for any of these schemes, get in touch for a chat about your options.

DEALING WITH ESTATE AGENTS

To look like a serious buyer, one of the most useful things you can do is get a mortgage offer in principle that you can show to estate agents. 

 

A mortgage offer in principle involves a soft-credit search that doesn’t affect your credit rating and gives you an indication from a lender about how much you can borrow. It doesn’t commit you to use that lender, and we would always research the whole of the market to make sure you are getting the very best mortgage for your circumstances when you find a home.

Estate agents have a duty to home sellers to only introduce able buyers, so your mortgage offer in principle can be your passport to booking viewings and getting calls when new properties come up for sale.

While you’re searching for a home, it’s wise to stay in touch with agents to be at the front of their minds. Keep your social calendar flexible as well so you can whizz around to look at a property as soon as one becomes available.

Once you’ve found a home you want to buy, you’ll be asked to submit your offer. We are always happy to put this forward on your behalf and can confirm your position with the agent. An estate agent might want to qualify your offer by asking you to talk to their in house financial adviser, but you’re under no obligation to get a mortgage through them.

When your offer is accepted, you and the seller each appoint a solicitor to carry out the legal work. Both us and the estate agent then liaises between the solicitors throughout the process to help things along and to keep you and the seller informed.

SUBMITTING YOUR MORTGAGE APPLICATION

Once your offer is accepted, it’s time to explore the entire mortgage market, and here’s where a mortgage broker really comes into their own. Your bank can only talk about their own products, but as a whole of market advisor, we can tell you which lender has the best first-time buyer mortgage for you.

There are all sorts of options including standard variable rates, fixed rates, and mortgages that track the Bank of England base rate. We will discuss and advise the best options that fit your current circumstances and future plans.

The mortgage application process includes:

providing details of your income, employment and any existing credit to your mortgage lender, along with confirmation of your ID, address and whether you’re on the voters roll.
the mortgage lender checking your credit rating and all the information you supplied. If you’re employed, they may write to your employer; if you’re self-employed, they’ll ask for accounts.
paying a fee to the lender to send in a valuer to confirm that the property is worth what you’re paying and good for a mortgage.

After all the checks are complete and the valuer’s report is received, the lender issues a formal mortgage offer and sends a copy to you and your solicitor.

THE LEGAL PROCESS OF BUYING A HOME

The legal process of buying a home is called conveyancing and you’ll need a solicitor or licensed conveyancer to carry out the legal work on your behalf.

If you don’t yet have a solicitor, a good start is to ask for recommendations from friends, family, neighbours or colleagues. We can also suggest tried and tested firms.
When you’ve chosen a solicitor, give their details to the estate agent you’re buying through, and to your mortgage broker for inclusion with your application. (Your solicitor also acts for the lender to confirm the property is suitable security for them.)
The conveyancing process involves checking what fixtures and fittings are included, whether there are any disputes affecting the property, and confirming things like planning permission and connection to essential services.
Once the legal work is complete and you have a formal mortgage offer, your solicitor will ask you to sign the sales contract, send over your deposit, and confirm a date that you’d like to move (known as ‘completion day’).

After contracts are exchanged, you’re legally committed to the purchase. Completion is generally 2-4 weeks later to give everyone time to organise their move and for your solicitor to apply for the mortgage funds from your lender.

As soon as the seller’s solicitor receives the funds from your solicitor, you can pick up the keys from the estate agent. Congratulations – you now own your first home!

What’s next for you?

No matter what stage of the home-buying process you’re at, it’s always worth knowing which lending options are available to you and how to put yourself in the best position for getting a loan.

Why not get in touch for a no-strings chat on how first-time buyer mortgages work? Call us on 01803 554455 or drop us a line at [email protected] – we’d love to hear all about your plans!

The Howard Mortgages team

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