For first time buyers, deciding to buy your own home is an especially big step; there are many things you need to know before you start. Here are just a few:
- How much do I need for a deposit and other costs?
- How can I be sure the monthly repayments are affordable?
- Are there schemes to help me get on the property ladder?
- How do I find a mortgage?
- What is the difference between freehold or leasehold?
- What is a typical application process like?
- What is a mortgage guarantor?
How much should I save?
Planning for your deposit is essential. You will need 5% to 20% of the cost of the home in advance. For example, if you want to buy a home costing £150,000, you’ll need to have at least £7,500. Saving more than 5% will make it easier for you to apply, with a wider range of cheaper mortgages available.
Other Costs To Consider:
- Mortgage arrangement and valuation fees.
- Stamp Duty.
- Solicitor’s fees.
- Survey cost.
- Removal costs.
Can I afford the monthly repayments?
Putting together a budget at the beginning is the best way to know how much you can afford. You need to plan ahead to allow for changing circumstances. There are now strict checks when you apply for a mortgage. Lenders will obviously check that you can afford the mortgage, given your current income and outgoings. Additionally, they will also ‘stress test’ the affordability. This is to see if rising interest rates, or a change in circumstances, such as possible redundancy or having children, can be accommodated. As part of the mortgage application process, you will need to show the lender evidence of your income and outgoings.
As well as your monthly mortgage payments, there are the usual property related costs including:
- Initial furnishing and decorating costs,
- Buildings insurance,
- Council tax.
There are a number of government-backed schemes aimed at giving first-time buyers a helping hand onto the property ladder. If you are eligible, lenders will still need to be sure that you can afford to pay your mortgage.
The schemes include:
- Affordable housing schemes.
- Help to Buy schemes.
- New Buy – deposit help when buying new homes.
- Shared ownership schemes.
Where can I get a mortgage?
As there are so many mortgages and so many deals available it is always wise to seek professional advice. You can speak to your bank or building society but it’s worth remembering that they will only want to sell you their products. An independent mortgage broker will have a much greater range to offer you.
Freehold or leasehold
If you’re looking to buy a house, it’s likely you’ll be buying the freehold. This means that you own both the property and the land that sits on. If you’re buying a flat, you will either be buying leasehold, or buying into a share of the freehold.
How do I apply?
Once you have found the type of mortgage you require, the lender will ask for proof that you can afford it now, that your income is secure and what provisions you have, or can make, should your circumstances change. For instance, mortgage lenders will expect you to take out insurance to cover life & illness.
Can someone else guarantee my mortgage?
If you’re struggling to get a mortgage, to buy your first home, you might want to consider a guarantor mortgage. This means that a parent, guardian or close relative, agrees to be responsible for the mortgage payments should you be unable to meet them.
Guarantor mortgages shouldn’t be entered into lightly; they are legally binding arrangements. Your guarantor will need to be able to afford to pay your mortgage if you get into difficulty.