2 Apr 2018
Author: Stephen Breen
You’ve been eagerly saving up for years to put a deposit on your first home – so now you’ve got the money, what happens next? Follow our top tips to ensure your first purchase is as hassle-free as it can be.
1 Check your credit files
There are three main credit reference agencies: Equifax, Experian and Callcredit. Each has their own way of compiling your credit scores, so it’s worth obtaining files from all three before making your mortgage application. Make sure you’re on the electoral roll and you’ve actually got a credit history, with all payments made on time. If you need to rent before you buy, look for an agency that has signed up to Experian’s rental initiative where paying your rent on time shows on your credit file.
2 Save a bigger deposit
Whilst 5% is all you need to secure a mortgage, the best rates go to those with a bigger deposit. Don’t just ask lenders about the rates on offer for the deposit you have – ask them at what point their rates improve, so you know what you’re aiming for. If you’re just short of the next deposit ‘band’, weigh up whether it is worth borrowing the money from family or taking a low cost loan to benefit from a more attractive deal.
3 Ask your parents to help
With larger deposits required to secure a better rate and more stringent lending criteria, sometimes the best place to turn is the Bank of Mum and Dad. There are several ways parents can help: from taking out a mortgage (or second charge) on their own property, to depositing savings as security against the loan.
4 Get an agreement in principle
With several buyers are interested in their property, a seller has to choose which to sell to – and that won’t always be the one who offers the most money. Some sellers need to move as quickly as possible and will be looking for buyers who have all their paperwork in order. Make sure you’re ready to move on your mortgage to maximise your chances of an offer being accepted.
5 Don’t stretch yourself
It may be tempting to borrow the maximum amount that a lender offers you, but consider what would happen if interest rates rise. This last happened in November and the Monetary Policy Committee has indicated that future increases in Bank Rate may be necessary. If you are already borrowing to your limit, any rise could make your payments unaffordable, so make sure you’ve got breathing room before you agree the loan. If buying alone would be too expensive, consider joining together with friends to make the purchase: M & S now allows up to four borrowers to buy together and other lenders will typically allow two.
Consider shared ownership
House prices are rising far beyond the reach of many first time buyers, making shared ownership schemes look more attractive than ever before. With shared ownership, you purchase a share of the property – from 25% to 75% – and rent the remaining share. You can then buy additional shares when your financial circumstances allow it.
6 Look at Help to Buy schemes
The Government has a range of incentives to help first time buyers struggling with small deposits which include the Help to Buy Equity Loan scheme. Under the scheme, the Government lends you up to 20% of the cost of a new build home, so you’ll just need to find a 5% cash deposit. You then take a 75% mortgage to make up the rest of the purchase price. The government won’t charge you interest on the 20% for the first five years after buying your home. Click here to find out more.
7 Consider LISAs
If you’re a first time buyer aged between 18 and 39, the Government will give you a 25% bonus on your deposit savings with up to £1,000 available in free money each year. If you’re buying with a partner or friend, they can have their own LISA so that each of you can benefit from the bonus. You’ll need to leave the funds in the account for a year before you can use them.
8 Leasehold? Check the lease
If you’re buying a leasehold property, chances are it’s a flat, which means you’re buying the right to live in the property for a fixed number of years. Someone else will own the freehold, including the building and communal areas, and you’ll usually have to pay this person service charges and ground rent to maintain and insure the building as a whole. Check the terms of the ground rent carefully – if the freehold owner is allowed to increase it in the future, this could make the property more difficult to sell. You’ll also want to check how many years are left on the lease and if it is approaching 80, you’ll need to find out how much it will cost to extend, in writing. On average, it costs around £8,500 to extend a79 year lease, plus around £2,500 in legal costs – but you won’t have any right to extend until you’ve been living in the property for at least two years.
9 Be ready to haggle
First time buyers on average pay 99% of the full asking price, compared with the 96% paid by buy-to-let investors according to Countrywide. In fact, last year 32% of first time buyers pay more than the asking price, compared with 22% of investors. According to the Director of Research at Countrywide, the difference is that first time buyers tend to make an emotional purchase – while investors will be thinking commercially. It’s therefore important to go in with your commercial head on – is the property really worth the full asking price, given what other properties in the area have sold for and factoring in any work that needs to be done?
10 Buy to stay
When it comes to buying your first property, there’s a lot more involved than the cost of the house, and those costs can really stack up. When you’re looking at properties, try not to think of them as a stop gap until you find your dream home – aim to buy somewhere you can stay, at least for a few years. First time buyers purchasing properties worth up to £500,000 don’t pay Stamp Duty on the first £300,000, but this break doesn’t apply to subsequent purchases. There are also plenty of other costs to consider, from legal, mortgage, estate agent and survey fees to moving costs and the bill for what you spend on your new property. If you find yourself having to buy again quickly, you may also be stuck with an early repayment charge on your mortgage.
11 Don’t be a fair weather buyer
Properties always look brighter and better in the sunshine – so make sure you visit the property at least once when it’s dark and the rain is pouring down. Seeing the property at its worst gives you a more accurate picture of what to expect and may even help you identify problems that need to be fixed.
12 Buy or rent?
If you’re in a secure relationship, it makes sense to buy together rather than put money into someone else’s pocket – but if it’s not yet long term, don’t be too quick to take out a mortgage. If you enter a long term fixed deal and have to leave it early, you’ll face early repayment charges which can be substantial.