First Time Buyer Information
Buying your first home is an exciting time. There's nothing quite like the feeling of getting something of your own that you can finally make your own mark on.
In this short guide we'll cover the basics of getting into a position to buy your first home, what you need to know about deposits, mortgages, stamp duty, insurance etc, and finally how to prepare for the big day.
Getting started when buying your first home
Before you even consider buying a home you need to ensure you are in a position to afford it.
Your job and employment status
Unless you are able to buy your first home outright you will need a mortgage (see below). Banks and building societies will require you to demonstrate a level of financial security before they will be prepared to lend. And the amount you can borrow will be determined by how much you earn.
You will need to demonstrate regular income to afford repayments. For those in part or full-time work this is relatively straight forward, however different banks will have different lending criteria around those on fixed term or zero hour contracts, and the self-employed.
Your home deposit
A deposit is a lump sum you put towards the purchase of the property. Your mortgage is then made up of your agreed purchase price, minus your deposit.
Mortgage providers typically request a % of the agreed value of the property up front as a minimum. This is usually between 5% and 10% of the property price.
You should have your deposit ready before you start to look for your dream property. Don't forget, there are certain costs associated with buying property you will need to account for including stamp duty, surveys, legal fees, insurance and potentially removal fees... we will cover these a little later in the guide.
You need to be honest about your own lifestyle and spending habits. Are you able to afford the repayments? Does getting on the housing ladder mean are you going to have to save on some non-essentials and compromise?
When you apply for your mortgage (later in this guide) you will be expected to provide evidence of incomings and outgoings from your current account over time so you won't be able to hide from it.
Look at your budget and be sure your circumstances are suitable... home ownership can be an expensive business!
Getting your first mortgage
A mortgage is the name of the loan provided by the banking and financial services sector to home owners in order for them to be able to afford to buy a house. The value of the mortgage is the value of the property minus your deposit.
A mortgage is typically paid back to the lender monthly with a level of interest applied. To make the repayments affordable mortgages can last from just a few years, up to around 30 years (and in some case longer).
The amount you can borrow from the bank or building society is dependent upon your earnings, age, and the amount you intend to provide as a deposit.
Most banks offer borrowers either a fixed or tracker mortgage:
Fixed: A fixed rate mortgage sets the level of interest repayable at a level that will remain unchanged for a set period, no matter what happens to Bank of England interest rates in that period. On a fixed rate mortgage the payments are unchanged for the period of the deal.
Tracker: A tracker mortgage will require borrowers to repay an agreed level of interest above the base inflation rate set by the Bank of England. For example, if the base rate was 0.5% and the tracker rate was 2% then the interest on the mortgage would be 2.5%. If the Bank of England base rate increases to 1%, the interest on the mortgage increases by the corresponding amount, to 3%. On a tracker mortgage, the payments can vary depending on the interest rate at the time.
Many banking websites have affordability calculators on them that will provide you with an indicative outline of what they will be prepared to lend, either to yourself or jointly with another applicant. And check around as you may be able to find a cheaper deal by shopping around. Some banks offer cashback to entice borrowers to use them.
Mortgages will not account for any of the costs associated with buying your house (stamp duty/ surveys/ legal fees/ insurance etc) nor will it cover the cost of any home improvements required so it may be worth considering reducing your deposit (provided you can still meet the required deposit %) in order to factor in any spend.
You can apply for a mortgage direct with your bank or building society, or via intermediaries such as Independent Financial Advisers (IFAs). If you do not have a property in mind, you have an idea of how much you will be looking to spend, and you can press ahead with your application to reach a decision in principle; the point at which a bank has approved your application subject to a suitable property being found.
A lot of estate agents will not allow you to put forward an offer without a decision in principle. So, it's a good idea to have that as early in your home buying search.
When you are buying a house with a mortgage you must make sure you make the monthly repayments, otherwise your house could be repossessed.
Next - find your perfect first home
Once you have got your deposit and know how much you can borrow, you can start looking for a property to buy.
Most people who sell their homes advertise through an estate agent. Estate agents will often advertise property through their own website, the local newspaper, online advertising, mobile apps and through dedicated property sale websites such as Rightmove, Zoopla and OnTheMarket
These websites often enable you to outline your key criteria (price, location, number of bedrooms etc) so that you can search for relevant properties.
Remember, the price listed is a guide price and a sale price can often be negotiated... so don't just draw the ceiling at what the bank will lend, have a look at properties just above your price bracket with a view to negotiating the price down.
Arranging a viewing
Once you find a property you are interested in, take a note of the Estate Agent it is being advertised through and contact them directly to arrange to go and see it. Estate Agents are usually flexible and can often offer appointments outside of traditional office hours.
During the appointment have a good look around and ask any questions you can... getting on the housing ladder is likely to be the single largest purchase of your life so make sure you're sure!
And don't just go with the first one you see. Take your time and look around a few, even the ones you're not sure about. A picture might paint a thousand words but there's nothing like the feel and touch of a physical inspection.
Take time to look around the property both inside and outside, and note any local amenities or infrastructure in the area. You might like the house, but if it's next door to a kennels then you might find you're up all night listening to dogs bark.
It will be a good idea to look into other costs including how much the council tax will be, typical energy costs (these are available on the property's EPC), water rates, home and contents insurance. There is a chance these costs could rise so you will need to account for these when you are budgeting.
Making an offer on your first house
Once you find a property you are interested in purchasing you can make an offer. An offer is exactly what it says on the tin... you propose a price at which you are prepared to purchase the property. You would present this price to the estate agent either verbally or in writing. The agent must present any offer to the vendors by law.
Your offer will reflect a number of factors
- The condition of the property
- The length of time the property has been on the market
- How keen the vendors are to sell
- How keen you are to buy the property
It is not legally binding at this stage and the chances are you will end up haggling to agree a final price. Your offer may be withdrawn at any time and equally the vendors could accept a higher offer at a later date. You may be offered the opportunity to counter that higher offer should you wish.
Accepting an offer
If your offer is accepted it is an agreement in principle to transfer the ownership of the property from the existing owners to you. The acceptance of the offer will be communicated to you by the estate agent.
While this is a significant milestone in your efforts to get onto the property ladder bear in mind at this stage there is still some way to go.
If your vendors have an on-going purchase if that falls through the likelihood is the sale will be delayed while they find another property to buy; or withdrawn altogether because they were only prepared to move to that house.
Instructing a solicitor and the process of conveyancing
This is when it starts to get serious... and you need some of that money you held back to cover the cost of moving.
The solicitor's responsibility is to transfer the ownership of the property from the existing owner to you (known as conveyancing) and making sure HM Revenue & Customs get their cut.
There are plenty of online price comparison sites for solicitors, or you can contact a local solicitor and find out how much they would charge.
They say you get what you pay for so be prepared for some variance in pricing and understand exactly what you get for your money. Ensure your solicitor gives you a complete breakdown of the full cost of the move. You will often find quotes broken down into the legal fees chargeable for the work done, and then any additional costs such as searches, banking charges and stamp duty.
Stamp Duty is the tax the government levy on the purchase of property. It is paid by the buyer(s) and is calculated by multiplying the cost of the property by a percentage stipulated by government.
For first time buyers stamp duty only applies if the property price is £300,001 or more. Property over £500,000 is calculated as per the below table.
|Property Price||SDLT rate|
|Up to £125,000||Zero|
|The next £125,000 (the portion from £125,001 to £250,000)||2%|
|The next £675,000 (the portion from £250,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
Critically solicitors are not responsible for looking whether a large supermarket is about to be built on the land next door, or advising whether your property could be at risk of flooding, or finding out about the structural strengths of the house.
They will be able to get hold of information so that you can review this yourself, and if this is of concern to you then ensure you request such information. Again, you will have to pay for it but it's worth it for peace of mind.
These investigations are known as searches and you will be requested to pay for these up front before your legal fees are due so make sure you've got around £300 available.
Your solicitor will keep you up to date as the transaction progresses. So long as there are no hurdles, you will reach a point where you will need to agree a date with the vendor on which you will formally exchange contracts, legally binding you to the purchase, and completion, the day on which you agree to take complete ownership.
Instructing a house survey
Your mortgage provider will advise you they will carry out a valuation survey on the property you are purchasing to ensure it has been correctly valued; after all they will own most of it for the first few years at least!
It is advisable to instruct your own Homebuyers Survey by a RICS-approved Chartered Surveyor. A Homebuyers Survey will identify any structural defects with the property as well as any issues with damp and immediate repairs, and outline the indicative costs. A Homebuyers Survey typically costs around £400-500
The final steps to owning your first home
Once you have exchanged contracts and a date has been set for completion you need to finalise your move. As part of your mortgage agreement you have signed to say you will insure the property from the day on which you formally take ownership. It is advisable you take out both buildings and contents insurance.
If you are moving from rented accommodation and you are responsible for all the utility services (water/electricity/gas/broadband etc) you will want to advise the relevant service provider of the date on which you need them to switch your services off from your existing house and on at your new property. It is advisable to take notes/pictures of gas/electricity/water (if applicable) meter readings before leaving so you can finalise the account at the od property as accurately as possible.
You will also need to ensure all your accounts, such as banking, car insurance, credit cards etc are updated with your new address.
This is the point you will be grateful for that money you saved for a rainy day. You may need a removals company to help you move. Ad once you have completed the purchase you will also need to pay your legal fees and any stamp duty (if relevant).
Finally, enjoy your new home! You've worked hard to get here and now you can reap the rewards!