First Time BuyerFree Mortgage Advice
Buying your first home
Purchasing your first home is incredibly exciting, however it can be a confusing and daunting process and many first time buyers are unsure where to begin
Where do I start?
We keep the jargon to ourselves
First Time Buyer
Buying your first home can be a very exciting albeit daunting experience which is why it is important to get the right advice at the very start. There are many different mortgage products to choose from so it is important to get the solution that best meets your needs.
To help you to make the right decision we have put together our Top Tips for first time buyers:
Your home may be repossessed if you do not keep up the repayments on your mortgage
How much can I borrow?
This is one of the most common questions we are asked, however the answer is not straight forward. Every lender will assess your circumstances in slightly different ways against their own lending criteria.
The nature of your income (salary, overtime, bonus, self employed income) will be assessed differently from one lender to the next, the level of your deposit will often have an impact, your personal debts will be taken into account, as will your day to day outgoings such as your monthly bills and travel costs.
Our experts can talk you through your potential borrowing ability, and give you a good idea of what your monthly mortgage payments will look like. It is always worthwhile speaking with us first before viewing properties to go through these figures.
We will also be able to provide you with an ‘Agreement in Principle,’ also referred to as a ‘Decision’ or ‘Mortgage in Principle.’
What is an Agreement or Decision in Principle, and do I need one?
An Agreement in Principle (AIP), is a simple document that confirms how much you are able to borrow on a mortgage. This document is also known as a Decision in Principle (DIP) or a Mortgage in Principle (MIP), but ultimately they are all the same thing!
Our experts can generate this for you once we have had an initial discussion with you regarding your income, outgoings and potential deposit. This document simply confirms the amount you should be able to borrow based on the figures we have discussed, and that, in principle, you will be able to obtain a mortgage for this amount.
This is a very important document and something estate agents will ask to you provide when viewing and making offers on a property. This AIP shows you have done your homework, you are a serious buyer, and most importantly you can obtain the mortgage finance you require to purchase this home.
Having an initial discussion with our mortgage experts around your potential options, and us providing you with an Agreement in Principle is the first step you should take in the house buying process.
Once you have this document, you can then put forward an offer on any property you wish to buy. Once your offer is accepted we can then discuss the mortgage options available to you in more detail, and explain the steps involved to secure your first home!
How much deposit will I need to put down?
When choosing a mortgage, you can see which deals you might qualify for based on the size of the deposit you have by looking at what is known as the mortgage ‘loan to value’ (LTV). For example, if you are looking to buy a property valued at £100,000 and have a £5,000 deposit you will be looking to borrow 95% of the property value. Typically, the more deposit you have to put down the better the mortgage rates will be.
What is the difference between a repayment mortgage and interest only?
A repayment mortgage is the most popular and recommended option. This is where you pay both the mortgage debt and interest back to the lender every month. This means that as long as you pay every mortgage payment, you will be mortgage free at the end of the mortgage term.
Interest only means you simply cover the cost of the interest on the mortgage debt each month. The actual mortgage debt never reduces, so you would still owe the full amount that you initially borrowed at the end of the mortgage term.
Lenders require you to have a specific repayment vehicle in place to repay the interest only mortgage debt at the end of the mortgage term. These types of mortgages are only ever advisable where you have a specific repayment vehicle in place to cover the entire mortgage debt, and mortgage applications on this basis are subject to stringent checks by lenders.
What type of mortgage products are available?
The two main types of products available are a fixed rate mortgage and a variable rate mortgage, more commonly called a tracker rate.
A fixed rate mortgage is where your interest rate remains fixed for the duration of the initial product. Lenders typically offer fixed rate products over two, three or five years, however a very small handful of lenders also offer seven and ten year fixed rate deals.
A tracker rate mortgage is typically a two year deal, and is where you are offered a set rate of interest which is directly above and linked to the Bank of England base rate. Put simply, it is a variable rate so your interest rate and monthly mortgage payments could rise or fall each month.
Other forms of variables rates include in ‘Discounted products’ and the lenders own ‘Standard Variable Rate’.
There are a number of considerations when working out which is the most suitable product for you. These included your income, career plans, how long you intend to live in the property and your attitude to risk. This is something our experts will take to you about in great detail to ensure we recommend the most suitable product.
What documents will I need to provide?
This will vary depending on the specific bank or building society you apply to, but as a guide you can expect lenders to ask for the following to help assess and underwrite your application:
- Latest three months payslips, or the last 13 if you are paid weekly
- Latest three months bank statements showing receipt of your salary
- Latest P60
For self employed:
- Latest three years Tax Calculations and Tax Year Overviews if you are a sole trader
- Latest three years business accounts if you own a Limited Company
Plus the following:
- Proof of your deposit (requirements can vary depending on whether this is coming from savings or is a gift from a family member)
- Proof of your ID such as a passport of driving license
- Proof of address in the form of a bank statement, utility bill or council tax statement
This list is not exhaustive, especially if you receive bonus / overtime / commission as part of your role or receive government benefits or maintenance income.
How much are the solicitor costs?
You will need a solicitor (often referred to as a conveyancer for property related transactions) to complete the necessary legal work associated with purchasing a property. They will work on behalf of both you and your mortgage lender.
Solicitors costs will vary from one firm to the next, however the general rule is that the more you pay the better quality service you will receive. The cheapest solicitors around often have very little interaction with you during the process, and can make the process of purchasing a property significantly more stressful than it already is. This is why we have very carefully selected which solicitors we recommend (find out more here).
Do I need to pay stamp duty?
This depends on the value of the property you are purchasing, and the incentives offered by the government. These are due to change again as of 1st April 2021 when the current stamp duty holiday scheme ends.
Stamp duty is also impacted depending on where you are purchasing in the UK. To get an idea of what your potential stamp duty costs may be, please click on the appropriate link below:
For properties in England and Northern Ireland, please click here
For properties in Wales, please click here
For properties in Scotland, please click here
Please note this is only a guide and you should speak to one of our conveyancers to receive specialist advice and confirmation of the exact amount of stamp duty you will be required to pay.
Have you considered any extra costs?
Even a newly built house will require some sort of furnishings, whereas older properties may require extensive work, such as re-flooring, tiling or renewing the wiring. These should be considered alongside the purchase price, and fees such as conveyancing and stamp duty.
Know what to look for when viewing properties
Always take an experienced home buyer with you when viewing properties as there may be important details you could be missing out on.
If you have been used to living at home with your parents, remember to budget for expenses such as council tax, gas and electricity bills, boiler servicing, and other home repairs.
Council Tax Charges
Make sure you know what the likely council tax charge will be in your new property. The selling agent should be able to tell you what tax band the house you are interested in buying is in, and how the charges are levied by your local authority.
If you know the post code of the property, you can check the current council tax charges here – mycounciltax.org.uk
Remember a mortgage is a long term commitment and there are lots of different products available, so it is important you get the right solution for your circumstances and budget.
Call our experts today for more information