First-time buyers

Buying a home for the first time can be a daunting experience. And being able to afford to buy a property has become the biggest problem for those trying to get on the property ladder.

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Five Point Plan

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Get some good advice. One of the best ways to help yourself as a first-time buyer is to seek out independent, professional advice. Family and friends are understandably the first port of call for many first-time buyers.

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Do some mortgage research on the internet. Check out sites like www.whatmortgage.co.uk where you can shop around for a mortgage to suit you and find ans­wers to many of your questions.

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Investigate shared ownership. This is where buyers can purchase a proportion of the property and rent the rest. These schemes can appeal because buyers need a smaller deposit and mortgage amount for the same property on the open market.

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Never borrow more than you can afford. It may be tempting to try to outbid the competition for a property you like, but be realistic.

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Don’t forget the added costs. It’s not just the mortgage, but insurance, furniture, council tax and so on that you need to consider.

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Saving a deposit is the place to start. The bigger your deposit, the wider your choice of mortgage loans will be.
And if your deposit is worth at least 5% of the property you want to buy, many more lenders will be prepared to lend to you.

In 2019 a 5% deposit on the average first-time buyer house was £11,500. For many first-time buyers finding this kind of sum can be hard.

Tempting as it may be, avoid borrowing the money for your deposit from a bank or building society, or on a credit card.

Before your mortgage is agreed, you will have to declare the loan with all other monthly expenditure on your mortgage application, which cuts the amount mortgage lenders  will let you borrow.

In the past, many lenders were happy to lend 100% – or more – of the value of the property. The financial crisis put paid to that, although some lenders offer options which allow parents or relatives to put money into a linked savings account instead of a deposit. 

Affordability
Mortgage lenders have traditionally used income multiples to decide how much to let you borrow – although again, since the housing boom hugely inflated prices, this calculation can produce an affordability ‘gap’ because house prices have risen beyond these calculations.

Now, many lenders – at least 30 according to Moneyfacts – let you borrow based on ‘ability to pay’, which sometimes allows applicants to borrow a little more.

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If, for example, you have a clean credit record, no children and two incomes, some lenders may be willing to give you more because you may have a higher disposable income.

Nationwide Building Society, Santander, Alliance & Leicester, Standard Life Bank, Halifax and Norwich & Peter­borough BS are among these lenders.

Incidentally, lenders are often prepared to offer you a little more if you choose a five or 10-year fixed rate mortgage, because the monthly repayments stay the same for a long time, which is easier for borrowers to manage.

Fees
First-time buyers can be surprised by all the mortgage-related fees and charges.

Mortgage application fees, lender valuations and stamp duty alone can start at anything from £2,000 depending on the property price – and that’s before you move on to solicitor fees and surveys.

Research shows fewer than 10 per cent of first time buyers put cash aside for these fees. So many people pay fees out of their deposit, further limiting their mortgage options.

Several lenders offer cashback or fee-free mortgages to first-time buyers, which provide some welcome cash at a financially tricky time.

However, rates may be higher on these loans and so may cost more in the long run.

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