First Time Buyers: Preparing, Applying & Completing
Despite the rise in mortgage interest rates and costs of living in recent years, first-time buyers still account for almost half of mortgage business annually. This can be due to purchasing schemes such as shared ownership, Help to Buy schemes on new-build properties and adapted lender support, such as higher loan-to-value products and Helping Hand schemes, which allows for a higher income-to-borrowing amount, subject to income. Longer mortgage terms have also meant monthly mortgage payments can be more affordable and help individuals get on the property ladder.
However, research shows that 30% of first-time buyers are unaware of the buying process and what can positively or negatively affect their ability to purchase their first home.
As a brokerage, we want to help our current and potential clients have a clear understanding of how to prepare, apply and complete on purchasing their first property, making the process as straightforward as possible.
- Affordability & deposits
Whether purchasing on your own, with a partner, friend or family member, you will have a maximum affordability amount based on your earned income, such as salary, against your current and expected commitments, such as children and debts.
As a generalisation, lenders will allow you to borrow around 4.5x the combined salary of the buyer(s). However, some lenders have schemes to help first-time buyers borrow more, such as Nationwide, which can offer up to 6x the amount, subject to income and credit score.
Most lenders require a deposit. For first-time buyers, this is generally 5–10% of the property value. Interest rates are typically lower when a 10% deposit is available, meaning monthly payments are reduced and less interest is paid overall. Deposits can come from savings, investments, or gifts from family or friends, all of which will need to be evidenced to the broker and lender.
We highly recommend the Moneybox Lifetime ISA (LISA), an FCA-regulated, tax-free savings account that allows you to accumulate interest and receive a government bonus of up to £1,000 a year. This can only be used by first-time buyers aged 18–40, the maximum purchase price is £450,000, and the account must be opened for a year before it can be withdrawn to purchase a property. Other withdrawals will incur a penalty.
For more information: https://www.moneyboxapp.com/isa/lifetime/
- Finding your first home and making an offer
Once you are in the position to purchase your first home, you can begin finding the right property. Whether looking for a home that needs minimal work, or one you wish to renovate, it must be within your affordability based on your loan amount and deposit. Estate agents will often request a lender Decision in Principle (DIP) certificate that proves you are in the position to put in an offer. This document is valid for 3 months, so there is less pressure to find a property. Once an offer is accepted on a property, it will be time for your broker to go to full application with the proposed lender.
- Full mortgage application & Legal process
Once an offer is accepted, your broker will proceed with a full application to the proposed lender. They will request information and documents to prove affordability.
If satisfied with the information, the lender will produce a mortgage offer that on average lasts up to 6 months, allowing time for legal proceedings.
When choosing your solicitor, we recommend using a local branch where you can visit face-to-face. Whilst online conveyancing can be attractive due to low initial costs, these can increase due to hidden costs, along with delays in responses. We have several solicitors we can recommend across the South-East region.
As a broker, we pride ourselves on remaining with you from initial enquiry through to completion and helping with any hurdles you may face. This includes remaining in contact with your instructed solicitors, checking proposed lender rates until exchange to ensure you complete on the best rate, and providing services for required insurances including Life, Critical Illness, Income Protection and Buildings & Contents.
What documentation will you need:
Documentation is requested by both the broker and the lender to check that that your mortgage is affordable and that you are a reliable lender, this will most commonly be:
- Proof of income (Pay slips & P60’s for the employed applicants and 2/3 years Tax overviews, Calculations and business accounts for self-employed applicants)
- Proof of deposit (Bank account statements and/or Identification if from giftors)
- Bank statements for current and credit card accounts
- Proof of address for your current residential (HMRC bills, bank statements, in-date driving license)
- Identification (in-date passport or driver’s license)
To-do’s and Not-to-do’s for first time buyers
To do:
- Ensure you are on the electoral roll at your current home
- Boost your credit score by demonstrating that you are a reliable borrower, such as having a credit card and paying the minimum amount each month. You can check your credit score via Checkmyfile, Experian and Equifax.
- Make sure your driving license and bank statements state your current address as both the brokers and the lenders will need to see this as proof of current address.
Not to do:
- Take out any additional debts such as loans and car finance the months before you are going to apply for a mortgage
- Negatively affect your credit score (don’t miss any payments on debts or direct debits and avoid using your overdraft. Going over 60% of your maximum limit on overdrafts and credit cards can decrease your score as it may lead lenders to believe you rely heavily on borrowing) You can check your credit score via Check my file, Experian and Equifax
- Have severe gambling habits showing on bank transactions
Expected and potential costs when buying your first home:
Your mortgage payments will not be the only costs you incur when you purchase your first home. You will often have one off cost’s such as:
- Broker/Adviser fees: Charged by your advisor if you chose to instruct one to help you, for sourcing and arranging your mortgage (we charge £425 at completion)
- Arrangement/ Product fee: Charged by lenders, often for a slightly lower rate on a product. This can be paid upfront or often added to the overall loan. (Usually around £1,000)
- Valuation fee: Charged by the lender for valuing the security property to make sure they will lend against the property based on its habitability, we also recommend you get an independent surveyor to ensure the property does not have any hidden issues (£300-£500)
- Legal fees: You will require legal help from a solicitor when purchasing your first home, this will likely cost between £1000-£2500.
- Stamp duty: At current first-time-buyers do not have to pay stamp duty when purchasing a property under £300,001, anything above this is 5% of the property value.
Continuing costs will be:
- Building & Contents (Home) insurance: This is to cover the property and its contents against any possible risks such as fire, water damage and theft. The price of this depends on the property price and area but it is usually between £40-£60 a month.
- Life, Critical Illness cover: These policies are advised based on your purchasing circumstances. Both may not be required, but they are monthly premiums paid to protect your mortgage payments should you pass away or suffer a critical illness. In the case that this is required, a lump sum or monthly income will be payable to support you and your family.
- Income protection: Should you be unable to work, this cover protects your income until you are able to return to work or the policy ends and is ideal for homeowners with only one source of income.