Couple in new home

Buying your first house is an incredibly exciting, yet somewhat daunting prospect. With so many steps required before you can finally relax in your dream home, it can be tricky to take your first leap onto the property ladder.

With this in mind, we have collated our most useful advice for first time home buyers, to help to kickstart your journey. From how to boost your credit score to the all-important deposit, our guide will ensure that you are fully prepared for each stage.

Essential Advice For First Time Home Buyers

Buying your first home, unfortunately, isn’t a process that you can complete overnight. In fact, preparations must commence years in advance in order to save enough cash for a deposit. There are many different ways that you can effectively save for your first home, and it all begins with delving deep into your spending habits.

As a homeowner, the ability to budget each month is imperative. The sooner that you can begin to make lifestyle changes, the easier it will be to manage finances when faced with mortgage repayments and monthly bills. While in the past, you may have been able to afford spontaneous holidays and shopping trips, this may no longer be the case. Spending wisely is all about thinking ahead and ensuring that each expense is a worthwhile investment. MoneySavingExpert.com has a fantastic guide on how to stop spending, including tonnes of ideas on how to cut back your expenditure.

Once you have saved enough for a deposit and feel ready to begin hunting for your first home, its time to start familiarising yourself with the world of mortgages.

Types Of Mortgages

First and foremost, it is vital to spend time understanding the various types of mortgages to find which option is best suited to your financial situation. Mortgages, by definition, are a form of loan from the bank or building society, which provides you with money for a property. Unless you are lucky enough to be in a position when you can pay for a property in cash all at once, you will need to take out a mortgage. This is the most common route for first-time buyers. The different types of mortgages are as follows:

  • Fixed-Rate Mortgage – When opting for a fixed-rate mortgage, your interest rate will always stay the same for the duration of your deal. Regardless of changes in the economy, nothing will happen to your interest rate, which means your monthly payments will always be the same.
  • Standard Variable Rate (SVR) – The interest rate on SVR mortgages is based on the base rate set by the Bank Of England, which means it can change with time. With an SVR, you are free to overpay if you have some spare cash one month.
  • Discount Mortgage – A discount mortgage allows you to pay a little less for a set time period, usually around two to three years. After this, your monthly payment will go to to the lenders SVR.
  • Tracker Mortgage – The tracker mortgage interest rate works in line with the Bank Rate. For example, if the base rate goes up by 0.2%, so will your interest rate.
  • Offset Mortgage – An offset mortgage is the most affordable and helps you to clear your mortgage quicker. Your mortgage will be linked to both your savings and current account, and you will only pay interest on the net balance.
  • Guarantor Mortgage – A guarantor mortgage is popular amongst first-time buyers as it allows family members to contribute. It means that a parent or relative who has signed the contract to be a guarantor can cover repayments if you cannot.

You can find more information on the different types of mortgages on The Money Advice Service.

Couple speaking to broker

Consider Your Deposit

Nowadays, you are unable to get a mortgage without a deposit. The most significant chunk of money that you have saved up will be put towards your deposit. As a rule of thumb, the more money that you save up for your deposit, the less you will need to borrow from your bank to cover the remainder of your deposit. Therefore, the less you’ll need to pay back and the lower the interest rate. Those who save more money for their deposit will have access to more competitive mortgage rates.

As a minimum, you need to have a deposit of at least 5% of the value of a property; however, 20% is the ideal percentage. To give an insight into how saving a more substantial deposit can benefit you, take a look at the following statistics based on a £200,000 home:

With a deposit of 5%, there will be:

  • A 2.79% interest rate
  • A £190,000 loan
  • £880 monthly repayment

However, with a 20% deposit, there will be:

  • A 2.05% interest rate
  • A £160,000 loan
  • £682 monthly repayment

Try Boosting Your Credit Score

Unfortunately, your quest to getting financially ready for a mortgage doesn’t just include saving for a deposit. You will also need to focus on boosting your credit score. Lenders will always complete thorough credit checks on your financial history, spending habits and reliability before agreeing to give you a mortgage. Without a credit score or with a negative credit score, you risk being rejected.

Similarly to saving for a deposit, building a positive credit score will take time and patience. The earlier that you can work towards altering your spending habits, the easier it will be to establish and maintain your score. Some proven ideas on how to boost your credit score include the following:

  • Always payback on time – While it may sound obvious, even one late repayment on your credit card can have a detrimental impact on your score. A great way to avoid this is to schedule direct debits for the day or day after you have been paid.
  • Register to vote – Those who are not registered on the electoral roll will struggle to be accepted for credit. Always ensure that you have applied in advance using the GOV.UK website.
  • Limit credit applications – Although there is nothing wrong with opting for credit options, try to limit applying for credit several times in a short period of time. It will come across that you rely on credit too much and could be a liability for lenders.
  • Don’t withdraw cash on credit cards – Not only is withdrawing cash using your credit card considerably more expensive, but it is also seen as poor money management.

Paying on credit card

Don’t Forget Additional Fees

When saving money to purchase a first home, many fail to consider the array of additional payments required to complete the process. While your deposit will be the most substantial saving, there are several other factors that you must consider. Each comes alongside an expense, which will need to be saved in advance to avoid running into money issues during the mortgage application process. Again, the more organised you can be, the easier it will be to prove to lenders that they can put their trust in you. You will need to have enough money saved to cover the costs of:

  • Stamp Duty – If the property value is under £300,000, first-time buyers do not have to pay stamp duty. Properties between £300,000 to £500,000 will have a 5% stamp duty, and any over this amount will require standard stamp duty rates. More details on stamp duty for first-time buyers can be found on HomeOwners Alliance.
  • Valuation Fee – For a lender to determine how much money they are prepared to give you to cover your mortgage, they will need to assess the property value. This can cost anywhere from £150 to £1,500, depending on how expensive the property in question is.
  • Legal Fees – When buying a home, you will need a solicitor to help you complete all legal aspects. Legal fees cost up to £1,500, along with 20% VAT.
  • Surveyors Fee – While a survey is not compulsory, it is highly recommended to check the condition of the home you are considering buying. Opting to hire a surveyor will cost around £250, but can save you a tonne of money on repairs.
  • Electronic Transfer Fee – The cheapest additional payment will be the fee required for your lender to transfer the money for the mortgage over to your solicitor. This typically costs £50.
  • Removal Costs – You’re going to need a van large enough to transport all of your belongings to your new home. Depending on how far your property is from your current location, this can differ dramatically. We suggest using Compare My Move to find the most cost-effective removals company.

Couple managing finances

Research Government Schemes

It is no secret that getting on the property ladder is now harder than ever. But luckily, this has been recognised, and there are now various government schemes to support first-time buyers.

The most useful government scheme is Help To Buy, which allows new homeowners to purchase a house with just a 5% deposit. If you are able to save 5% of a properties value, then the government will provide you with an additional 20% as an interest-free loan. This means that you will now have a 25% deposit and will only have to take out a mortgage that covers the remaining 75%. Zoopla has put together a useful article that explains Government homebuying schemes further.

Speak To A Mortgage Advisor

Particularly if you are beginning the mortgage application process for the first time, you’re going to need as much advice as possible. Purchasing your first home is the most significant investment you would have ever made, so your chosen property needs to be perfect. A mortgage advisor, also known as a broker, is the best source of information, support and guidance, helping you to save as much money as possible when moving home.

Finding a mortgage advisor that fits your requirements can be tricky, so we suggest beginning with independent brokers. Mortgage advisors who work on behalf of a bank will be experts in their field, however, may be slightly biased towards their employer. Independent brokers, on the other hand, will take a more honest approach as they are not tied down to any firms. They will allow you to search through their broad network of contacts to ensure that you can track down the best deal for your situation.

Talking to mortgage advisor

New Home Renovations

When searching for your first home, you will have a dream property in mind, and in your opinion, nothing less will be acceptable. However, it is important to be flexible and keep an open mind to the array of possibilities that a property may pose.

If you find a property for an exceptional price, in an ideal location and it meets your aesthetic requirements, do not turn it away simply down to minor details. As specialists in house extensions in Milton Keynes, we can guarantee that you can transform any property into your perfect home with a few slight alterations. Particularly if there is a large garden, then the floorplan can easily be extended through a few weeks of construction work.

Find The Perfect First Home

We’re not going to try and sugarcoat buying your first home as an easy, quick process. Saving for a deposit, arranging home visits and preparing your finances is going to be tedious, but it will most definitely be worth the extra patience.

We hope that our guide has given you some useful advice as a first-time buyer, if so, why not share on social media?