First Time Buyer
“We tailor our advice to you and manage everything with the lender from that initial application all the way through to your mortgage offer. Then we work with your solicitors right through to completion.”
Mike Haupt – Mortgage Adviser
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First Time Buyer’s Frequently Asked Questions
Listen below as Mike Haupt talks all about mortgages for First Time Buyers.
In just over 15 minutes, you’ll know a lot more about getting your first mortgage sorted.
How is the mortgage process different for First Time Buyers?
It’s not dramatically different for First Time Buyers. The biggest difference is that it’s the first time you’ve ever gone through it. It’s always going to be a little bit daunting and you probably need a little bit more support to understand what help is available and what’s the right type of mortgage for you.
That’s really the main difference for a First Time Buyer, compared with a home mover who has had a mortgage before.
What is an Agreement in Principle?
An Agreement in Principle has a few different names. It can also be called a Decision in Principle and some banks may call it something different, even a ‘mortgage promise’. Ultimately they’re all the same thing.
It’s where we’ve gone to a mortgage company that’s the most appropriate for you and asked how much money you could borrow. We go through some of your personal details like your income and your commitments. The bank will run a soft footprint credit score then hopefully say yes, we’re happy to lend you a certain amount of money based upon your circumstances.
That then means you know how much you can borrow for the house that you’re looking to buy. It’s a very important step in the process. Getting that Agreement in Principle should be the first step on your way. It prevents a situation where you end up falling in love with a house that you can’t really afford.
How much can a First Time Buyer borrow?
There’s no set rule on how much you can borrow. The banks and building societies each have an affordability model and an income multiplier – which is how many times they’ll multiply your income up to calculate the total loan.
Your affordability will take into account your cost of living – things like car loans, personal debt etc. Lenders come up with a figure based upon how much you earn, your lifestyle and your living costs. It’s very much an individual answer. Person A and person B might be able to borrow very different amounts of money.
Again, that’s why it’s so important to get that Agreement in Principle done early on so you know exactly what your borrowing capability is.
What deposit is needed for a First Time Buyer?
It’s becoming more and more commonplace for a 5% deposit to be the minimum requirement. But the more deposit you put in, the lower the interest rate tends to be and therefore the cheaper the mortgage is.
A lot of banks now accept a 5% deposit. There are certain lenders and schemes that accept slightly different deposit set-ups. You could potentially use equity in mum and dad’s house or savings from parents or other family members.
How do I know what my credit score is, and how do I improve it?
Your credit score is basically a record of your financial history. Companies like Experian, Equifax and a couple of others monitor your credit file and then report to the financial institutions on a monthly basis about how you’ve maintained your credit.
I always advise people to get a copy of their credit file. You can use someone like Clearscore, Checkmyfile or go to Experian directly. Then you will know what your credit history looks like. It’s always good to have maintained your credit rating, which means making sure your payments are on time, you’re not exceeding credit limits or missing payments.
Something I come across a lot with First Time Buyers is that they’ve done a huge amount of saving and not borrowed much in the past. Unfortunately, that means there’s not a huge amount of a credit file on you. That limited history can have a negative impact.
It can help to take out a credit card and put a minimal amount of money on it on a monthly basis and then pay it off. That will just show that you are responsible when borrowing money.
I’m not trying to encourage anyone to go out and take on debts out and put themselves in a difficult situation. It’s about carefully proving you’re a good borrower.
What is a First Time Buyer ISA?
The First Time Buyer ISA was launched a few years ago. It’s now stopped and has been replaced with something called a Lifetime ISA. That does something similar and is open to a broader range of people.
A lifetime ISA is open to anyone who hasn’t previously owned a home. If you’re aged between 18 and 40 you can put up to a maximum of £4,000 a year into it. The government will then pay you a 25% bonus on that saving.
So if you’ve saved £4,000 in a year, they will then give you a £1,000 bonus when you come to take the money out of the ISA on completion of your new property. It’s a really good savings tool that essentially gives you free money. It’s well worth investigating.
Does It Cost For An Initial Chat?
Please don’t be afraid to pick up the telephone. Contact us with any questions or any conversations you want to have. There’s no commitment, there’s no silly questions. I’m here to try and help put your mind at ease, so let’s have a conversation and answer your questions.
What sort of help is available for First Time Buyers?
There’s a few different things available. The Help to Buy equity loan is ending in October 2022 and at the moment there is no set replacement for that. But there may well be something coming along in the future.
Another option is Shared Ownership, where you buy a percentage of a property and then you rent the other share. You might need to buy a three-bedroom family home but not quite be able to afford it. With Shared Ownership you could buy 25% to 50% of that property with a mortgage and then rent the other part of the house from the local authority.
The great thing about shared ownership is it makes getting into a house affordable. You can also do something called staircasing, to buy bigger shares of the property as you go along.
Another option is Joint Borrower Sole Proprietor, where you may decide to borrow with mum and dad. You can include their income on the mortgage to make that property affordable, but they’re not legal owners of the property. They’re not on the title deeds, they just support you from an income perspective.
In terms of other help for First Time Buyers, some lenders will have special products with added benefits but that varies by lender and timing – and there’s no government help on those.
What fees are involved when buying a house?
There are a few! Buying your first home can be quite expensive but there are options out there for you. The big fee is stamp duty. Every property purchased in the UK has a tax called stamp duty.
For First Time Buyers the government recently announced a change to stamp duty (as of September 2022). They have increased the fee-free limit up to £425,000. So for a property priced under £425,000 you do not pay any stamp duty. Above that limit you pay the duty at a rate which your solicitor will confirm for you. It’s great they’ve increased that level to make buying a property more affordable.
Next are mortgage fees and a broker fee. So if you do use a broker like us here at Tomorrow Mortgages there is potentially a fee to pay. The lender might charge you a product fee which can vary from zero all the way up to £1500 or £2000. Usually if you’re paying a product fee it’s because you’re going to get a slightly more beneficial rate.
You’ve then got things like surveys to pay for. There’s a big range of surveys available from a basic mortgage survey through to a full structural survey. Your broker will talk you through those fees so you know your options.
There are also solicitors or conveyances who do all the legal work to transfer the property into your name. They also do local and environmental searches. There is a wide range of conveyancers out there from big national companies to local professionals – the costs range hugely. So it’s worthwhile doing your research to make sure you’re comfortable with the different options out there.
It’s also worth looking at insurance that you have, like life insurance and income protection. Insurance is also needed on the home to meet the conditions within the mortgage. There’s lots of information here, and that’s why it’s really important to make sure from early on that you know how to get everything in line.
How can a mortgage broker help if you are a First Time Buyer?
There’s a huge amount to take on board. A good mortgage broker is here to hold your hand and guide you through the process. It starts with the initial conversations about all those options and the different costs and fees to then work through the right type of mortgage for you.
One thing we haven’t even discussed yet is the mortgage itself. What type of mortgage is right for you? What’s the monthly budget? What are your future plans and how do we make sure that whatever you decide to buy works now and in the future?
Having somebody that you trust and you can lean on through this process is invaluable. It’s definitely worthwhile seeking out the help of an independent like ourselves.
It’s really important to work with people you trust to give you the right advice. The right people make a very daunting situation become really easy and very stress-free. And hopefully here at Tomorrow Mortgages that’s something we can help you with.
Your home may be repossessed if you do not keep up repayments on your mortgage.