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A practical guide for first-time home buyers

Buying your first home is an exciting milestone for many people. Although often the only option, renting can be frustrating as you’re paying money every month that you’ll never see again. With a mortgage, however, every pound paid back is an extra step closer to owing your own property outright.

The process of buying your first home can be daunting. The choices you make now could have a huge impact on your financial circumstances for many years to come.

The good news is, although it is your first time, it is far from our first time! Our experienced, friendly team at Protection & Investment Ltd (PIL) has been helping clients through the process of buying their first home for over 25 years.

Certain mortgage offers, schemes and initiatives are only available to first-time buyers, so it is important that you get the right advice to ensure that you get the best deal for you.

Our experience is a valuable asset that benefits you when you work with us, as we help to navigate you through every step of the process. We bring to your attention all the financial options available based on your circumstances, needs and plans, and advise you in a clear (no jargon) and straightforward way.

In this article, we talk through everything you need to consider when you are buying your first home. 


So, where do you start?

It sounds obvious but, first, you need to consider where you want to live. Do you want to be close to where you work, to your friends and family, children’s schools, easy transport links?

Would you like to be in the heart of a city, town or village; walking distance from the hustle and bustle and close to local amenities, or would you prefer to be in a quieter, greener area? Some people want to take on a ‘doer upper’ project, others prefer to move in to somewhere that doesn’t even need a lick of paint. 

When you have decided where you want to be, and the kind of property you are looking for, it will be a very useful exercise to research local area prices online. Zoopla is a good starting point. 

With this ballpark price range in mind, your priority will be to find out from a qualified and experienced mortgage adviser how much money you can borrow. This will enable you to establish if your dream home is within reach or if you need to make some compromises.

The amount of deposit you need to secure your mortgage will be a key factor, so it will be important for you to set a budget and a timeline for getting your deposit together.

Because bigger deposits attract lower interest rates and therefore lower monthly mortgage repayments, it is tempting to put down as big a deposit as you can. 

However, you should be mindful of not leaving yourself short when it comes to paying for the other upfront costs involved in buying a property:

  • Survey costs.
  • Solicitor or conveyancer fees.
  • Mortgage arrangement and valuation fees.
  • Building and contents insurance.
  • Stamp duty*.
  • Legal fees.
  • Furniture and appliances.
  • Moving costs.

*There are some perks in being in a first-time buyer and stamp duty is one of them.

First-time home buyers painting and decorating their walls white.

At the time of writing, if you are not a first-time buyer, you have to pay stamp duty on any property priced over £250,000. The good news is that first-time buyers do not have to pay any stamp duty on a property priced up to £425,000. If the property you are purchasing is between £425,000 and £625,000 you will pay 5% stamp duty on that portion. If the property price is above £625,000, the first-time buyer relief on the £250,000-£425,000 portion does not apply.

Equally important as the deposit figure is the amount you can afford to pay in mortgage repayments each month. 

Our mortgage team at PIL Southampton can work through your income and expenditure figures with you, using our experience to make sure you have thought of everything. 

This thorough exercise will give you an accurate position of how much you will be able to borrow for a mortgage.

An overview of mortgages

There is an extensive range of mortgages to choose from – fixed rate, standard variable rate, buy-to-let, capped-rate, discount, flexible, guarantor, help-to-buy, joint, offset, tracker, 95%. 

A lesser known type of mortgage that can be a great option for a first-time buyer is the ‘Joint Borrower, Sole Proprietor’ mortgage. It enables other parties, like parents, guardians, friends or family, to support first-time buyers getting on the property ladder. Several individuals can be mortgage borrowers, but only one is named on the title of the property.

Mortgages have traditionally been taken out for 25 years, but they can be as long as 40 years – particularly for younger borrowers. 

The longer the mortgage term, the smaller your monthly repayments will be, and vice versa. Bear in mind, however, that you’ll be paying more in the long run for a longer-term mortgage as you will be paying interest for longer.

The mortgage term is the number of years until the mortgage is paid off in full or, if it is an interest-only mortgage, the date when you have paid off all the interest on the mortgage and need to repay the amount you borrowed in full.

Your mortgage adviser will be familiar with the differences between the types of mortgage available, and the pros and cons of each. It is our job to get to know you and your financial circumstances in order to provide you with suitable advice, ensuring that you take up the most appropriate mortgage product for you.

Boosting your chances of getting a mortgage

Each mortgage lender has their own methods of deciding whether they want to lend to you. If you fit their criteria, you will hopefully get accepted quickly. If you don’t, you are more likely to get rejected. Apart from the amount you are looking to borrow and how much deposit you can put down (the bigger the deposit, the less of a risk to the lender, which will work in your favour), here are some other areas to consider, that you have some control over:

  • Your outgoings – how you spend your money.
  • Your existing debt, i.e. credit card debt, student loans, car hire purchase agreements, etc.
  • Your credit report; check it before the mortgage lender does. There are three credit reference agencies in the UK (Experian, TransUnion and Equifax) and it’s free for you to check their reports.
  • Making sure that you’re registered to vote, as lenders look at the electoral roll to validate your identity.
  • De-linking yourself from financial arrangements with ex-partners or flatmates, to prevent their credit history affecting yours.
  • Carefully managing your available credit at ideally 25%, or at the most 50%; a potential lender won’t appreciate you being ‘maxed out’ at the top of your credit limits, but equally they don’t want to see you keeping thousands of pounds of available credit you’re not using, as it looks like you could take on a lot more debt at any time.
  • Always paying your bills on time. Missed payments count against you on your credit file and stay on your file for six years. Set up direct debits where you can, to make sure that all your bills are paid on time.
  • Not applying for other credit for at least three months, or ideally six months, before you apply for a mortgage in case it negatively impacts your score and increases your chance of rejection. The more credit searches you have in a short time, the less likely you are to be approved for credit as it can look like you’re desperately needing to borrow money.
  • Cutting back on your spending several months before you apply for your mortgage, as part of lender’s process will be to get a feel for your outgoings by looking at your recent bank statements.
  • Not using your overdraft as it can look like you’re living beyond your means.
  • If you’re renting and you always pay on time, signing up to a free scheme that should improve your credit score; the longer you’re on it before you apply for your mortgage the better.
  • Pushing your deposit up a little. Because of the LTV bands, you generally get a better mortgage rate if you apply for an 80% mortgage with a 20% deposit than an 81% mortgage with a 19% deposit.

If you get rejected, don’t fall into the trap of automatically applying to another lender and another and another. Each rejection will negatively impact your credit score. So, if you are rejected, before you apply to another lender carefully go through your credit report checks to see what the problem might be, or ask the lender who rejected you for their reason. 

Extra help for first-time buyers

Lifetime ISA

This savings plan is literally a gift. It was created to provide a way for people to save a deposit for their first home or for their pension. Anyone between the ages of 18 and 39 is eligible to open a Lifetime ISA and you can save up to £4,000 each year in it. The government tops up your savings by 25% so, if you save £4,000 per year, they will add £1,000 every year. If you save £1,000, they will add £250 to your Lifetime ISA. Also, being an ISA, you pay no tax on the interest earned from your savings. 

Mortgage Guarantee Scheme

Appreciating the ever more challenging economic conditions, the government has extended the Mortgage Guarantee Scheme from the end of 2022 to the end of 2023.

This initiative, launched in 2021 when 95% LTV (loan to value) mortgages were pulled from the market by providers during the pandemic, it helps more first-time buyers onto the property ladder by making it easier for them to get a mortgage with a 5% deposit, as the government provides mortgage lenders with financial guarantees enabling them to provide mortgages that cover 95% of a property’s value. This scheme applies to any property valued up to £600,000 and does not apply to new-build homes.

The extension of this scheme will be welcome news to many, especially as the Help to Buy scheme ends March 2023 and has already closed to new applications.

Note: Some lenders offer 95% mortgages outside of the Mortgage Guarantee Scheme that may be a better deal for you. Your mortgage adviser will highlight all the options available to you.

First Homes

This is a new scheme designed to help local first time buyers and key workers onto the property ladder, by offering homes at a discount of 30% compared to the market price. In some areas, the discount can even be as high as 50%. You have full ownership of your home and the discounts apply to the homes forever, so future generations of new buyers and the local community will continue to benefit every time the property is sold.

You are eligible if you are a first time buyer earning less than £80,000 per year (£90,000 in London) and your mortgage must cover at least 50% of the purchase price. Councils may apply additional criteria such as needing to prove a local connection or being a key worker.

Shared Ownership

Many people find that they can’t afford all of the deposit and mortgage payments for a home that meets their needs in the area they want to live in. With Shared Ownership, you buy between 10% and 75% of the market value of the home, and you rent the balance of the value of your home from the housing provider. You have the opportunity to buy more shares in your home in the future, as and when you can afford to do so. 

The size of the deposit you will need will depend on your mortgage lender’s terms, but it will typically be between 5% and 25% of the value of the share of the home.

You can find out more about these schemes on the ownyourhome website.

How PIL Southampton can help you

This is what we do every day! Experience is invaluable, and we have an extensive track record of helping many first-time buyers successfully purchase their first home, having found the right deal for them, and we would love to help you too.

The process

What are the stages of a mortgage application?

First, we arrange a meeting for you with one of our advisers who will assess your circumstances and calculate your affordability. 

Once our adviser has decided which lender will be the best fit for you, we will apply for a mortgage Agreement in Principle (AIP). In this part of the process, the proposed lender will review your credit score and assess your financial status before providing you with written confirmation of what they would be prepared to loan you. This is known as a pre-approval offer.

If the mortgage is to enable you to buy a new property, this is the time for you to put your offer in, showing the vendor that you are a serious buyer. 

When your offer is accepted, we start the full application process to convert your pre-approval into an official mortgage offer. Your AIP will already have covered some of the required documentation, but you will need to provide any other relevant documentation confirming your identity, address, source of income, etc.

The lender will carry out an independent valuation survey on the property, to make sure that its value can cover the mortgage amount.

When you receive your formal mortgage offer, it is important that you read the contract carefully and understand exactly what you are signing up for. After all, a mortgage is likely to be by far the biggest financial transaction you ever make.

Finally, your monthly mortgage payments will start in the calendar month after your completion date.

How PIL Southampton can help you

We can guide you through the mortgage process every step of the way, using our extensive experience to help you find the right mortgage and get the best deal for you.

How you can contact PIL Southampton

Our friendly, knowledgeable team is here to listen to your needs and take you through your options in a clear and straightforward way. You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.