Buying a house for the first time may seem like a daunting task. There is a lot to sort out and consider, and a lot of various payments involved, some of which you may not even know about until you start the buying process.
You really need to understand the financial commitment you are about to make, as buying your own home will undoubtedly be one of the most expensive purchases you make. There are many reasons someone would rather rent than own, and you should carefully consider the pros and cons of each before making a decision.
But if you’ve decided to take the plunge into homeownership, then we’re here to help. We’ve compiled this helpful guide for first-time buyers, including the crucial step-by-step process and helpful hints and tips for making the process as easy as possible.
The first couple of steps involve spending some time getting your finances in order.
Save for a Deposit
There is no set amount of money you need to save up for a deposit, but you should be aware that the bigger the deposit you save, the cheaper mortgage deals you will be able to get. This is because the more money you put forward for a house, the less of a risk you will be considered to be by the lender.
Generally, you need to try and save 5% to 20% of the cost of the property. For example, a house that costs £150,000 would require you to save at least £15,000 to make up a 10% deposit. But saving more will give you access to a wider range of mortgages available on the market. A deposit of 25% is recommended to allow you access to the best possible deals; 10% is considered the average, although some lenders will do deals at 5%, but these may be harder to come by.
Unless you have the full amount of cash to buy the property, you are going to need a mortgage. A mortgage is essentially a loan from a bank or building society that you can put against a house or flat. You will then pay back the loan along with accrued interest over a number of years.
The best way to find out what types of mortgage schemes are available is to search online. You can look at price comparison websites or read online news and guides on mortgages; you could even speak with a mortgage advisor about the best options, although you would need to pay for this service.
What mortgage you go for is dependent on the size of your deposit. Again, the bigger the deposit, the more mortgage options will be available to you. Lenders have rigorous checks in place to ensure you will be able to keep up with your mortgage payments. You will need to show proof of your income and expenditures as well as evidence of your financial profile, such as bank statements or payslips.
You should secure an agreement in principle from the lender, which is a statement that essentially says that ‘in principle’ you could borrow up to a certain amount when mortgaging a property. It is not a guaranteed offer, but it will put you in a stronger negotiating position with estate agents.
Available Schemes for First Time Buyers
There are different home owner schemes available from the UK government to help first-time buyers onto the property ladder; these schemes differ between England, Scotland, Wales and Northern Ireland.
There is a ‘Help to Buy’ scheme, which provides a helping hand to buyers with only a 5% deposit. It is not limited to first-time buyers, but most applicants fall into this category. It launched in 2013, and currently only runs the equity loan part of the scheme (the mortgage guarantee aspect was scrapped at the end of 2016).
The equity loan requires a minimum 5% deposit of the property value with the Government offering an interest-free loan of a further 20%; the remaining amount is covered by a mortgage. Most major lenders offer this scheme. An example would be: a property costing £200,000 would require a deposit of £10,000, and you would need to qualify for a mortgage of £150,000. The Government would make up the rest of the cost with an equity loan of £40,000.
Another option is the ‘Help to Buy ISA’, launched in 2015, which is designed to boost first-time buyers’ savings. For every £200 you save, the Government will add £50. There is a maximum bonus of £3,000, which would apply to £12,000 of savings. However, this cannot be put towards the deposit and is payable at the exchange; it is paid directly to the mortgage lender upon completion.
Stamp Duty Land Tax is the tax paid when you buy property or land over a certain value. The rates will depend on the property; the higher the value, the higher the amount you will pay.
There have been several changes made to Stamp Duty over the last few years. For first-time buyers, the Stamp Duty was removed on the first £300,000 of homes worth up to £500,000 in November 2017. Homes worth £300,001 and £500,000, had a 5% rate applied. This, however, has changed very recently with the 2018 Autumn Budget released on 29th October.
The Stamp Duty exemption for first-time buyers has been raised to £500,000, an increase of £200,000 from the previous threshold. So, unless you’re planning to purchase a property worth more than £500,000, you should not have to worry about Stamp Duty, if you’re a first-time buyer.
Unfortunately, there are further costs associated with buying a home. The lender will charge you for entering into a mortgage agreement and may also ask you to cover the cost of assessing the value of the property, known as a valuation fee.
When you’ve chosen a property, you will most likely need to hire a chartered surveyor to check that the building is structurally sound. The costs will vary, but it is advised to do it at this step so that any maintenance issues can be flagged up before you follow through with the purchase. This can save you money on repairs in the long run.
It is also a good idea to appoint a conveyancer to manage the legal sides of the purchase. They can draw up the contract, deal with the Land Registry and any Stamp Duty charges. There are then further costs to consider, such as hiring removal companies and decorating the property. Remember to factor all these things in when budgeting.
Find a Property
Once your budget is in place, you can finally start looking. The best place to get started is online. There are many online property websites you can explore. You can register your interest with estate agents operating in the area you are looking to buy, and don’t forget to keep your eye on the property pages of newspapers.
It’s a good idea to bring someone with you when viewing a property, if possible someone who has gone through the process themselves. They should be able to offer insight and help you with spotting any potential problems with a property that you failed to notice.
When viewing a property, make sure you ask as many questions as possible, such as how long the property has been on the market, what’s included with the sale and whether any other offers have already been made. If possible, you should also try to talk to the neighbours to get a real insight into the area you’re moving into.
Put in Your Offer
Once you’ve found the home for you, you will need to put in an offer to the vendor via the estate agent. This is where your agreement principle for your mortgage will come in handy, as you’ll need proof as a first-time buyer that you have the means to secure a mortgage.
When the offer is accepted, you can then apply for your mortgage formally. This is now the time to get surveys carried out on the property, which is largely managed by solicitors.
Your solicitor will handle all the legal and administrative work for transferring the property. As well as Stamp Duty and Land Registry, they will also transfer the money during the sale, and act as a point of contact between you, the lender and seller. You will agree the terms of the sale, how much the property is transacting for, the completion date and when you can move in.
With your mortgage approved, the lender may require you to insure the property as part of the approval process. Once the contracts are exchanged, you are locked into a legally binding contract to buy the property. On the agreed completion date, you can pick up the keys from the estate agent or seller.
Your New Home
With all that tremendous effort over and done, you can finally start the next chapter of your life in your new home. You’ll need to set everything up such as alerting your employer, bank, mobile phone company, etc of your change of address.
If you’re looking for estate agents in Lancaster, contact Fisher Wrathall today. We combine decades of property expertise with a modern and innovative approach to provide a high level of service. You can browse our range of available properties on our website.