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Help for First Time Buyers: Tips and Advice

Phi Spencer

By Phil Spencer

Looking for some first-time buyer help?

Buying that first property is exciting, nerve-wracking and a step towards independence for many of us.

But it can be fraught with difficulty if you’re not careful. To ensure no problems arise, here’s some essential advice and help for first-time buyers.

It’s tough for first-time home buyers, but not impossible

The average age of those getting their foot on the property ladder is 32 (in London) and 30 for the rest of the UK.

While it’s more expensive to buy a home nowadays, it’s not impossible – and getting easier than in the recent past. According to Halifax, 10% more first-time buyers picked up the keys to their new home in the first six months of 2017 than they did in 2015.

What’s more, these kind of buyers are more attractive to sellers, as they're chain free.

However, property buying can still go wrong.

How have socio-economic factors affected first buyers?

Is society to blame?

For the past couple of decades, young people have been putting off buying homes until their late 20s or 30s as they focus on attending university and getting a foothold on the career ladder.

Moreover, according to research carried out by Countrywide, one in five homes today is owned by a company landlord. These non-owner/occupier landlords hold onto property and continue to rent it out year on year – slowing down the property market.

First-time buyer schemes

Unsurprisingly, with all these problems, many new buyers need financial assistance to get their foot on the property ladder. So, what help is available?

Luckily, assistance exists in many forms, such as money-lending schemes. For many, these have made the difference between owning a property and not.

Therefore, one important pieces of advice is to consider one of these first-time buyer government schemes:

Help to Buy

As house prices rise so too does the amount needed for a deposit. Hamptons reports it takes around 12 years for a typical single buyer to save a 15% deposit for their first home.

There are exceptions to this, though, one of which is the government’s Help to Buy scheme.

The government’s Help to Buy scheme offers first-time buyers in England up to 20% of their property’s value to put down as a deposit (that figure rises to 40% for London due to higher property values).

This means the borrower only needs to save for a 5% deposit in order to get a 75% LTV rate. Though the buyer needs to have a clean credit history, no county court judgements within three years prior to application and the property’s value is capped at £600,000.

This is one of the more popular forms of assistance, as it’s interest free for the first five years. After this, you’ll be charged an interest rate of 1.75%.

Similar government schemes exist in other parts of the UK.

Right to buy

Right to buy is for those who rent their home from the council. It also includes housing association tenants. Those who qualify can apply to buy their home at a discount.

This scheme is authorised and regulated, meaning the size of the discount depends on where you live and the property itself. Usually, tenants must have rented from the council or housing association for at least three years. However, these don’t need to run back-to-back.

Shared ownership

For those who can’t afford to buy outright, or keep up with expensive monthly payments, the shared ownership scheme is another popular option.

Shared ownership is where you buy between a quarter or three quarter share of a certain property from a council or housing association. You then pay reduced rent on the share of the house you don’t own.

Later down the line, if buying a house is now a viable option, you can extend your share to 100%.

It may surprise you that anyone earning under £90,000 a year inside London, or £80,000 outside London, is eligible for shared ownership.

This scheme is in place to make buying a home feasible for many people across England!

Shared ownership first-time buyers

A closer look at stamp duty

There's good news for a first-time buyer when it comes to stamp duty.

In the Autumn Budget 2017, it was announced that first-time buyers don’t need to pay any tax up to the first £300,000 on their home.To be eligible, this must be the first home both you and whoever you’re buying with have owned.

Stamp duty isn’t technically a ‘scheme’, rather, a helping hand to get buyers on the property ladder.

It’s known as Land Transaction Tax in Wales, and Land and Buildings Transaction Tax in Scotland.

Exploring first-time buyer mortgages

It’s little wonder mortgage help is in such high demand. Raising enough money for a deposit is tough!

No wonder – a Halifax report in June 2017 showed the average deposit is now a whopping £33,000. This is because most mortgage lenders like a loan to value (LTV) rate of around 80% (although some lenders have been offering 90% mortgages in recent years and their numbers are increasing).

Particularly if you’re paying very expensive rent, saving for a house can feel near impossible.

So, one tip when it comes to mortgages is to compare quotes. Don’t go with the first offer!

But, often, this simply isn’t enough. Here are some home buyer mortgage schemes:

Types of loans

Even with government help, many first buyers need a mortgage.

But, there are many types of mortgages available to first-time buyers, including:

  • Variable (SVR, tracker, discounted rate)
  • Fixed rate
  • Cashback
  • Offset
  • Capped-rate

There are pros and cons to all options, so it’s important to work out the right one for you.

Friends’ mortgage

Another solution – and it’s one which makes sense to many people, especially those working in one of the UK’s larger cities – is to buy with friends (or family).

It makes owning your own property more affordable (even if it’s a 50% or even 25% share) and gives you that much-needed step up to the first rung.

It’s much easier these days to get a mortgage for this kind of shared property venture. First-time buyer grants can be hard to come by, so many turn to people they know and trust.

Prior to going looking for a flat, though, make sure you have a legal agreement written by a lawyer and outlining everyone’s share of the property, as well as what happens when someone moves out, or wants to sell their share.

Guarantor mortgage

A guarantor mortgage is when a parent or close friend/family member agrees to make the mortgage repayments if the borrower can’t.

The deal is set until the borrower manages to get his mortgage LTV down to around 80%.

Some guarantor mortgages are for 100%, where the guarantor puts their own property down as security.

Family offset mortgage

A family member puts money into an account which is linked to the borrower’s mortgage. These savings can be offset against the mortgage so it’s more manageable for the borrower.

The borrower must put in 5% deposit of their own money.

Once the lender is satisfied with the LTV rate the family members receives their savings back, plus interest.

New times require new measures (as the above two new mortgages show) however, the same principle applies as it did in the 90's when the Thatcher government began encouraging people to buy their own homes – that home ownership always makes more financial sense than long-term renting.

The mortgage application process

The main priority for lenders is that they can confirm you can make the repayments. This applies even if interest rates rise.

So, they’ll want proof of income and evidence of outgoings, including information on any debt. Don’t try and hide anything from your lender!

If your situation suddenly changed, would you be able to afford the repayments?

Getting a mortgage advice

There are ways to make getting a mortgage for the first time easier.

While a lot of the press surrounding the subject matter is negative, it doesn’t have to be this way!

When it comes to improving your chances of getting a mortgage, a good credit report will make all the difference! While saving money is often most people’s first thought, there’s a lot more involved in finance.

  • One of the best pieces of advice is to always have mortgage finance in place before you seriously look for a property. According to a recent Council of Mortgage Lenders (CML) report the average buyer spends around 17.7% of their income on mortgage repayments
  • The size of the property deposit affects this figure as does the length of time the mortgage is for
  • Then, there’s the added expense involved in setting up a home (i.e. TV packages, decorating etc.), as well as monthly outgoings. Deduct these from your salary after tax and that’s the amount you can afford to put down on a mortgage.

It may sometimes feel as though the hassle isn’t worth it. But, remember, when renting, you’re using your hard-earned cash to pay off someone else’s mortgage. Why not pay off your own instead?

Tips for first-time home buyers:

Feeling overwhelmed? From interest rates to loans, there’s a lot to think about when it comes to buying a property.
Here’s some advice to help you take the steps to becoming a homeowner:

Location

Location can increase property value! But, far too often, finding the right home in the right location is extremely difficult.

  • If a quick online search reveals nothing much in the area you like, don’t give up. House prices will rise further than inflation as time goes on because people are willing to pay as much as they can possibly afford to live somewhere they like
  • With the help of a map look towards the outskirts of your favourite area. You’ll find there’s a lot of people have moved here because, like you, they couldn’t afford the centre of town either. This is how other desirable areas are created
  • Even if you can’t afford your next preferred area, keep going. You will eventually find somewhere you like
  • Be prepared to compromise though – do you want a small flat in a preferred area or a larger flat or even house in a less desirable area? Think of your choice as like a triangle with each side something that’s important for the whole – budget, space and location

When it comes to choosing where to live, many people choose one of the following options:

  • Move as close to the desired area as possible
  • Check out where the next up-and-coming area is going to be and move there instead
  • Buy something less expensive and renovate it

Freehold or leasehold?

Unsure of the difference between freehold and leasehold?

Freehold means that you own the property and the land it sits on. This means you’ll be financially responsible for maintaining both. For example, most of the time when you buy a house, you buy the freehold.

Leasehold is slightly different, as you own the property and the land for as long as your lease agrees. For example, a flat will usually be a leasehold, as the freeholder owns the block. Also, if you buy through shared ownership, this will be a lease property.

Every lease has a different length and until you extend it, the property goes back to the freeholder. This is why many people are wary to buy a short-lease property.

However, this can be a good way to get your foot on the property ladder!

In Scotland, most properties will be freehold.

Deposits

Many home buyers are unclear on exactly how much they’ll need for a deposit.

There are no exact figures, as this depends on the property and the individual circumstances.

But, generally, try to save between 5-20% of the initial cost of your new home. The more you manage to put away, the better! This will mean that you have more options open to you.

Extra costs involved

If you haven’t owned a home before, you might assume that the upfront cost of the property is all you need to worry about.

But, you’d be wrong! Here’s a closer look:

Solicitor fees

There are many hidden costs involved with the property market that first home buyers need to be aware of.

One of these is solicitor fees. A solicitor will take on many responsibilities, from organising legal contracts to handling funds. One essential role is to oversee the survey on a potential property.

Whether you pay an hourly rate, a fixed fee or a percentage of the house purchase price, ensure you’ve factored in the cost of this.

Choosing a solicitor can be tough as they’re essential to the house buying process! But, once you’ve found a good one, you’ll reap the benefits.

Removal costs

Packing all your belongings into boxes for the move is both tiresome and exciting at the same time. But, along with this, comes another easily forgotten cost: removal services.

It’s important to find and compare removal quotes to ensure you get the best deal!

Buildings insurance

Insurance, insurance, insurance…

It’s an extra expense, but one that’s worth it, as it will protect you should anything go wrong.

But, where to start? It can be confusing, as there are many types of insurance needed when buying a home:

  • Home buyer protection insurance
  • Buildings insurance
  • Insurance for possessions in transit
  • Contents insurance

Ensure you understand what they all mean and what they do!

Mortgage arrangement fees

Don’t forget… You have to pay a fee to your lender for them to set up your mortgage!

The amount varies depending on the individual property and situation, but you’re looking at between £1,000-£2,000.

But, this is an estimate figure. It could be much higher or lower due to your circumstances.

Survey costs

Before buying a house, it’s essential you get a survey.

These can help you avoid any unnecessary expenses later on down the line by identifying any potential problems.

Also, they’re important for peace of mind. They’ll reassure you that your new home is secure and safe to live in.

But, this will cost you!

Furnishing and decorating costs

So, once you’ve moved in, the only payments you need to worry about are mortgage costs, right? Wrong!

You’ll want to make a house a home. So, ensure you’ve factored any redecoration and new furniture into the budget.

Buying a house for the first time?

Whether you’re a first-time buyer or not, it always helps to compare mortgage quotes. You'll want to know you're getting the best deal for you and your situation. Compare mortgage quotes for free here! 

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