Six Things All First Time Buyers Should Know
Buying a property is likely to be one of the most expensive purchases you ever make so it is no surprise that many first time buyers consider it to be a daunting process, from saving up a deposit to picking the right mortgage rate.
Like any big decision it is important to plan well and get professional advice. Here we take you through six key points that you should know as a first time buyer:
Start planning well in advance
You are likely to have a rough timeline of when you expect to have saved enough of a deposit and be financially ready to buy. It is a good idea to speak with a mortgage adviser 6-12 months before this to make sure that your timeline is realistic and flag up any changes you need to make to your finances which could affect the application of your mortgage.
Saving for a deposit
Unless you are lucky enough to be buying a house in cash then you will need to save a minimum of 5% of the price of the property, however the larger your deposit the better the rates you will be offered. The average price of a property in the UK, as of May 2016, is £211,000, so you would need a minimum deposit of £10,550.
If you can only save 5% there are government schemes such as ‘Help to Buy’ which can help you get your feet on the ladder. The government has also introduced the ‘Help to Buy’ ISA which pays a bonus of £50 for every £200 you save, up to a maximum bonus of £3,000. For more information about Help to Buy, please click here
In order to save as much as possible you may wish to:
- Minimise your spending – cut down on some of your unnecessary purchases. You could save over £600 a year just by stopping buying a daily coffee.
- Try and set up a standing order so that as soon as you have been paid, the money is transferred directly into your bank account.
- If you’re rent is expensive then it may be time to consider moving back in with your parents for a short period of time so you can save the money that you would have been spending on rent.
Find out how much you can borrow
Consult a mortgage adviser to discuss how much you can borrow; this amount will vary depending on your employment status, any financial commitments, and the size of your deposit and also by lender.
Each lender will have a slightly different way to calculate how much they can lend. This is why we recommend you employ the services of an independent mortgage adviser, as they work in the mortgage industry and will know which lenders criteria will be suitable for your financial circumstances. Contacting lenders can be incredibly time consuming but also it may mean that you miss out on rates that are only on offer to a mortgage broker.
This will give you a realistic insight into the properties within your price range. We recommend that you find this out before you start looking at properties so you don’t waste time looking at properties that are not within your budget.
Check your credit score
As previously mentioned there are various factors that will affect how much a lender will let you borrow, however one of the most commonly forgotten things is your credit score. Even if you have a decent deposit and salary if you have a bad credit score your mortgage application is likely to be refused.
While there are some lenders out there that will still offer you a mortgage if you have a bad credit score, their interest rates are typically higher and they tend to require a larger deposit. This is why it is incredibly important to monitor your credit score As soon as you start to save for a deposit we recommend that you check your credit score. It can take 6 months for any improvements to show through, so the sooner you do it the more lenders you are going to be able to choose from when the time comes.
To check your credit score check with a credit agency such as Experian, Equifax or CallCredit. There are some simple things you can do to improve your credit score, such as getting on the electoral register and cancelling any unused credit cards. Make sure you credit rating remains healthy by paying all your bills on time.
Understand the implications of your financial commitments
It is important that you understand that any financial commitments you have such as payment for a car, your student loan, child support or even gym membership will affect the amount a lender is willing to lend. We recommend reviewing your financial commitments to check you are being as efficient as possible. If you joined a gym as part of your new year’s resolutions but haven’t actually made it there, now could be the time to cancel!
Set some money aside for the additional costs
As well as a deposit you will need to have some money put aside to pay for solicitor’s fees, stamp duty and a survey of the property. You will also need to furnish the house and buy essential items such as sofas and beds. It is also important to purchase home insurance; this will need to be in place by the date of your exchange.
We hope that you have found our guide helpful, if you would like to talk to one of our financial advisers about buying your first property then please get in touch with us:
Tel: 01727 85 22 99
Email: mortgages@kdw.co.uk