With high prices and the cost of living continuing to grow, younger people are finding it increasingly difficult to buy their first home. Given the financial strains and it being the biggest purchase of your life, it can also seem like a complicated and overwhelming process.
If you are hoping to get on the property ladder then Burt Brill & Cardens are here to help. We have been helping first time home buyers in Brighton and beyond for decades. Despite the current economic climate and an uncertain post-Brexit landscape, our commitment to you hasn’t changed. We are still here to provide the high-quality conveyancing service that minimises the stress and gives you complete piece of mind.
This guide is designed to get you thinking about some of the key considerations as a first time home buyer. Click on the following links for more information:
Purchasing a House Timeline
- Work out how much you can afford – use online tools, pull together deposits, research mortgages
- Get a ‘mortgage in principle’
- Find a property that is within budget and meets your requirements.
- Put in an offer with the estate agent. As a first-time home buyer, you’re in a strong position to negotiate because you are not part of a chain.
- Offer accepted.
- Arrange your mortgage (either direct with a lender or using a broker / financial adviser)
- Find and instruct a solicitor to do the legal work.
- Arrange a survey.
- Exchange contracts. You are now in a legally binding deal to purchase the house.
- Completion day. You get to pick up the keys to your first home.
You can apply for a mortgage directly from a bank or building society or via a broker. The mortgage lender will charge you interest on the amount borrowed until it is repaid. The interest rates and fees vary between lenders. There are two ways that you can choose to repay the loan:
Interest Only Mortgage
With these you only pay the amount of interest on the loan and nothing off the money you borrowed. You should consider how you will repay the original loan at the end of the mortgage term.
With repayment mortgages you pay the interest and some of the money you borrowed each month. At the end of the term, typically 25 years, you should be close to or have paid off the loan and own your home.
Note: When applying for a mortgage, it is vital to compare as many deals as possible to ensure you find the right one to suit your needs. Speak to a mortgage adviser / broker who can talk you through the available options. Do your research. There are online mortgage providers, advice sites and highly qualified mortgage advisers who can all help you find the right mortgage for you.
Different Types of Mortgage
There are many types of mortgages but the common ones fit into these two categories:
Fixed Rate Mortgages
With fixed rate mortgages, the interest you’re charged stays the same for a number of years, typically between two to five years. This means you will know how much your monthly payments will be.
Fixed rate deals are usually slightly higher interest than variable rate mortgages.
Many first time buyers opt for a fixed rate mortgage.
Variable Rate Mortgages
With variable mortgages, the interest you pay can change. There are different types of variable rate mortgages including tracker mortgages that usually follow (track) the Bank of England’s base rate plus a few percent and discount mortgages that follow the lender’s standard variable rate. These can last for different periods but be aware that payments may go up. You may have to pay an early repayment charge if you want to switch before the deal ends.
Saving and Deposits
When buying your first home, you will need to pay a deposit. Often, the bigger the deposit you have the better mortgage rates you can get. Your repayments will also be less. If you are struggling to get a deposit then the government has help to buy schemes that can assist with some properties.
First time buyer with no deposit
As a first time buyer, you are expected to have a deposit of at least 5% and ideally as close to 20% of the property value as possible. If you have no deposit then your options will be very limited. 100% mortgages are very rare but they do exist. Due to the risk involved only a few lenders will offer you one. Another option is to look at a Guarantor Mortgage where a parent guarantees the mortgage debt or the government schemes.
If you are borrowing most of the value of your home then in some instances you may have to pay a higher lending charge. This is a lenders fee that allows them to take out an insurance policy in case you default.
First time buyers and Credit Rating
You need a good credit rating in order to secure a mortgage. There are steps you can take to help improve your credit rating before applying for a mortgage.
If you are a first time buyer with bad credit rating or no credit history then you will find it harder to get a mortgage. You will need a mortgage provider that specialises in ‘sub-prime’ mortgages or ‘adverse credit’ mortgages. Because of the higher risk, these mortgage lenders will require a larger deposit of 25% to 30% and your interest rates will also be higher.
Costs for a First Time Buyer
You need to be aware of the fees and costs involved in buying a home as a first-time buyer. They can add up well into the thousands. Here are some of the most common fees:
Conveyancing Fees & Legal Expenses
You will need a solicitor to do the legal and administrative work for you – a process known as conveyancing. Read our article on What is conveyancing? to find out more on what exactly is involved.
In summary, your solicitor will check the legal title to probably the biggest purchase in your life. It is vitally important to get it right. We will check all contracts, complete paperwork, contact the Land Registry, perform searches, transfer money during the sale, arrange the payment of stamp duty and make sure the property is registered in your name.
Stamp Duty – Stamp duty is the tax you have to pay when you purchase a property. There are stamp duty calculators you can use such as this one from HMRC. Your solicitor will handle the payment of stamp duty.
Searches – As your solicitor, we will carry out various searches with the local council and other authorities. These include checking any outstanding issues with the local authority, including planning, and can also involve searches about flood risk, contaminated land and other environmental issues. It is a very important part of the conveyancing process.
Mortgage set-up fees
This is a fee for booking the loan while your application goes through. You may hear it referred to as an application or reservation fee. Some lenders will not charge but you are likely to pay around £100.
An arrangement fee is what you pay for the mortgage lender to set up your mortgage. Check mortgage arrangement and broker fees carefully. Be sure to find out these fees when comparing mortgages. Your mortgage broker should advise you on this.
This pays for your mortgage lender to value the property you want to buy. This is a basic survey that is only designed to check the property is adequate security for the loan i.e. the lender can get their money back if you default. Some lenders will cover the valuation cost.
There are different types of survey you can have before you go ahead with the purchase from the basic and cheapest Home Condition survey, the more in depth homebuyer’s report up to the most comprehensive and in turn expensive building or structural survey.
Money paid to the removal firm to move, pack and relocate your possessions.
Leasehold vs freehold for First Time Buyers
You can own a property in two main ways: freehold or leasehold. Most houses are sold as freehold whereas most flats are leasehold.
As a freeholder you own the property and the land it is built on. You are wholly responsible for maintaining your property and land, and will need to budget accordingly.
You can sometimes buy a share of the freehold with other leaseholders, usually others living in a block of flats.
With a leasehold, you own a part of a building for a fixed number of years.
It is vitally important you find out how many years are left on the lease as this will impact your mortgage dramatically and the value of the flat. If the lease is for less than 70 years you may find it very difficult to get a mortgage. Lenders will normally need a lease to extend for a minimum of 25 years beyond the end of your mortgage.
As you do not own the land, you are not responsible for maintaining and running the building. The landlord is responsible, but you share of the cost. The landlord will also decide what work is done. You are likely to pay service charges along with other fees.
After you have owned a flat for two years, you usually have a legal right to ask the landlord to extend the lease payment of a premium. As your solicitor, we can advise on the implications and discuss extending the lease with you.
Tips for Getting on the Property Ladder
Where to Live
Location has a big impact on price. When considering buying your first home, you are likely to be thinking about friendship, financial and work commitments and how these affect where you can live.
It pays to look at the bigger picture – it may be worth paying more than originally intended on a mortgage in order to live closer to your place of work, for example. Being able to avoid large commuting and living costs where possible will enable you to take a fresh look at where to live in the future.
Compare mortgages – rates & terms vary between lenders
You need to make sure you are getting the best mortgage deal possible as this will impact your future within the housing market. It’s important to choose the correct and most appropriate lender. It is also necessary to understand how the size of your deposit will affect your mortgage repayments. Try talking to a number of different lenders or look at the various comparison websites to get an idea of the options available to you.
Be Aware of the Market
It is important to be aware of the housing market. In a post-Brexit UK, there is more uncertainty and flux around housing. In Brighton and Hove, there have been initial reductions to properties but it is hard to predict the longer term impact.
Schemes initiated by the Government to assist first time buyers have helped many people into properties, however many suggest there is still a chronic shortage of actual houses on offer. This may push up prices even higher over the coming years so make the most of any incentives or offers while you can. There is no guarantee that prices will keep going up so make sure you can afford the property.
Visit potential properties
Don’t dismiss a property without seeing it first. As much as photographs and floor plans can sell a property, it is also easy to be put off by them. By seeing a property in person, you get a much better idea if the property is right for you. As a first time buyer you should see as many properties as possible before making your decision.
Perfect isn’t perfect
It’s all too easy to wait for your dream home to come on the market. When buying your first home, make sure the property ticks the boxes, but don’t always look for the ideal. It’s usually better to take on a place that you can do-up and shape to your personality than hold out for the perfect home.
Keep up with any Debt Repayments
Your previous financial life is investigated when buying your first house and is therefore extremely important. If you are looking to buy a house in the next few years, ensure your debt repayments are up to date.
It’s worth bearing in mind throughout the whole process that you’ll probably need to find at least 5% of the property’s value up front as a deposit. A larger deposit often means a better mortgage deal – the best are at over 25%. Consider re-evaluating your money spending habits in order to save more.
First Time Buyer Schemes
There are several funding schemes available to first time buyers. We explore some of the more popular options:
Help to Buy ISA
By using a Help to Buy ISA when saving for your first home, you will receive a 25% boost from the Government. Every £200 you save, the government gives you a bonus of £50. You can receive up to a maximum government bonus of £3000. In order to qualify, the home you buy must have a purchase price up to £250,000. This special ISA is available from a range of banks and building societies.
Help to Buy Equity Scheme
Under the Equity Loan scheme, the government will loan up to 20% of the value of a new build home. The buyer can then repay this loan at any time or when the house is sold. There is no income cap constraint and the maximum home value is a generous £600,000. This option is available to all – not just to first time buyers, but also for those looking to move up the property ladder. You will need at least a 5% deposit.
Shared ownership schemes
Another popular option is the shared ownership scheme, which is provided through housing associations. Using this scheme, you buy a share of your home at between 25% and 75% of the home’s value, and pay rent on the remainder.
You must take out a mortgage to pay for the majority of the home. In order to be eligible, your household must earn £80,000 a year or less and you must be a first time buyer or a tenant in a council or housing association property.
Under the Mortgage Guarantee scheme, the government offers lenders the option to purchase a guarantee on mortgage loans. Participating lenders are then able to offer you more high loan-to-value mortgages – between 80 – 95%. Again, this applies to UK homes up to the value of £600,000.
Important Points about Help to Buy
Help to Buy is not just for new homes
There has been some confusion over which properties qualify – Help to Buy is available on any property up to £600,000. The Equity Loan Scheme, which is a separate arrangement, is for new builds only.
It’s likely larger deposits won’t qualify for Help to Buy
Help to Buy really only exists for people who can’t afford large deposits, and it’s therefore likely that if you can afford 10%, or even more, on a deposit, the government will be reluctant to assist.
The mortgage itself is not affected
The Help to Buy scheme itself is concerned with the deposit and loan elements of purchasing a property only – the rest is made up by a standard, run of the mill mortgage through your chosen provider.
Not all mortgage lenders are participating
Help to Buy doesn’t exist by default, and it’s important to remember that it’s up to the lenders whether or not they would like to participate.
The Government will provide an equity loan of up to 20% of the property’s value
This value is dependent on your circumstances, but as part of the scheme the Government is obliged to make up the difference in your deposit.
Trusted Solicitors still a requirement
Many conventional rules still exist when purchasing a property within any of the Help to Buy schemes. This means you will still need to instruct a quality and trusted property solicitor.
Here at Burt Brill & Cardens we pride ourselves on our independence and putting your interests first. If you have any questions call us on 01273 604123 or send an email to email@example.com. We will not charge you to speak to you about your initial enquiry.
Dangers for First Time Buyers
Rushing into a Decision
You may well experience a sense of urgency and just want to get things moving. This big rush to buy and sell can have serious consequences and result in you gaining a property that isn’t suitable for you.
Over-stretching on Repayments
Another danger for first time buyers is stretching yourself too far on monthly mortgage repayments. With the interest rates currently so low, it is tempting to overstretch on the amount that you repay. If you are not on a fixed rate or if the rate comes to an end and interest rates shoot up then you still need to be able to afford the repayments.
The property market has more than its fair share of flats and properties that are not exactly first-rate. Many property owners are taking the opportunity to offload poor quality and unwanted properties. Often the properties have hidden problems such as unsatisfactory leases or legal titles, or maintenance problems.
As a first time buyer you are particularly vulnerable as you are eager to get your first home and can overlook some important details.
Why You Should Use a Solicitor
If the property you are buying is at the lower end of the market it is even more important for your solicitor to check everything carefully. You should also seriously consider having a property survey.
Because less-expensive properties are often bought by individuals on a tight budget or by property landlords who will not live in the property, it means that corners may have been cut. This includes cutting corners on getting the legal title and the property condition checked properly.
Don’t forget that lenders only really care if the property is worth more than they are lending. This is not the same as saying it’s worth what you are paying! And with lower loan-to-value lending it means they are protected more against a fall in value or maintenance problems arising after you have bought.
Non-local Solicitors recommended by estate agents (and who may well be paying the estate agent for the recommendation) may not be your best option. Cheapest is rarely best for one of the biggest financial investments you’ll make.
The key point is to make sure you use a solicitor who has the expertise and time to investigate properly and look after you.
First Time Buyer Solicitors Brighton
If you would like friendly help or guidance then please contact us on 01273 604123 or email firstname.lastname@example.org. We have been looking after local people in Brighton and Sussex buying and selling property for over a 120 years. Our experience and expert conveyancing team ensures everything runs as smoothly as possible and you have the peace of mind you need.
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