Things to Consider Before Buying Your First Property
Over the past decade a combination of rising house prices, tighter lending criteria and escalating rents (making it increasingly hard to save for a deposit) has resulted in the average age of the first time buyer in the UK increasing from 28 to 31 years of age.
Whilst it can seem a bleak prospect for those looking to get onto the housing ladder, lending statistics actually show there was a 10% increase in first time buyers during 2016 compared to the previous year.
The reason for this increase can likely be attributed to government and other schemes that have become available and which are aimed specifically at helping first time buyers to purchase their first home.
Whilst help is available, there is still a lot for first time buyers have to take into consideration and so we have compiled a list of the top things to think about before taking the plunge.
Know How Much you Can Borrow
Firstly, and most obviously, you need to know if you can get a mortgage and, if so, how much a lender will be prepared to lend you. This will be dependent on a number of factors but essentially it will take into account your total earnings, your fixed regular outgoings and your credit history.
Knowing how much you can borrow will determine the property you can buy. We recommend that you speak to an independent mortgage broker like ourselves as early as possible. Our qualified advisors can assess your individual circumstances, guide you through the various options in terms of mortgage products available and arrange a mortgage in principle with a lender so that you know where you stand from the outset.
Save as Big a Deposit as You Can
The amount that you will need to pay as a deposit has significantly increased over the years and whilst there are schemes available with lower deposits (see below) a large number of the competitive rates available require a significant deposit.
A recent Which? survey suggested that the average first time buyer deposit is 17%, a figure that ensures you a wider choice of lenders and mortgage products.
You also need to remember that it isn’t just a deposit you will need to save as there are a number of other upfront costs that you will need to budget for. These include mortgage arrangement and valuation fees, stamp duty, solicitor’s fees, buildings and contents insurance as well as general moving costs.
Research the Help Available
As mentioned above there are several government and other schemes available to help first time buyers get onto the housing ladder. Whilst we’ve outlined a few below to help you consider your options, there may be other available dependent on your circumstances and so make sure you get advice before settling on a specific scheme.
Shared Equity Schemes
These schemes can help you borrow an additional amount to be used as a deposit. They will lend you up to 20% of the purchase price and can be a quick way to boost the size of your deposit and increase your chances of getting a good mortgage deal. However, you must already have a deposit of at least 5% saved in order to qualify.
Unlike the mortgage, you would not be required to make regular repayments on the additional loan but you will need to repay it in full after 25 years or when you sell your home in which case the value of the loan would be deducted from the sale proceeds.
help to buy ISA
Designed specifically for first time buyers saving up for a deposit for their first home, the government will add 25% to your savings and up to a maximum of £3,000 with the help to buy ISA scheme.
The scheme is available to each first time buyer and not each house. Therefore if you’re buying with a partner you could receive up to £6,000 towards your deposit.
Shared Ownership Schemes
If you’re struggling to obtain a large enough mortgage or save a big enough deposit to purchase the house you want, you can look to purchase a property through a shared ownership scheme whereby you only purchase a proportion or share of your home and then pay a reduced rent on the remaining share.
Typically available on new build properties and offered by Housing Associations, you would take out a mortgage based on the percentage of the house that you own – usually 25% to 75% – of the property. The Housing Association will own the remainder of the property and under the Shared Ownership Scheme then charge you a discounted rent for that remaining share. You can increase the share of the property you own over time as your income increases, this is known as staircasing.
Guarantor/Parental Help Schemes
For many, a parent or other family member may be able and willing to help and there are a number of different schemes and products on the market which can enable this to happen. In fact there has been a significant rise in the popularity of these types of schemes over recent years as parents and grandparents look to help with the purchase of a first home for a child, grandchild or other family member.
Some of the schemes available include Guarantor Mortgages, whereby the family member guarantees the mortgage repayments and uses their own property as security for the loan, Family Offset Mortgages whereby the family member places some of their savings into an account linked to the mortgage account to reduce the amount of interest payable or a Joint Ownership Mortgage where both the parent and their child are named on the mortgage and title deed in which case the parents income is taken into consideration meaning that a larger mortgage can possibly be obtained.
Each individual scheme has its own criteria and implications for the family member and so it is important that you investigate each one thoroughly and work out what works best for your own individual circumstances.
Check your Credit History
One of the major factors in potentially preventing you from getting a mortgage is an adverse credit history. A poor credit history in terms of missed repayments, County Court Judgements or Bankruptcy proceedings even if they happened a long time ago can all mean that you might not be eligible for many mortgage deals or you might have to pay higher interest.
It is advisable to check your credit report prior to applying for a mortgage to see if there is anything on it that might have an impact on your ability to get a mortgage. You can obtain a copy of your report from one of the major credit rating agencies, which include Experian, Equifax and CallCredit.
It is important to note that even simple oversights such as not being registered on the electoral register or paying a credit card payment late can have a negative impact on your credit rating.
The good news is that there are lenders that will look more favourably on poor credit ratings. The difficulty is knowing which they are. If you apply and are rejected this will actually make your credit history worse and so we would strongly recommend that if you feel you might have a poor credit history to get professional mortgage advice as soon as possible.
Making it easier to get onto the Property Ladder
If you’re not sure where to start and how to make your move onto the property ladder, our team of professional mortgage advisors are here to guide you through the full process.
Just give us a call on 0880 138 5856 or fill out a contact form – we guarantee to respond within 24 hours – and we can start you on your journey to owning your own home.