Unlock the Secrets to Buying your First Home: Top Tips from a Mortgage Adviser

happy couple smiling in new home

For first-time buyers, buying your first home and navigating the mortgage process in the UK can be a daunting task. However, with the right knowledge, preparation, and advice, it can be a smooth and stress-free process. Detailed within this guide are the top tips for first-time buyers to help make the mortgage process to buying your first home as simple as possible.

Before you start looking for a property, it is a good idea to:

  1. Get your finances in order. Have a clear idea of your financial situation, including your income, expenses, and credit score. Lenders will want to see that you have a stable income and a good credit history. Skip to page 2 for more information.
  • Establish your borrowing capacity. An adviser will be able to give you a good idea of how much you can borrow and will determine the maximum property purchase price you can stretch to. They can also obtain a ‘mortgage in principle’ from a lender, which can provide reassurance to estate agents when you make an offer.
  • Find a good solicitor. A good solicitor will be able to guide you through the legal process of buying a property and help you with any issues that may arise. They will also take care of most of the legal paperwork and ensure that everything is in order.
  • Be prepared for additional costs. Buying a property comes with additional costs such as stamp duty, survey fees, and legal fees. Make sure you factor these costs into your budget and have enough money set aside to cover them. Skip to page 4 for more information.

What schemes are available to a first-time buyer?

For first-time buyers, there are government schemes available, such as Shared Ownership and the mortgage guarantee scheme. Shared Ownership allows you to initially purchase a share of your home, rather than owning 100% of it, and the mortgage guarantee scheme increases the availability of 95% loan-to-value mortgage products, enabling more households to access mortgages without the need for a large deposit.

What is Shared Ownership?

Shared Ownership is a unique way to purchase a home whereby you initially buy a portion of the property from a landlord, such as a local authority, housing association, or developer. Instead of owning the entire home, you only own a percentage, typically between 25 and 75% (although, in some instances, this can go down to as little as 10%). With this scheme, you pay a mortgage for the portion your own and rent the remaining share. You will, therefore, require a mortgage for the portion of the property you own (not the value of the property). As you pay off your mortgage, you have the option to purchase more shares of the property, ultimately leading to full ownership and the end of rental payments.

What is the mortgage guarantee scheme?

The mortgage guarantee scheme is a government initiative designed to increase access to mortgages for households with low deposits (deposits above 5% of the property value). Before COVID-19, many lenders offered high loan-to-value products, but many withdrew during the pandemic. The scheme covers some of the costs for lenders in case of a disadvantageous position, thus reducing the risk for the lenders and encouraging more of them to re-enter the 95% market. It aims to make it easier for households to access mortgages, regardless of their deposit size.

What happened to Help to Buy?

The Help to Buy scheme officially ended on the 31st of October 2022, and completion must take place by the 31st of March 2023. At present, the government is not looking to renew this scheme.

Does this also mean the Help to Buy ISA has been stopped?

Yes, the Help to Buy ISA closed to new applications on the 30th of November 2019. However, Help to Buy ISAs that were opened before this will remain valid. For those with a valid ISA, you will be able to pay into the account until the 30th of November 2029 and you remain entitled to the bonus until the 1st of December 2030.

What other help is available to a first-time buyer?

Another option for a first-time buyer is the joint borrower sole proprietor scheme (JBSP), which allows the parents of the first-time buyer to guarantee their mortgage to increase affordability, without being on the deeds.

What are the benefits of this?

  • Enhanced borrowing power
  • Able to get on the property ladder sooner
  • Parents can assist without stamp duty liability

What are the disadvantages of this?

  • Few lenders can lend in this scenario
  • The mortgage term is based on the eldest borrower’s age
  • The parents’ commitments must be included

What additional resources are available to a first-time buyer?

Lifetime Individual Savings Account (LISA)

A LISA is a savings account that can be opened by anyone aged 18 to 39. You can save up to £4,000 per tax year, and the government will add a 25% bonus to your savings (up to a maximum of £1,000 per year) until you turn 50. You will still earn interest on the amount you save, and as it is an ISA, the interest is tax-free. If you are purchasing a property at £450,000 or less, you can use your LISA to purchase a property.

Costs to be aware of when buying your first home

Stamp duty – This is the tax applied when purchasing a property. As a first-time buyer, the stamp duty brackets are as follows (at present):

  • Less than £425k – 0%(5%)*
  • £425k to £625k – 5%
  • £625k to £925k – 5%
  • £925k to £1.5m – 10%
  • Over £1.5m – 12%

*For purchases over £625k, SDLT is charged at 0% up to £250k and 5% from £250k to £925k.

Solicitors’ fees – These are the fees payable to your solicitor for acting on your behalf and that of the bank in this transaction. The fee quoted should cover:

Conveyancing fee: The conveyancer’s handling of your purchase. This cost may be either a fixed fee or based on a per-hour rate.

Bankruptcy search: Your mortgage lender needs to check that you have not been declared bankrupt.
Land Registry Office copies: These confirm that the individual selling the property you wish to buy is the legal owner.
Electronic ID verification: Your conveyancer will need proof of your recent address and ID documentation. These details will be checked using national records to ensure all information is correct. 
Local authority searches: A local authority search will ensure that the council does not have plans to make changes that will affect your property in the future, e.g., major road changes, contaminated land, or if your property is in a conservation area. The cost of this search differs depending on the location.
Water and drainage search: This search will confirm that your property is connected to mains water, drainage, and surface water drainage. The latter is very important since flooding has become a major concern. Costs will vary depending on the water company.
Environmental search: This search will check if there is any contaminated land near your property.
Telegraphic transfer fee: 
This is the fee your bank charges to transfer the sale money to the seller’s conveyancing solicitor

Mortgage handling fee: A solicitor may charge a fee for working with your bank or mortgage provider and taking care of the legal work involved in setting up your mortgage.
HMLR final search: A final search that is carried out just before completion.
Land Registry charge: This is a fixed cost – the fee depends on the value of your property. This cost should be included in your conveyancing quote.

Arrangement fee – This is also often referred to as the lender or product fee. The bank charges this fee for certain products.

Valuation fee – There are many types of valuations. Typically, the lender will conduct a basic valuation for lending purposes without a fee as an incentive; however, some will charge for this. It is always recommended that you conduct a more detailed survey of the property yourself.

What terms to be aware of when buying your first home

Mortgage in principle – This document confirms the lender will lend to you, in principle, based on the basic information provided and your credit score. This would be subject to underwriting but is typically acceptable to the agent to take a property off the market. A mortgage in principle is also sometimes referred to as an ‘agreement in principle’.

Exchanging contracts – This is the point at which you, as the buyer, exchange contracts with the seller, meaning that you have agreed to purchase the property, signed the contract, and are now legally bound to purchase the property.

Formal mortgage offer – This document is provided by the lender once the underwriting and valuation have been completed. This is a legally binding document and can only be withdrawn in the instance of fraud.

Freehold property – A freehold property includes the land it is built on. If you buy a freehold, you are responsible for the maintenance of the property itself and the land.

Leasehold property – With a leasehold, you own the property for the length of the lease agreement with the freeholder. When the lease ends, the property would theoretically return to the freeholder however, as a leaseholder, you have the right to extend the lease agreement, though this is subject to cost.

Share of freehold – If the property you are buying comes with a share of freehold, this is because the vendor or previous owner bought a share of the freehold with other leaseholders – this is common in Victorian conversion properties. Share of freehold is possible if at least half of the leaseholders agree to buy a share. When purchasing a share of freehold property, it is important to note that this will always have an underlying lease. As you have a share of the freehold, you have a say in the costs of upkeep and can easily extend the underlying lease.

When buying your first home, what are the other things to look out for?

Inside the property:

  • Damp
  • Old-fashioned plugs and switches, which could indicate that the property needs rewiring
  • An old boiler
  • Rotten window frames

It is important to consider the issues mentioned above as they may result in costly repairs in the future and they may cause issues with lending if the lender deems the property uninhabitable or in need of essential safety improvements.

These points will affect the property’s EPC rating – see a link to our EPC guide here.

Outside the property:

  • Check the surrounding area – Get a feel for the area.
  • Guttering and roof tiles – See if you can spot any missing tiles as these could lead to leaks.
  • See the property multiple times at different times of the day – The property may be quiet when you visit but noisy and busy during rush hour.
  • Subsidence – Are there large trees surrounding the property? If so, check with the agent/surveyor if there is historic subsidence. Do you see any cracks in the ground or external walls?
  • Parking permits – If you have no garage or driveway, does the property come with a parking permit?
  • Buildings insurance – Is the property in a flood zone? This is important as it could cause an issue in obtaining buildings insurance.

What types of rates are available?

  • Fixed – With this type of mortgage, the interest rate is guaranteed to remain the same for a fixed period, which can range from 1 to 15 years.
  • Tracker – The interest rate for a tracker mortgage is linked to the Bank of England (BoE) base rate. From the outset of the tracker term, the payable rate is set at a specific amount above the BoE base rate. A tracker rate is variable – if the base rate increases or decreases, the interest rate on your mortgage, and therefore your monthly payment, would subsequently increase or decrease in line with this.
  • Discount – Discount rates are also variable; however, they track at a set amount below the lender’s Standard Variable Rate (SVR), either for a specified period or for the full mortgage term. These rates fluctuate in line with changes to the lender’s SVR, which is set by the lender and is in no way linked to the BoE base rate.
  • Offset – This type of mortgage is typically linked to a savings account – the savings balance is used to reduce the amount of interest charged on the mortgage. This allows you to either repay the mortgage over a shorter term or to make a lower payment each month. Offset rates can be fixed or variable, depending on the lender.

What types of repayment options are available?

  • Repayment mortgage – This option is structured in a way that enables the buyer to gradually repay the entire loan amount over the full term of the mortgage. Repayments to the lender are usually made every month and consist of both a capital repayment amount and an interest amount.
  • Interest-only mortgage – With an interest-only mortgage, your monthly payments solely contribute to paying the interest on the money you’ve borrowed. At the end of the mortgage term, you will still owe the original loan amount, provided you have not made any overpayments. A lender will require a suitable repayment strategy to ensure you have the means to repay the balance at the end of the mortgage term.
  • Part interest-only, part repayment mortgage – This type of mortgage combines the above two repayment options, providing flexibility when it comes to monthly payments and an element of certainty that the total balance will reduce over the term. A suitable repayment strategy is also required for this type of mortgage.

Three reasons to consider using a mortgage adviser when buying your first home:

  1. Advisers can help you navigate the market. Mortgage advisers have access to a wide range of mortgage products, which means that they can help you find a mortgage that is tailored to your specific needs, rather than just offering you products from one lender. They can also help you understand the features and benefits of each product, so you can make an informed decision.
  • Advisers can help you with the application process. When buying your first home, the mortgage application process can be complicated and time-consuming. A mortgage adviser can help you with paperwork and guide you through the process, helping to alleviate some of the stress.
  • Advisers can save you time. Instead of spending hours comparing different mortgages, filling out paperwork and facing potential declines, an adviser can do the work for you and present you with a selection of the best deals that fit your circumstances. This not only saves you time but also avoids negatively impacting your credit file with unnecessary credit checks.

Four reasons to use Henry Dannell when buying your first home:

  1. Whole-of-market access, including exclusive, intermediary-only products.
  2. Dedicated and accessible support every step of the way, from the initial call through to completion.
  3. Expertise in complex income structures – We have extensive knowledge of various income structures and can ensure lenders understand your income, which helps to avoid the potential hurdles that may be encountered without an experienced adviser.
  4. Comprehensive reports –These reports detail all your mortgage options, highlight the key features, and consider your circumstances and objectives.

When it comes to buying your first home, there is a lot to consider. For more information or support, please do not hesitate to contact our specialist team of advisers.

Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. 

Charles Alexander
Mortgage & Protection Adviser

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