First-time buyer guide: all you need to know about getting a mortgage and buying your first home

Welcome to our first-time buyer guide.

Whether you’ve been living with your parents or you’re leaving the world of renting behind, not much beats the excitement of moving into your very first home. Owning a property feels like a true milestone in life and comes with a new sense of independence and accomplishment.

But before you pick up your keys and pop the champagne corks, let’s look at the journey ahead. From getting a mortgage to dealing with estate agents and navigating the legal process, our first-time buyer guide has everything you need to take your first step onto the property ladder.

HOW TO WORK OUT YOUR BUDGET

Confirming how much you can spend is the first step in buying your first home to know what you can buy and where, and our first-time buyer guide shows you how.

Broadly speaking, as a first-time buyer you can borrow up to 4.5 times your annual salary.

There are exceptions, and some lenders allow slightly larger income multiples if you have a larger deposit, earn above a particular threshold, or are in certain professions. Usually, this is a small boost to 4.75, 5 or 5.5 times, but in exceptional cases, it may be possible to borrow up to 7 times your annual income.

If you have any existing credit cards or loans, lenders will take this into account when working out what they’re prepared to lend you. So it’s worth clearing what you can to increase your buying power.

Speak to a broker to find out how much you can borrow, then add that to whatever deposit you have. Take off costs for legal fees, survey, removals and stamp duty (unless you qualify for first-time buyer relief), and you have your budget for buying your first home.

IS THERE GOVERNMENT HELP FOR FIRST-TIME BUYERS?

The government has several schemes designed to help first-time buyers onto the property ladder. Here’s a quick rundown:

Help to Buy (equity loan)

Do you wish to buy a newly built home in England and have at least 5% of the price saved as a deposit? You could borrow up to 20% of the purchase price (40% in London) with a loan that’s interest-free for the first five years. You take out a regular mortgage for the remainder of the purchase price.

Help to Buy (mortgage guarantee)

If your income supports larger mortgage payments but you don’t have a large deposit, this UK-wide scheme encourages lenders to offer 95% mortgages by providing them with a government-backed guarantee.

Help to Buy is open for applications until March 31st 2023.

Right to Buy

Right to Buy has existed since the 1980s as a way for council tenants to buy their homes. They receive a discount of up to £112,800 (or 70% of the value) if they are also first-time buyers. On 9th June 2022, the Government announced plans to extend the scheme to housing association tenants.

Shared Ownership

Are you a first-time buyer in England? You could buy a share of a housing association home – initially between 10% and 75% – and pay rent on the rest. You’ve got the option of increasing your share up to 100% when you can afford to.

Stamp Duty Relief

From 1 July 2021, you’ll pay less or no Stamp Duty if you, and anyone else you’ll own the property with, are first-time buyers.

Has your buying partner owned a home before? You could still qualify for first-time buyer relief if you are the only registered owner. Lenders even offer special mortgages to help you do this).

Stamp Duty has different names across the UK, and each country has its own threshold.

• For England and Northern Ireland, first-time buyers pay no Stamp Duty on the first £300,000, as long as the purchase price is no higher than £500,000.

• Up in Scotland, first-time buyers pay no Land & Buildings Transaction Tax (LBTT) on the first £175,000 of the purchase price.

• And in Wales, first-time buyers pay no Land Transaction Tax on the first £180,000 of the purchase price.

As you can see, the Government offers some really valuable help that can make a big difference to the sort of property you can buy. If you’re unsure from our first-time buyer guide whether you qualify for any of these schemes, get in touch for a chat about your options.

DEALING WITH ESTATE AGENTS

To look like a serious buyer, one of the most useful things you can do is get a mortgage offer in principle that you can show to estate agents.

A mortgage offer in principle involves a soft-credit search that doesn’t affect your credit rating. It gives you an indication from a lender about how much you can borrow, but It doesn’t commit you to use them. You can still explore the mortgage market when you find a home.

Estate agents have a duty to home sellers to only introduce able buyers. This means your mortgage offer in principle can be your passport to booking viewings and getting calls when new properties come up for sale.

While you’re searching for a home, stay actively in contact with agents to be at the front of their minds. Keep your social calendar flexible as well so you can whizz around to look at properties when they become available.

Once you’ve found a home you want to buy, the estate agent will ask you to submit your offer in writing. They might also want to qualify your offer by asking you to talk to their financial adviser. This is quite normal, but you’re under no obligation to get a mortgage through them.

When your offer is accepted, you and the seller each appoint a solicitor to carry out the legal work on your behalf. The estate agent then liaises with everyone throughout the process to keep them all informed and help things along.

SUBMITTING YOUR MORTGAGE APPLICATION

If you’ve made a successful offer, it’s time to explore the entire mortgage market. Here’s where a mortgage broker really comes into their own. Your bank can only talk about their own products, but a broker can tell you which lender has the best first-time buyer mortgage for you.

There are all sorts of options including standard variable rates, fixed rates, and mortgages that track the Bank of England base rate. Your broker can show you the best options that fit your current circumstances and future plans.

The mortgage application process includes:

• providing details of your income, employment and any existing credit to your mortgage lender. They also need confirmation of your ID, address and whether you’re on the voters roll.

• the mortgage lender checking your credit rating and all the information you supplied. If you’re employed, your lender will write to your employer. If you’re self-employed, you’ll need to supply accounts.

• paying a fee to the lender to send in a valuer. They confirm that the property is worth what you’re paying and good for a mortgage.

After all the checks are complete and the valuer’s report is received, the lender issues a formal mortgage offer. They send a copy to you and your solicitor.

THE LEGAL PROCESS OF BUYING A HOME

The legal process of buying a home is called conveyancing. You’ll need a solicitor or licensed conveyancer to carry out the legal work on your behalf.

• If you don’t yet have a solicitor, a good start is to ask for recommendations. Friends, family, neighbours, colleagues, mortgage brokers and estate agents can all suggest tried and tested firms.

• When you’ve chosen a solicitor, give their details to your estate agent, and to your mortgage broker. (Your solicitor also acts for the lender to confirm the property is suitable security for them.)

• The conveyancing process involves lots of checking. Which fixtures and fittings is the seller including? Are there any disputes affecting the property? Is there planning permission and connection to essential services? And more.

• Once the legal work is complete and you have a formal mortgage offer, your solicitor will ask you to sign the sales contract. Now is also when you transfer your deposit and confirm a date you’d like to move (known as ‘completion day’).

After you exchange contracts, you’re legally committed and you generally complete the purchase 2-4 weeks later. This gives everyone time to organise their move and your solicitor to apply for the mortgage funds from your lender.

When the seller’s solicitor receives the funds from your solicitor, you can pick up the keys from the estate agent. Congratulations – you now own your first home!

What’s next for you?

We hope you found our first-time buyer guide useful. No matter what stage of the home-buying process you’re at, it’s always worth finding out which lending options are available to you. And knowing how lenders work will help you put yourself in the best position for getting a loan.

Why not get in touch for a no-strings chat on how first-time buyer mortgages work? Call us on 01174 039 430 or drop us a line at hello@wrethical.com – we’d love to hear about your plans!

Your home may be repossessed if you do not keep up repayments on your mortgage.