Buying your first property is an exciting and often slightly daunting experience. We’ve put together nine helpful tips to demystify the process for first time buyers and help you along the road to a smooth and pain-free purchase.
1. Consider the costs of moving home
First and most importantly, avoid setting yourself up for disappointment by getting your sums straight. First time buyers know they must raise a deposit, but they also need enough money to cover legal fees and expenses, surveys and moving costs. It may seem obvious but you also need to ensure that can afford your future mortgage payments as failure to do so can lead to repossession. So, make sure you do your sums and nail down that budget before you do anything else!
2. Be realistic about your deposit
To obtain a mortgage you will typically need to put down a deposit of between 5% and 20% of the property value. All is not lost for those who cannot raise a deposit however as in 2019 we saw 100% mortgages reappear from some lenders. These are subject to the usual lending criteria, affordability and credit rating checks and will generally be more expensive as they are higher risk for the lender.
3. Explore Shared Ownership options
You may be eligible for one of the many shared ownership schemes available across the country, usually operated by Housing Associations. As the name suggests, here you aren’t buying the whole property outright but a share of it. You will typically buy between 25% and 75% of the property and pay rent on the rest to the Housing Association who buy the remainder. Later on, if you can afford it, you have a right to increase your share of the property (known as “staircasing”) by buying it from the Housing Association at the current market value.
4. Help to Buy for those purchasing a new build
The Help to Buy (Equity Loan) scheme was launched by the Government in April 2013 to encourage house building and will run until 2021. It is only available for those buying a new build property and the scheme works slightly differently depending on where you are in the country. The UK Government scheme applies only in England with Scotland, Wales and Northern Ireland running similar schemes.
Provided you have a deposit of 5% and you pass the lending criteria, the Government will give you an interest-free (for the first five years) loan of 20% of the purchase price (up to 40% in Greater London) meaning you only need to raise a mortgage for the balance of 75%. The current scheme is open to first time buyers and second time buyers who purchase property up to £600,000 in England.
In 2021 a new loan scheme will be launched but this will only be available for first-time buyers. The new scheme will also introduce regional price caps.
5. Get a credit report
Before applying for a mortgage, make sure you review your detailed credit report. You can normally obtain one of these from an online instant credit report agency free of charge during a free initial trial period. Once you have your credit report you can check that nothing is adversely affecting your credit rating. You will also usually be provided with tips on how to boost your credit rating which will increase your chance of obtaining the mortgage you want.
6. Research the price
Once you have found a property that you’d like to make an offer on, check the asking price against that of other homes that have recently sold in the local area. You can do this on Rightmove or Zoopla or one of the other comparison websites. With this helpful information first time buyers are better able to decide on the right level of offer to make to avoid overpaying for the property. If there is an estate agent involved they may give you advice on what to offer, but always remember that they are acting for the seller, not for you. They are often paid a percentage of the sale price, so the more they get you to pay, the higher their commission.
7. Check for Stamp Duty Land Tax relief
Stamp Duty Land Tax (usually referred to as “Stamp Duty”) is a tax on buyers, based on the purchase price of the property. Fortunately, first time buyers are able to benefit from new reliefs introduced in 2017. If you are a first time buyer purchasing a property below £300,000 you are eligible for first time buyers’ relief, meaning that you do not have to pay any Stamp Duty at all – result! There is also relief for buyers of properties with a purchase price between £300,000 and £500,000 so that there is no Stamp Duty on the first £300,000.
Be careful though – a first time buyer means a first time property owner in most cases, meaning those who have previously inherited property or own a share in other property may not be eligible. You must also intend to occupy the purchase property as your main residence, so a first time purchase of a property with a buy to let mortgage does not mean you are entitled to claim first time buyer Stamp Duty relief. Your conveyancer will be able to check your eligibility based on your individual circumstances.
8. Can you use the ‘Bank of Mum & Dad’?
It has been reported that the ‘Bank of Mum and Dad’ is now the sixth biggest lender in the UK. This is a saving grace for many first time buyers and can be a lot cheaper than a traditional loan. There will usually be no problem with your parents contributing money to help you get your foot on the property ladder. However, your main lender will require that they sign a ‘gifted deposit letter’ confirming that the money is a gift, that they will have no legal or other interest in the property and that the money is not repayable.
9. Freehold or Leasehold?
Houses have traditionally been sold freehold (although this is no longer always the case) meaning that you own the property and the land it sits on outright. Flats will almost always be leasehold with someone else owning the freehold to the building, although sometimes you may buy a share in the freehold at the same time.
When buying leasehold it is important to know how long the lease term is, what the service charge and ground rent liabilities are, how these charges can increase in future years and what restrictions there may be on your use of the property. For example, leases sometimes do not permit pets to be kept and there will also be other restrictions such as only using the property as a residential dwelling and requirements to obtain permission from the Landlord (known as the freeholder) for alterations and sometimes for subletting the property. Read more about the differences between freehold and leasehold.
Our property team can help
At Backhouse Solicitors we have an extremely knowledgeable property team who can help you every step of the way to buying your dream home. We offer a No Move No Legal Fee service and have a free conveyancing quote calculator to avoid any hidden financial surprises. For further details contact us today and speak to one of our friendly team.
Call: 01245 893400
Email: [email protected]
Visit: 71 Duke Street, Chelmsford, Essex CM1 1JU (we are a 2 minute walk from Chelmsford train station)
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