Buying your first home can be exciting but also very confusing. Taking your first steps onto the property ladder is a journey but don’t worry we can help you.
Here are some tips to give you some clarity.
How Much Deposit Do You Need?
Saving for a deposit is probably the biggest challenge for a first-time buyer. Especially now with the Covid-19 outbreak, you’re more likely to need to save more than before. Before Covid-19 you would’ve needed at least a 5% deposit of the property purchase price. Now it could be more likely that you are required to have at least 10%.
Give Your Savings an Extra Boost
You don’t get high interest on your savings at the moment; however, the government has an initiative in place to help first-time buyers save for a deposit quicker.
If you’re under 40 and saving for property worth up to £450,000, you could open a lifetime ISA. The lifetime ISA allows you to save up to about £4000 each year until your 50. For every £4 that’s saved the government would add a £1 bonus to your savings. Meaning you could get an extra £1000 each year.
However, whenever you make a withdrawal not related to property buying before 60 you could get a penalty.
Find Out How Much You Can Borrow
Not only do you need to save money for a deposit, but you’ll need to borrow money to pay for the mortgage. There are certain factors that could determine how much you can borrow. Most lenders allow you to borrow up to four and half times your income.
Look into Mortgage Options
If you’ll struggle to save the 10% deposit, you could consider schemes like help to buy or shared ownership. You could also ask a family member if they will act as a guarantor for your mortgage.
A guarantor is usually a parent or grandparent who use their savings or property as collateral. You could use other alternatives like a joint mortgage or joint borrower. You should seek out advice from a mortgage broker, they can explain the pros and cons of different types of deals.
First-time Buyer Schemes
Help to buy and shared ownership are the most common options for first-time buyers.
Help to buy lets you purchase a new-build home with a 5% deposit, by taking a 20% loan from the government, allowing you to get a mortgage for the remaining 75%. However, this scheme has faced criticism for inflating the prices of some new homes. It’s set to relaunch with regional price caps from April 2021.
Shared ownership lets you buy a share of 25% to 75% in property. It can be a good way of getting on the ladder in expensive cities like London.
Get Mortgage Agreement in Principle
Getting a mortgage agreement lined up before looking at properties can be helpful to clarify your budget and it can prove you’re a serious buyer.
To get an agreement it does require a soft credit search and is a statement from your lender of how much they’re willing to give. However, it’s not guaranteed until you have an offer accepted and formally apply.
Find the Right Property
Do your research and look into the local property market. Make a checklist of things you are looking for and keep an eye out for properties that match these.
Make an Offer and Apply for your Mortgage
Once you’ve found a property you should make an offer. Once you’ve had this offer accepted you can return to the mortgage lender to formally apply for your home loan.
Remember, the conveyancing process can take a few weeks so try to be patient; it will be worth the wait! Once everything has been finalised, you’ll be a homeowner.
Hopefully, with these tips, you have a rough idea of the buying process and your options.
If you are looking to get on the property ladder and need advice, please do contact our team here.