Purchasing your first home can be scary. Having just received the keys to my first home, I have come to the conclusion that there are numerous things I learned about purchasing a property that I wish I had known when I was starting out on the process.
Here are a few pointers that might help you if you’re a first time buyer.
An important point when looking around for a property by yourself or with a partner is to set a price limit at the very outset and stick rigidly to it. If you don’t do this, you can easily be swayed into buying a property that you have your heart set on for more than you can actually afford. As we found on 3 separate occasions, just because you put a bid on a house does not mean that you will be the eventual owner; bidding wars can arise if one or more parties want the same property and it can quickly escalate out of your price bracket. This is why it is important to set price boundaries before you even look at any houses.
The term “Location, Location, Location” is often thrown around in a recurring cliché, but it is absolutely correct. I viewed a house that was slightly lower quality than my current house and the square footage was smaller, yet because it was close to a sea side town it was £30,000 more. If you want a budget house, try looking in places slightly off the beaten track or in a smaller commuter town.
A mortgage is a loan secured against a property, which you will pay a deposit towards, and then pay monthly payments until the end of the term. There are several decisions to make when thinking about getting a mortgage. You can either do it yourself online and use the standard comparison websites, or you can use a mortgage broker/adviser. In addition to this, you have to decide whether you want a variable rate or a fixed rate and for how long you will take the loan out for. By doing it yourself, you are in control and will deal directly with the mortgage company. With a mortgage adviser, you will give them your details and they will do the rest, which can relieve you of a lot of work. They will probably have a relationship with many of the lenders, so may be able to access better rates than you would be able to yourself. If you are self employed or have only recently changed jobs, you may benefit from seeking advice.
Note: Neither Destination FP or Navigator FP can provide advice to arrange a mortgage for you.
Lenders (those who are giving you the money) will want to know your income(s) and whether you have any dependants. They’ll also want to know your credit history, and whether you have any outstanding loans currently. They will be looking to determine whether you can afford to repay the mortgage on time. Once they have all this information, they will tell you if they will lend to you, and the maximum amount they are willing to lend. Some lenders will offer incentives such as cashback once you complete the house purchase, so don’t forget to claim this!
Good news! You may have seen in the press around April 2018 about Stamp Duty being taken away for First Time Buyers up to £300,000, provided the house costs less that £500,000. Usually, a purchaser would pay 0% up to £125,000 and between £125,000 and £250,000 would pay 2%. Between £250,000 and £500,000 5% would be payable. The chances are that if you’re a first time buyer you’re unlikely to be buying a house for more than £300,000, so this is only likely to be a small saving.
Help to Buy ISA
This is a Government backed scheme whereby you can contribute £200 per month (£1,200 in the first month) into a cash ISA and upon purchasing your first home, you will receive a 25% bonus. It’s worth noting that in order to use such a scheme, you must use a solicitor to claim your bonus. The maximum bonus you can receive is £3,000 (£12,000 contributed), and you must have at least £1,600 saved (3 months’ contributions).
Even if you haven’t decided on whether you’re going to purchase a house, it’s a good idea to have one as if you decide to not buy a house, you can withdraw the money without penalty (you just won’t get your 25% bonus). If you are intending on buying a house with a partner, get them to set one up too as both Help to Buy ISAs can be used together for the purchase of a first house. In terms of how to actually set the ISA up, most of the main banks offer them and can be set up online in a matter of minutes.
You can also, in theory, open a Cash Lifetime ISA which can be used towards a first house purchase. You can contribute up to £4,000 in this, again with a bonus of 25% each year. The problem is finding a Cash Lifetime ISA. Skipton Building Society offer an online Cash Lifetime ISA, but there are rumours that Nottingham Building Society will offer one as well, but will only be opened in a branch. Apart from these, no other banks or building societies currently offer a Cash Lifetime ISA (as far as we are aware at time of writing).
Yes, you almost certainly need a solicitor for your house purchase which is known as Conveyancing. It’s important to get a good one, and cheaper is not always better. Many house purchases are processed without any hiccups but sometimes, as in the case of ours, it can be a long and drawn out process with several problems. It is in these scenarios that a good solicitor is imperative to spot problems and potential inaccuracies in the contracts or deeds. In terms of pricing, ring up your various local solicitors and ask them for a quote to do the work. Their price will consist of the work they have to do, and a payment for carrying out local searches will also be added to this. The cost for the legal fees generally ranges from around £500 to £1,500 and £250-£500 for the local searches, based on the value of the property. In my case, I used a portion of the 25% bonus from the Help to Buy ISA to pay the fees, and would recommend doing so.
If you do need a mortgage, it is important to think about how you would repay it if something happened which prevented you from working. Most mortgage providers will speak to you about arranging life insurance, critical illness insurance or income protection, or a mixture of these products. This is something we would strongly recommend you speak to an adviser about to make sure you know what each product is and how it might help you cope in the future.
Don’t be fooled into thinking that it’s just your mortgage to pay. You also have your rates, which, depending on where you live, will be over £100 per month for 10 months (you can also pay it in one lump sum and will get a slight discount for doing so). In addition to this, you will have oil/gas, electricity, internet & TV and potentially annual factor fees if your property is in a development. You should also consider some sort of life cover to ensure your mortgage can be repaid if anything was to happen to you. These things all add up!
Finally, purchasing a house is not as difficult as it’s made out to be, so don’t panic! There is a mountain of support available online, but professional advice is well worth taking, as they are trained professionals in the field.