Buying your first home is an exciting time, but as first time buyers you won’t have the benefit of experience to fall back on as you navigate the challenges of finding your new home, and successfully applying for your mortgage.
And finding a deposit for your home when house prices are so high can seem unattainable. But there is help for first time buyers.
Support for First Time Buyers
The Government has introduced several means of supporting first time buyers with their deposits. They include mortgage guarantees and financial support as part of the Help to Buy Scheme.
Help to Buy: Mortgage Guarantee Scheme
Lenders withdrew many (but not all) of the 95% loan to value mortgages that first time buyers relied upon to buy their homes. As a result, the guarantee scheme was introduced to encourage lenders to re-introduce those mortgage products to the marketplace. Lenders can apply for a guarantee that compensates them for a proportion of their losses in the event of a repossession. The guarantee applies to 80% of the purchase with 95% of that covered so the lender retains some level of risk for every mortgage they arrange.
Help to Buy: Equity Loan
You will need a 5% deposit, and you can take out an interest free loan up to 20% of the property value. The property must be a new build, and you will start to pay interest in year six. Remember that in the first five years you won’t pay any interest, and from year six it switches to interest only payments so you won’t reduce the capital amount borrowed. This scheme is only available to buy your main home, so can’t be used for buy-to-let or second homes.
If you’re aged between 18 and 40 you are eligible to save for a home using a LISA. You can use it to buy a property up to £450,000 and it must be your main residence. If you have owned a property anywhere in the World, you will not be eligible for this scheme. You can put a maximum of £4000 a year into a LISA, and the Government will top it up by 25% (so for every £1000 you put in, you’ll get a £250 bonus). The LISA allowance is linked to your ISA allowance, so saving in this way limits what you can pay into an ISA at the same time.
Preparing for your Mortgage Application
There are a number of things that you can do to prepare for your mortgage application. Some of them can be done months ahead, and others closer to the date.
Tidy up your credit file
There are four credit referencing agencies in the UK. They are Equifax, Experian, Transunion, and Crediva. Lenders will check your file against one or more of these, so it’s important that your file is up to date and accurate. Some of the key areas to check are registration on the electoral roll, accuracy of information like addresses, loans, and other personal details. Check also for any fraudulent activity. Do you recognise everything on your file? At least six months ahead of your application you should try to pay off any debts that you may have. Reduce your credit card balances, and make sure that your payments are all made on time.
Neither Liddle Perrett Ltd or PRIMIS Mortgage Network is responsible for the accuracy of the information contained within the linked site
Get your paperwork in order
You will need to prove your identification, need proof of income in the form of payslips and P60s, and if you’re self employed your accounts up to the last three years, and an SA302. In this case, speak to your accountant about getting your accounts in good order. You will also need to go through the process of surveys, conveyancing, and all the legal rigmarole involved in buying a house, so have your solicitor lined up, and be prepared.
Speak to a mortgage broker specialist in first time buyers
It’s a good move to take advice, and a good mortgage broker can help you with your paperwork and the finer details. Not only that, but mortgage brokers will have access to the whole of the mortgage market, not just high street lenders. And they will be able to help with the Help to Buy Scheme too.
Budget, Budget, Budget
If you’re currently renting, your mortgage payments could be lower than your rent, so you’ll save some money, but remember you’ll still have all the usual household bills. Check out the lending criteria for different lenders, or speak to your broker to find out what you can borrow. And it’s worth taking a look at a mortgage calculator to test different interest rates and how much you could borrow. Work out a budget for your household expenses and your mortgage, and you will be able to calculate how much you can afford to borrow, even before you start looking for your new home and consider mortgage options. Remember, interest rates are at a historic low, so the only way they’re likely to go is upwards, and you will need to be prepared to pay more in monthly payments. Your mortgage broker can help you find different mortgage options including fixed rates.
Finally, consider your journey to work. Are you moving further away from work? If you are, your costs will increase. Of course right now millions of people are working from home, but this could change in the coming months.
How Liddle Perret can help
We’re here to help you navigate the mortgage market and find the most suitable mortgage product for your circumstances. We’ll also advise you on mortgage protection so that in the event that you suffer a serious illness or accident your payments are protected. As first time buyers we understand that you face an exciting but stressful journey, so we’ll be there every step of the way until you collect the keys for your new home!
Liddle Perrett Ltd is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE