First-time Buyer's Guide to Buying a House
Are you starting to look for your first property as a home buyer? To help you on your journey, we have collated some useful tips to starting your home search.
Get your finances in order
Not many of us will be able to buy a property outright without getting a mortgage and getting a mortgage - a good one preferably - is dependent on having a decent credit score. Checking and improving on your credit score should be the first thing you do when you plan on buying your first home.
7 quick tips on how to maximise your credit score
1 - Obtain your credit score and check the content
Before you can start improving your credit score, you need to know what it is. There are a number of free services that will show your credit score with Experian, ClearScore and Noddle being the best known. It is important to know that there is no one credit score - every bank will do its own search - so what these services provide is a general idea of how good your credit score may be.
It is also very important that the information on your credit score is accurate. Make sure that all of your accounts are included and that you've informed you bank(s) about a change of address.
If you notice things on your credit score that you don't recognise - like addresses you never lived at or accounts you haven't opened - it may be a red flag that your identity has been stolen, in which case you need to immediately contact your bank as well as the police. Here are the steps to take if you believe your identity has been stolen.
2 - Check that you are on the electoral roll
It is really important to make sure that you are registered to vote as this is where the banks check who you are and your past addresses. Not all lenders will accept people who are not on the electoral roll.
If you aren't British but you are an EU-national, you can still register on the electoral roll as you are eligible to vote in the EU elections.
If you are a non-EU national, and therefore not eligible to vote, Experian suggests that you add a note (called a notice of correction) to your report explaining why you cannot register on the electoral register.
3 - Try to pay off existing debts before you apply
It is good to have some history of debt (preferably paid off) to show the lenders that you are able to manage your finances. What you don't need is sizeable debt to your name which will call into question whether you can manage with additional commitments in the form of mortgage repayments.
4 - Don't miss or make late repayments and keep within your overdraft limits
For reasons stated above, lenders want to see that you can manage your finances responsibly. If you cannot manage your current obligations, how are you going to manage with an additional pressure of a mortgage?
5 - Get into (a little) debt
All the above not withstanding, when you have no history of borrowing at all, banks are also reluctant to lend. This is because they have no evidence of you managing debt repayments in the past. If you have never done it - how can they be sure you'll will be fine when you do borrow? The prospect of you going from no debt to huge debt (mortgages tend to be quite substantial) will make most banks nervous.
6 - Close accounts you no longer need
Having too much credit available on too many credit cards may also work against you. Consider closing the accounts you don't need anymore.
7 - Avoid major changes - stay in your current job
Banks don't like any major upheavals in the time coming up to you putting in your mortgage application. Don't take out any major loans and postpone looking for another job until your mortgage application has been approved.
Decide how you're going to buy
What's affordable for you?
There are several options for first-time buyers aimed at helping them get their foot on the housing ladder. Different schemes may be suitable for people in different circumstances. That's why it's very important to do your research and weigh your options.
Going at it alone or with somebody else
If you are planning to buy your new home with your spouse or a partner, joint ownership is a no-brainer, but even if you are a singleton, pooling your resources with a friend or a sibling may mean you can get a bigger, better property in the area you like. You may be weighing your options, trying to decide whether to buy Shared Ownership by yourself or buy outright with somebody else. Or you may be looking at buying Shared Ownership jointly.
All of these options have their advantages and all of them come with certain issues. The two articles below will tell you everything you need to know to make an informed decision:
Decide what you are going to buy
Before you start searching for suitable properties, you need to have some idea of what kind of home you would ideally like to buy. Things to consider include;
Shared Ownership or outright?
Will you go for a Shared Ownership option, buying a share in the property and potentially staircasing to 100% in the future, or defer your purchase until you can afford to buy property outright?
The pros of buying Shared Ownership is that you get your foot in the door, so to speak, moving into your home and saving to staircase up while re-paying your current mortgage. The alternative will trap you in the rental market until you're ready to buy - in the meantime all your rent payments don't contribute towards your future home ownership.
Another advantage of Shared Ownership is that your new property is effectively your home - even though you only own a share in it. You can decorate it however you want and you will not be expected to move out whenever your landlord wants to renovate or resell the property, which is often the case in the rental market.
On the other hand, an apartment in a new-built block may not be your idea of a dream home. If you're looking for a little house with a back yard and a shed, Shared Ownership may not be for you.
New or old-build?
If you are interested in buying Shared Ownership, you most likely will be looking at buying a relatively new apartment. The benefits of buying new build are many:
- everything in your new home is new and therefore will not need replacing any time soon,
you new home will have to meet the new rules for energy efficiency, noise pollution, and the like,
- your new home is covered by a 12-months builder's warranty (calculated from when the property was completed, not when you bought it),
- you won't need to carry out a survey on the new home.
Ultimately, the decision between buying old and new build may come to personal preference. Some people prefer a property with some history to it an unique features that add character to your home. On the other hand, when you purchase an old property you may wish to invest in a full structural survey to see if your property is sound - something you wouldn't need to do with a new build.
In London or in the suburbs?
Properties in the heart of London can be pricey, although you might find that prices become more accessible with Shared Ownership. Family Mosaic has a range of properties in attractive, up-and-coming London boroughs like Hackney or Islington that are available under the Shared Ownership scheme.
The alternative would be to purchase a cheaper property outside London and resign yourself to a long commute. Totally Money has created an interactive map of London's best commuter hot-spots.
Freehold or leasehold?
When you're buying a property you basically have two options for ownership: freehold and leasehold.
As a freeholder, you also indefinitely own the land that your property stands on. If you are a leaseholder, you own the right to live in your property for a certain time specified on your lease. You don't own the land that your property stands on and therefore you will have to pay ground rent to the freeholder of the property.
Freehold is usually available if you purchase a house. If you purchase a flat, you will in all likelihood become a leaseholder and the freeholder of the property where your flat is located will be your landlord.
Getting a mortgage
Unless you are particularly affluent, you will need to get a mortgage to purchase your property and you will, most likely, make some decisions about how to go about it.
Should I go at it alone or get a mortgage adviser?
Finding a mortgage that is best for you might be a daunting task and we always advise you to enlist the services of an expert. An experienced mortgage adviser will be able to find a mortgage product tailored to your needs - both now and long term - and maximise your chances of being accepted when you do apply.
Make sure, however, that you choose an adviser who is experienced in the type of mortgage you are looking for. Family Mosaic has a panel of mortgage advisers who are particularly knowledgeable about lending for Share Ownership. Also, a good mortgage adviser will not charge you until your application has been accepted by the lender.
How much deposit should I put down?
When you apply for a mortgage, you will have to put down some of the money up-front - your deposit. Traditionally, deposits on a property started from 10% of the total value of your home. Nowadays, there are lenders who will offer 95% loan-to-value mortgages (LTV), which means that you will only have to put down 5% deposit. While 5% deposit makes home-ownership more affordable, you might not get as good a deal on your mortgage than if you'd put a larger deposit. Also, there will be fewer lenders you can choose from as not all lenders offer 95% LTV loans.
In general, the larger the deposit, the better deal you can expect on your mortgage.
Other costs of buying a home
Apart from putting down your deposit, there are other costs that you need to budget for when buying a home:
- Stamp duty - a tax that you need to pay when buying a property in the UK,
- legal costs, and mortgage adviser costs if you choose to use one,
- you will need to get a Homebuyer's Report if you are buying a resale property,
- you may wish to commission a structural survey if you are buying an old property and you want to be sure that there are no structural problems with it.
Calculating your ongoing costs
Purchasing your first home is one of the biggest decisions in your life and the biggest financial commitment. Getting a mortgage is just the first step. You need to make sure that you can afford the repayments as well as the costs associated with owning your property. Your property may be repossessed if you don't keep up with your bills and payments.
If you buy a Shared Ownership property, at the minimum you need to budget for:
- monthly mortgage repayments,
- monthly rent on the portion of your home you don't own,
- monthly service charge,
- monthly bills.
You need to remember that as a Shared Owner, you are responsible for 100% of your bills, including council tax, even if you only own a portion of your home (say 30%).
Other costs may include:
- ground rent (if you own your property outright),
- cost of contents insurance (building insurance is included in your service charge).
Responsible landlords will have something called a 'reserve fund' or 'sinking fund' to cover bigger expenses for major works and repairs that need to be carried out to make your home safe and comfortable to live in. You will contribute to this fund via your service charge. There will be, however, situations when the amount of service charge collected over the year does not cover all repairs that had to be carried out. In these situations you may be expected to pay extra to cover these expenses at the end of the year.
It is important to note that should you find it difficult to keep up with the financial responsibilities associated with owning you Shared Ownership home, you will not be able to rent out a part of the whole of your flat to ease the burden as your lease prohibits you from subletting your Shared Ownership home.