As a first time buyer you naturally have a mountain of questions to ask over the various, administrative, technical and legal processes involved in purchasing a house, as well as the costs and time it takes to embark on buying a first home. Regardless of whether you are a first time buyer or not, the house buying process is a huge undertaking and trying to get your head around the whole process can leave you feeling confused and baffled. We hope you find the following first time buyer guide useful and filled with enough information for you to start making sense of the complex house buying process, making your journey into property purchase less scary.
How much can I borrow ?
Having a rough idea of how much a lender is likely to lend is a good idea before you start searching for a property. This could save you some disappointment later if you over estimated, and found that your dream home is beyond the price at which the lender is willing to lend.
The amount a lender would traditionally advance to prospective borrowers would normally be based on multiples of salary, so a borrower could expect to typically receive around 3-4 times their salary, or 3 times their own salary plus 2 times theirs partner’s salary. Nowadays however, Since the introduction of much more stringent lending practices, Banks and Building Societies are required to base their lending on Affordability of the repayments as opposed to solely relying on multiples of salary as part of their affordability assessment. You will be asked for full details of all of your incoming and outgoing details, and expected to have a certain level of residual cash leftover each month, before they decide on a figure to lend.
You can use various mortgage calculators on many of today’s lender websites to help you get a rough estimate of how much you could borrow, or alternatively you can take on the services of a qualified mortgage broker to help you workout your figures. It is important to remember that other than your salary, additional factors such as your credit score, late and missed payments, past bad credit and future interest rises all effect your ability to secure a mortgage.
Saving for a deposit
If you are thinking of buying a property, it is essential to have saved up a deposit or start saving up for one if you have not already done so. The minimum deposit required nowadays can be as low as 5%, but you ideally should aim for at least 10% to 20% of your property’s purchase price. To receive the widest access to lenders and the best interest rate offers, the optimum amount would a 40% deposit.
For example, if you are searching for a property of around £200,000:
- a 5% deposit would amount to £10,000
- a 10% deposit would amount to £20,000
- a 20% deposit would amount to £40,000
Saving even a 5% deposit can be hard work, but it’s worth bearing in mind, the larger the size of your deposit, the better and lower the rates you are likely to receive, and you also have a wider choice of lenders with a higher deposit.
Check you can afford your mortgage payments
Taking on a mortgage is a serious financial commitment, first time buyers should really ask themselves if they can afford the monthly mortgage repayments before they commit. Taking time to prepare and write up a budget can be a really useful tool to get a complete picture of your finances. Reviewing your household income and expenditure will allow you to take a realistic approach in deciding if the repayments of a new mortgage will be easily manageable or add strain to your finances
The Mortgage Market Review has introduced stricter lending rules for lenders in relation to assessing the affordability of mortgages. lenders now focus heavily on proving affordability through stringent checks such as verifying all income and expenditure and providing payslips and Bank statements.
Lenders also use what is known as stress tests, which are computer based programs to test how borrowers would cope if there interest rate was to rise by 3 to 4% above their introductory rates, an indication of how serious the financial industry is treating the issue of affordability.
Budget for the additional costs of buying a house
- Arrangement fees on Mortgage products – Some Mortgage offers carry an arrangement fee of up to £1500, especially if the rate being offered is very low. You will find that the lower the arrangement fee charged, the higher the interest rate offered will be. This is also the case in reverse, the lower the interest rate offered, the arrangement fee starts to climb. The trick is to carry out some calculations and workout how much your mortgage will cost over the offer period, factoring in the arrangement fees. Often, the offer with the lowest interest rate with a high arrangement fee, can end up being equal to, or even more expensive than an offer with a higher rate with a small or no arrangement fee.
- Valuation fees – Valuations allow lenders to assess the value of your property to determine that the property is adequate security for the sum of money being borrowed. Many Mortgage offers include free survey and valuation fees paid by the lender. But there are still many deals where the borrower bears the cost. Make sure you check the offer to be clear who is paying for these services as part of the deal so you can include the costs as part of your budget.
- Stamp Duty Land Tax (Stamp Duty) – In England and Wales the Stamp Duty rates are as follows:
- 0% on purchase prices up to £125,000
- 2% on the portion of the purchase price over £125,001 and up to £250,000
- 5% on the portion of the purchase price over £250,001 and up to £925,000
- 10% on the portion of the purchase price over £925001 and up to £1.5m
- 12% on any portion of the purchase price exceeding £1.5m
Stamp Duty Land Tax is not considered as an ongoing expenditure, and therefore does not form part of the affordability assessments of the lender. It is however a significant addition to the initial costs of buying a house, and should receive careful consideration when budgeting for house buying cost calculations.
- Solicitor’s Fees – It is not absolutely necessary to use a Solicitor to carry out all of the legal work and contracts involved in a house purchase or sale. A lender however will never consider lending without formal legal paperwork in place which has been prepared and undertaken by a legal professional such as a Solicitor or licensed conveyor. Solicitor or licensed conveyor fees cost between £850-£1,500 including VAT at 20%. It is also the role of the legal professional to carry out searches on the property on behalf of the lender such as Bankruptcy searches, water and drainage searches, environmental searches, amongst others and can total between £250-£300. These searches help alert the lender to any localised issues that effect the validity of the property as security for the loan.
- Electronic transfer fee – This fee is payable to the lender to transfer the mortgage amount over to the buyers Solicitor, who then transfers the money to the sellers Solicitor to complete the sale. The charge for this fee is typically £40-£50.
- Removal Costs – This is a cost that is often overlooked as it usually takes place at the very end of the house buying process once the mortgage completes, but the cost of a removal service can be a significant cost and therefore is important to factor into your budget. Typical costs range from £300-£600.
- Insurances – It is a requirement of all lenders for a valid and appropriate buildings insurance to be in place to protect the lenders interest in the property as security for the loan. The lender will also require you to have a life insurance policy in place to pay off the loan in the event of your death.
First Time Buyer Deals
First Time Buyers have access to almost all of the mortgages that are available to standard or subsequent buyers. Banks and Building societies however, design and package deals to target and specifically cater for the needs and requirements of First Time Buyers in the market. The incentives of such deals include no or discounted legal fees, free valuations, low fixed rate interest rates, cashback once are certain period into your mortgage has lapsed and other fees waived.
How I can Help
I can provide you with concise and comprehensive advice and assistance regarding all aspects of your mortgage needs from initial advice to application stage and all the way to completion. Having a mortgage professional on hand to assist you every step of the process can save you time, effort and money, easing the stress of your mortgage process.
Please contact me today for an informal and friendly chat to discuss your needs. All initial advice is completely free and confidential. You can contact me using the “contact us” form at the top right of this Page and i’ll get back to you as soon as possible, or alternatively you can contact me via my details below, or CLICK HERE
Thank you for visiting.
Balraj Singh (Bal)
Tel: 0330 010 1433 (Mobile Friendly)
Mob: 07985 417 490