First Time Buyers Guide
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Lee and Neezam from Rebus join the Mortgage and Protection Podcast once more, this time to share their expertise on mortgages for First Time Buyers.
How is the mortgage process different for First Time Buyers?
The overall process is similar whether you’re buying a property for the first time or selling a property and moving. It’s just simpler for a First Time Buyer as you’re not selling at the same time. But it’s the first time you’re going through that process, so there’s a lot to learn.
Some mortgage lenders offer specific mortgage products for First Time Buyers. Sometimes they offer incentives to First Time Buyers such as cashback, or free valuations on the property you want to buy. There are one or two lenders that will lend a little bit more to First Time Buyers as long as you meet the eligibility criteria.
What is an Agreement in Principle?
An Agreement in Principle is the same as a Decision in Principle, an AIP or MIPS – but simply it’s an initial agreement with a specific bank. It’s normally an electronic decision based on your credit score, your income and outgoings. The agreement confirms how much you can borrow – and it’s really important.
We always stress to our clients that you need an Agreement in Principle before you go and view properties. It gives you peace of mind that you are eligible for a mortgage, sets your property budget and can put you in a better position to put an offer in on a property.
To be clear, it’s not a mortgage guarantee, but it is a big step towards buying a home.
How much can First Time Buyers borrow?
That is the number one question. Everyone wants to know how much they can borrow so they can start looking at possible homes.
You’ll often read online that you can borrow four times your income or four and a half times your income. But that’s not technically always true. How much you can borrow, whether you’re a First Time Buyer or not, is dependent on a lot of things including the size of your deposit, your credit rating, whether you’re employed or self-employed and how long you have been in your job.
Your salary is important, but also so are bonuses, overtime and commission. Lenders all take different views on how they assess that income.
Chances are, if you visit five high street banks you’d probably end up with five different mortgage totals. So that’s our job – to compare the options for you and find you the most suitable way to borrow for a home.
What deposit does a First Time Buyer need?
The minimum for First Time Buyers is 5% of the property value. Just as an example, on a £100,000 pound property, that means you would need a £5000 deposit.
How do I know what my credit score is? How do I improve it?
Credit scores vary and there are a few different credit reference agencies – Experian, Equifax, TransUnion and others. There are lots of different places you can go to find out your credit score, and the chances are you’ll get different scores from each one!
Credit scoring is something to take with a pinch of salt. It’s not always a defining factor as to whether you can get a mortgage or not: it’s all about the details – what exactly caused any credit issues. We will sit you down with your credit report to identify what it actually means for you.
To improve your score, the big one is making sure you’re on the electoral roll where you live and making sure your full address history is accurate for the last six years. You obviously also need to keep up with the payments on any credit or finance.
What is the First Time Buyer ISA?
There have been many savings ISAs available for First Time Buyers and the most recent one is a lifetime ISA. It is definitely something worth exploring to help you save for a deposit. It effectively gives you a cash bonus when saving. You can save up to around £4,000 a year in the ISA, and you receive a 25% bonus added yearly giving you up to £1,000 free cash.
There are some age limits on a Lifetime ISA – typically 18 to 40 and you have to be a First Time Buyer.
What other schemes are there for First Time Buyers?
The most talked about options are the Help to Buy Equity Loan scheme and the Shared Ownership scheme.
The Help to Buy Equity Loan allows you to buy a slightly higher value property while still having a minimum 5% deposit. The way it works is that the government will top up your deposit from 5% to 25% to effectively give you what’s called an equity loan of up to 20%.
You then get a mortgage for 75% – so instead of a property at £200,000, it might allow you to buy a property at £240,000. There are a couple of limitations: it is only available for new build properties and is only for First Time Buyers, plus there are other eligibility criteria you need to meet.
Shared Ownership is also a great scheme if you’re struggling to buy a property because your income is not enough, or if you need to buy a higher value property than you can afford.
It allows you to buy a share in a property and pay rent on the remaining amount. So you could buy 50% of a three bed house, which means you only need a mortgage for 50% of the price. Then you pay 50% rent to the Housing Association.
As the property value hopefully increases over the years you gain what’s called equity and puts you in a better position. In the future, if you move, you’ve got a bigger deposit behind you. You can also increase your share over time.
If you’re considering any schemes, speak to a broker. Not all lenders will allow you to get a mortgage if you’re buying on a scheme. Other lenders will give you a slightly more competitive interest rate. We can also talk to you about other schemes that might work for you.
What fees are involved when buying a house?
This is something we’ll cover off in our first call with you, which we refer to as a discovery call. We explain what fees are involved, what to look out for and what to budget for.
That includes stamp duty tax, which is payable when you buy a property. As a First Time Buyer, you don’t have to pay stamp duty on a property priced up to £300,000.
There may be a mortgage fee to pay, depending on the type of product, but a good thing with First Time Buyers is that many mortgage products come with free valuation.
When we’re recommending a product to you we will make you aware of all the fees involved such as solicitor fees to conduct searches and manage the legal contract side of buying a home. There will also be survey fees, which we can explain, plus our mortgage broker fee which we will confirm to you long before you make any decisions.
How can a mortgage broker help if I am a First Time Buyer?
We’ve covered a lot of the details about how we can help, and we hope it’s clear what we offer. We would invite anyone reading this to get in touch – your first call to us costs nothing and we will give you lots of information as part of it.
How much can you borrow? What deposit do you need? What would the monthly payment be? Can you get a mortgage, what’s the process? We’re always happy to spend time helping you with those questions.
As approachable as we are, we understand that some people are hesitant to pick the phone up, to speak to a mortgage broker. It is a bit daunting but hopefully we’ve reassured you. If you’re not ready for a chat yet, just take a look at our social media and website which have lots of frequently asked questions. And remember we’re here for you when you’re ready to get in touch!
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.