First Time Buyers: A Complete Guide

This comprehensive guide for first time buyers is designed to make the journey smoother, equipping you with all the knowledge to get your foot on the housing ladder. Here's whats covered:

1a. Affordability - How much can you borrow?

Mortgage lenders in the UK typically use a range of factors to assess how much you can borrow. Here are some of the key considerations:

Income: This remains a crucial factor in determining your borrowing capacity. Lenders generally look at your gross annual income, including any regular overtime, bonuses, or commission you receive. If you're self-employed, lenders will usually consider the average of your last two to three years' income.

Financial Dependents: The number of financial dependents you have is a significant factor in determining how much you can borrow. Dependents are individuals, typically children or other family members, who rely on your income. Lenders take into account the costs of supporting these dependents when calculating your ability to afford a mortgage. The more dependents you have, the greater your outgoings are likely to be, and this might reduce the amount you can borrow.

Debt-to-income ratio (DTI): This is a measure of how much of your monthly income goes towards repaying existing debts. The lower your DTI, the more you're likely to be able to borrow, as it indicates that you have more disposable income available to make mortgage repayments.

Credit score: Your credit history gives lenders an insight into your past behaviour regarding managing debt. If you have a good credit score, it demonstrates that you're a reliable borrower, which could allow you to borrow more. You can obtain a credit report at Checkmyfile which is free for the first 30 days and holds the information on the three main credit reference agencies, Equifax, Experian and Transunion

Loan-to-value ratio (LTV): This is the proportion of the property's value that you're looking to borrow. The lower your LTV (i.e., the larger your down payment), the less risk the lender takes on, so you may be able to borrow more.

Affordability assessment: Lenders will want to be sure that you can afford the mortgage repayments, both now and in the future. They will look at your income and outgoings, including household bills, personal expenses, other financial commitments like credit card debt or personal loans, and costs associated with your dependents. This will also often include a 'stress test' to see if you could still afford repayments if interest rates were to rise.

Property value and type: The value of the property and its type could also impact how much you can borrow. Some lenders may have restrictions or lower borrowing limits for certain types of properties.

As a Mortgage Broker dealing with every lender in the market, we have sophisticated tools that check affordability with multiple lenders. If you would like to know how much you could borrow, please contact us

2. Check your Credit Score

What is a Credit Score?

Your credit score is a numerical value calculated by credit reference agencies (CRAs) that represents your creditworthiness, or how likely you are to repay borrowed money. In the UK, there are three main CRAs: Experian, Equifax, and TransUnion. Each has a slightly different scoring system and scale, but a higher score generally indicates better credit health. Check your credit score with CheckMyFile who provide information on all three of the above credit reference agencies

Credit Score & Mortgages

When you apply for a mortgage, lenders will check your credit score to assess the risk associated with lending you money. If you have a high credit score, lenders see you as a lower risk, which could result in more favourable interest rates and terms on your mortgage.

Conversely, a low credit score can make it harder to secure a mortgage. If you have missed payments, defaults, or CCJs on your record, lenders might see you as a high risk, which could result in less favourable terms or even your application being declined.

Improving your Credit Score

• Improving your credit score can increase the chances of securing a mortgage and getting better interest rates. Here are some tips:
• Pay bills on time: Late or missed payments can harm your credit score. Set up direct debits for regular bills to ensure they're paid on time.
• Use credit wisely: Regularly using a credit card and paying off the balance in full each month can demonstrate that you can manage credit responsibly.
• Keep your credit utilisation low: Try to use less than 30% of your total credit limit across all your credit cards.
• Register on the electoral roll: This provides proof of address and can help boost your score.
• Check for errors: Regularly review your credit report to spot any errors or fraudulent activity and report them to the relevant CRA.
• Limit credit applications: Too many credit applications in a short period can negatively impact your score, as it may appear you're reliant on credit.
• Close unused credit accounts: Having a lot of available credit might make lenders think you could become over-indebted.
• Build a credit history: If you've never borrowed before, lenders can't tell how responsible you are. Using a credit builder card responsibly can help establish credit history.

3. The Importance of a Mortgage in Principle

A mortgage in principle (AIP) gives an estimate of how much a lender may be willing to lend you. This reassures sellers about your financial credibility, giving you an edge in negotiations. It also helps you understand how much you can afford, narrowing your property search. We can assist in arranging this with various UK lenders, taking into account your financial circumstances and the latest market offers. Learn more about a Mortgage Agreement in Principle (AIP) 

4. Protecting Your Investment with Insurance

Buying a home is a significant investment. Insurances like life cover, income protection, critical illness cover, private medical insurance, buildings and contents insurance can protect you against unexpected scenarios. For instance, if you were unable to work due to illness, income protection insurance would cover your monthly income, helping you manage your mortgage payments. We can help arrange these from a broad range of UK insurers. Read more about Insurances to consider taking with a mortgage here.

5. Navigating your property search

Now that you have your budget and mortgage in principle, the exciting part begins: finding your dream home. Location plays a vital role, affecting commute times, school catchment areas, amenities, and overall lifestyle. For instance, a property closer to transport links might carry a premium but save you commuting time and costs. You cant find properties on all the main portals including Right Move, Zoopla, On the Market and Prime Location

6. Finding the best mortgage

Buying a home usually involves getting a mortgage unless you can afford to buy the property outright. A mortgage is a loan you take out to buy property or land. The loan is secured against the value of your home until it's paid off. If you can't keep up your repayments, the lender can repossess (take back) your home and sell it to get their money back.

Types of Mortgages

The two main types of mortgages are:

Fixed rate mortgage: The interest rate stays the same for a set period, so you know exactly what you'll pay each month.

Variable-rate mortgage: The interest rate can change, meaning your payments could go up or down.

Within variable-rate mortgages, you may find tracker mortgages (which track a nominated interest rate plus a set percentage), discount rate mortgages (which offer a discount off the lender’s standard variable rate), and more. The right mortgage type for you depends on your financial circumstances and risk appetite.

Mortgage Term

The mortgage term is the length of time you're taking the mortgage out for. A longer-term means lower monthly payments, but you'll end up paying more interest in total. A shorter-term means higher monthly payments, but you'll pay less interest in total. It's important to balance a term length that is affordable but also minimises your total repayment.

Deposit

The deposit is the amount you put towards buying a home. The more deposit you have, the lower your interest rate could be. This is because it reduces the lender's risk.

Affordability

Affordability checks are done by mortgage lenders to ensure you can afford to take out the mortgage. They'll look at your income, outgoings, and if interest rates increased, whether you could still afford the repayments.

Seek professional advice

As a mortgage broker, we can help you navigate the mortgage market, compare deals across various lenders, and advise on the best mortgage for your specific situation. We take into account the type of mortgage, interest rates, fees, and any penalties for overpayments or early repayment.

Remember, everyone's circumstances are unique, so it's crucial to get advice tailored to your situation. Mortgage rules can also change over time, so having a knowledgeable broker on your side can make all the difference. Contact us if you would like more information on how we could help you or answer any questions you may have

7. Conveyancing: The Legalities of Home Buying

Conveyancing is the legal process of transferring a property from one owner to another. It involves checking the property's legal status, the land registry, and potential issues that may affect the sale. Having a reliable solicitor can simplify this process. For example, they could identify if there are any restrictive covenants on the property that prevent certain alterations. Read more about the Conveyancing process here. If you would like help finding a solicitors or getting a quote, we can assist with this by an introduction basis only, and will be referred to a third party

8. The importance of surveys and valuations

Surveys are critical in identifying any hidden problems a property may have, from structural issues to damp or faulty wiring. A valuation, on the other hand, confirms the property's worth to your lender. For example, a HomeBuyer's Report might cost upwards of £500 but could uncover a defect that costs thousands to fix, allowing you to renegotiate or rethink your decision. Read more about whether to have a Valuation or Survey here. Again, if you would like a quote for a more in-depth survey we are able to help with this on an introduction basis only, and will be referred to a third party.

9. Leasehold vs Freehold: What you need to know

Properties are typically either leasehold or freehold. Freehold means you own the property and the land it stands on indefinitely, while leasehold means you own the property but lease the land for a certain period. The terms of a leasehold can affect your property rights and costs. For instance, some leases may have restrictions on pets or require you to pay annual ground rent and monthly service charge.

10. Hidden Costs: Stamp Duty, Fees, and More

Additional costs can add up. Stamp duty, a tax on property purchases, applies to homes over a certain price. You can use our Stamp Duty calculator to work out how much you might need to pay.

Conveyancing, valuation, and survey fees also add to the costs. Remember to budget for moving costs and any immediate home essentials you'll need.

11. Moving in: Managing Utilities and Services

Once you've moved in, set up utilities such as gas, electricity, water, and broadband. Also, update your address with banks, insurers, and other institutions. For example, having a high-speed broadband connection may be essential if you work from home or stream a lot of content.

12. Energy Efficiency: Understanding Your EPC

An Energy Performance Certificate (EPC) rates a home's energy efficiency from A (most efficient) to G (least efficient). An efficient home not only lowers your carbon footprint but also reduces energy bills. For instance, a property rated "A" will be significantly cheaper to heat than a "G" rated property.

You can use the Government website to check if a property has a valid EPC certificate here

13. Future-proofing Your Home: Renovations and Extensions

Think about your long-term plans. You might wish to extend or renovate your property later, or you may need extra space if your family grows. Local council regulations and the type of property ownership could affect these plans. For example, if you're thinking about a loft conversion in the future, make sure any potential property has sufficient loft height and space.

14. Timing is Everything: Understanding the Property Market

The property market fluctuates due to various factors like economic climate, interest rates, and government policies. Understanding these trends can influence your buying decision. For example, if there's a dip in the market, it might be a good time to buy as property prices would be lower.

Conclusion

Becoming a homeowner is a rewarding journey, but understanding the ins and outs of the process is crucial. This guide is a stepping stone to making informed decisions. As a mortgage broker, we're here to provide personalised advice, whether it's finding the right mortgage or setting up essential insurances. Contact Us Here or call 01580 447 447 to see how we can help you get your foot on to the property ladder