What to expect when buying your first home
You’ll feel a range of emotions when buying your first home, from the excitement of having your offer accepted to feeling overwhelmed by the buying process. Choosing and securing a mortgage can be daunting while completing all other aspects of the home-buying process can seem challenging.
You’re not left to deal with your first home purchasing experience alone, though. At Trinity Finance, we use our skills and experience to help you step onto the property ladder as quickly and easily as possible. We explain everything to you in an understandable, jargon-free way and provide you with a dedicated mortgage consultant who will look after you from start to finish.
Work out how much you can afford
Before you start looking at properties, you need to work out how much you can comfortably afford to pay each month for your mortgage. Make a list of your regular outgoings, such as utility bills, credit card payments, telephone and Internet bills, insurance costs, council tax bills and loan payments. Then add your expenditure for food shopping, entertainment, travel expenses and childcare. This will give you a more accurate idea of what you can afford for your monthly mortgage repayments.
Be realistic with the amount you’re prepared to agree to. A mortgage is a huge commitment and you don’t want to struggle with your day-to-day living just so that you can afford your monthly repayments. Also, if you’re unable to keep up with these repayments, you risk your home being repossessed.
Your first mortgage
Possibly the most daunting aspect of buying your first home is choosing your mortgage. There are several types of mortgages available and your mortgage broker will explain them clearly to you and help you decide which one is best for your needs.
Types of mortgages
Repayment or interest-only
The first step is to decide between a repayment and an interest-only mortgage. With a repayment mortgage, you repay some of the capital (the loan amount) as well as the interest each month. This is the most popular choice because you will have repaid the loan in full and own your home outright at the end of the mortgage term, such as 25 years.
With an interest-only mortgage, you only pay the interest each month and the loan isn’t repaid until the end of the mortgage term. This option might seem tempting because you have lower monthly repayments but you need to have the ability to repay the entire loan when the mortgage term ends.
Fixed rate or variable rate
Having decided between a repayment and an interest-only mortgage, your next decision is whether to choose a fixed rate or variable rate. A fixed rate mortgage means that you pay a fixed interest rate for a certain period at the start of your mortgage, such as 2, 3 or 5 years. This is helpful for budgeting and gives you peace of mind that your payments won’t go up if the Bank of England increases the interest rate. After the fixed term ends, your interest rate will revert to the lender’s standard variable rate (SVR). This is likely to be higher than the amount you’ve been paying so we recommend that you look for a new mortgage deal a few months before the fixed term ends.
With a variable rate mortgage, the interest rate payable each month can fluctuate. We don’t recommend that you choose a mortgage deal with the lender’s SVR as this tends to be higher than other rates. There are several other types of variable rate mortgages to consider and the main ones are:
- Discounted rate mortgage: Lenders offer discounted rates for an agreed term, usually between 2 and 5 years, to encourage you to choose a deal with their SVR. After the discounted term, the rate changes to their SVR. Although the initial lower repayments can seem appealing, the discounted rate is linked to the SVR and can still go up if the lender increases this.
- Tracker mortgage: A particular interest rate – usually the base rate set by the Bank of England – is tracked and you pay a fixed percentage on top of that rate. As the base rate fluctuates, your monthly payments increase or decrease accordingly. You can choose to have the tracker rate for the entire mortgage term or just an initial period, such as 2 to 5 years, before the rate converts to the lender’s SVR.
- Capped rate mortgage: Just like the other variable rate mortgages, the interest rate can increase or decrease but a cap is set so that you don’t pay higher than that rate. This lets you benefit from lower payments if the rate drops but gives you peace of mind that you won’t pay higher than a certain amount when the rate increases.
An offset mortgage is linked to your savings account and can have either a fixed or variable interest rate. The balance of your savings is offset against your mortgage, which reduces the amount of interest you have to pay. This type of mortgage is flexible in that you can choose to reduce your monthly payments or shorten your mortgage term. You can also withdraw funds from your savings account when you need to. However, as a first-time buyer, you need to consider whether your savings will be put to better use as a deposit.
Most lenders ask you to pay a deposit of at least 10% of the property’s value although there are some 95% mortgages available if you only have a 5% deposit. It’s also worth looking into the government-backed schemes available to first-time buyers when you have a 5% deposit. Your mortgage broker can advise you on these to see if any of them are the right fit for you.
It’s better to save for a larger deposit if you can. The more you can pay, the more deals with better rates become available to you. Consider saving for your deposit using a Lifetime ISA (LISA), which gives you bonuses on your savings from the government. Alternatively, ask a parent if they can help with your deposit. The less you need to borrow for your mortgage, the more competitive the rates become and this should make your monthly repayments lower.
Our expert mortgage brokers, located throughout Kent, London and Edinburgh, have extensive knowledge of the mortgage market. They are ready to help you work out what you can borrow, advise you on your deposit and inform you about the schemes available to you as a first-time buyer. They can guide you on the different mortgage types available and help you narrow down the choices until you arrive at the best one to suit your needs.
At Trinity Finance, we are not tied to specific lenders. This means that when you are ready to proceed, we can search the entire market for the best deal, including those with incentives aimed specifically at first-time buyers. Call us on 01322 907 000 to get started on your property journey or send a message to us via our contact form and one of our friendly mortgage consultants will reply to you as quickly as possible.
Your mortgage in principle
It’s advisable to get a mortgage in principle before you start viewing properties. This is a conditional offer from a lender stating the amount they are prepared to lend you ‘in principle’. This helps estate agents know what property price you can look up to and it makes sellers feel more confident that you’re a serious buyer.
Do a bit of research on the area you’ve decided to move to. For example, check the transport links, schools and local amenities. Contact the local council to find out if there are any projects planned as this could increase or decrease property values accordingly. Find out what properties have sold for in the area to help guide you when you’re ready to make an offer. This will put you in a better position when negotiating with the seller.
When you’ve found a property you like, be sure to check it thoroughly rather than just having a cursory glance at the rooms. It may look fantastic on the surface but have problems that don’t come to light until later on. Test things properly, such as turning on the taps, looking at the boiler and checking the windows and flooring. Look for any obvious signs of damp and ask the seller about the condition of the property. Whilst a survey will provide you with more insightful information, the sooner you are aware of any issues the better.
A second viewing is essential
Your first impressions of a property will no doubt determine whether or not you want to make an offer on it. However, it’s best to arrange a second viewing to be sure. Different factors can impact how a property looks and feels on a particular day, such as the weather or your mood. You are also more likely to notice things that you missed during the first viewing.
Your formal mortgage application
Once you have made an offer and it’s been accepted, your dedicated mortgage broker can help you prepare your formal mortgage application. This ensures it meets the lender’s requirements so that there are no unnecessary delays. The lender will carry out a credit check on you and review your paperwork. A valuation will also be carried out on the property to determine its value and suitability for a mortgage. When the lender is satisfied with the results of the affordability checks and property valuation, you will be issued a formal mortgage offer.
It’s essential to get a survey carried out on the property from this point and before you exchange contracts. This is different from the valuation and provides an in-depth check of the property’s condition. There are different types of surveys available and your qualified mortgage broker can advise you on the differences between them and the varying costs.
Once your mortgage offer has been issued, your solicitor will continue with the conveyancing process. This includes carrying out the property searches, checking the tenure of the property and reviewing the details of the draft contract. We work closely with solicitors and are happy to recommend one to handle the transaction for your first home.
The costs involved
Buying your first home includes a number of costs on top of your mortgage loan. Be sure to include them when budgeting for your new property.
The lender’s fees
As well as your deposit, you need to pay a mortgage arrangement fee and a valuation fee. Some lenders offer incentives with these for first-time buyers so ask your mortgage broker to check this first.
The survey is another extra cost but it’s important to check the condition of the property before you finalise the purchase. If there are any problems with it, you may look to lower the price of the property, ask the seller to rectify the issues or even decide to walk away from the deal altogether. The amount you have to pay depends on the type of survey you choose. The RICS Homebuyer Report is the most popular survey carried out as it notes major defects, such as subsidence, and work that may need to be carried out in the future, such as rewiring.
The legal fees
Your solicitor will charge for all of the legal work carried out for your property purchase. The fee can typically go up to £1,500 and includes the local searches as well as their standard legal fees.
Stamp duty is a tax payable when buying a property. As a first-time buyer, the amount of stamp duty you have to pay, if any, depends on the price of the property you buy. In England, the Stamp Duty Land Tax (SDLT) rates for first-time buyers apply as follows:
- If you purchase a property up to £300,000, you don’t have to pay any stamp duty at all.
- If you purchase a property priced between £300,001 and £500,000, you pay a 5% charge on the relevant portion.
- For a purchase over £500,000, the standard rates apply.
In Scotland, stamp duty is known as Land and Buildings Transaction Tax (LBTT). The rates for first-time buyers are:
- £0–£175,000: 0%
- £175,001–£250,000: 2%
- £250,001–£325,000: 5%
- £325,001–£750,000: 10%
- Above £750,000: 12%
Buildings insurance is essential when buying a home and needs to be in place for the exchange of contracts. There are also other types of insurance that are beneficial when purchasing a property, which we’ve detailed below. Our qualified financial advisers can give you expert guidance on the different insurance policies available and ascertain which are best for you.
You will need to take out buildings insurance for your new home as protection against damage caused by flooding, fire and subsidence, etc. Having buildings insurance in place is often a requirement by lenders for the mortgage. If your new home has a unique feature, such as a timber frame or a thatched roof, or is located in an area of high risk, the lender may require you to obtain specialist insurance.
You should also take out contents insurance to give you peace of mind that your possessions can be replaced should they be lost, stolen or damaged in your property.
This insurance provides security that your mortgage payments will be maintained in the event that you are unable to work for a prolonged period or even for the rest of your life.
This type of insurance ensures your mortgage is repaid in the event of your death so that the financial burden isn’t passed on to your loved ones.
If you are moving into your first home with a lot of belongings, you will likely need assistance from a removals company. Therefore, you need to factor this cost into your budget too. To keep the cost down, you can consider hiring a van and moving everything yourself instead.
Let us help you step onto the property ladder
At Trinity Finance, we understand that buying your first home can feel challenging with a lot of information to take in and important decisions to be made. Your dedicated mortgage consultant will break the home-buying process down into stages and guide you carefully through each one. We are here to assist you in any way that we can and you can rely on us for support throughout your property journey.
When you’re ready to take the first step towards owning your first home, give us a call on 01322 907 000 to speak with one of our friendly advisers. Alternatively, send us an email at firstname.lastname@example.org or a message via our contact form and we will reply to you as quickly as possible. With mortgage specialists located throughout Kent, London and Edinburgh, we aim to make the process of buying your first home as easy and as straightforward as possible.