First Time Buyers
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First Time Buyers
Gary Boakes shares his expertise on First Time Buyers.
Gary Boakes talks about First Time Buyers and the mortgage process.
How is the mortgage process different for First Time Buyers?
The good news is that the process isn’t any different for First Time Buyers than it is for anyone else looking for a mortgage. Every individual’s circumstances are looked at: income, expenditure, loans, outgoings, and that’s no different for a First Time Buyer or a home mover.
What is an Agreement in Principle?
An Agreement in Principle is essentially a pre-approved mortgage offer. It basically means that we have credit scored you with a particular lender and we have checked your affordability. Based on that, the lender states that they would lend you a certain amount. In most circumstances you then get a certificate, which a lot of the estate agents ask for.
It’s not guaranteed that you will get a mortgage just because you have an Agreement in Principle. The mortgage itself also takes into account the property that you’re buying and the lender will look in more detail at your payslips, bank statements and credit score once you submit a mortgage application.
Any minor changes between your Agreement in Principle and your mortgage application could affect the outcome. But generally, an Agreement in Principle is a really good start for First Time Buyers to know that you’re credit worthy and to know what your budget is for buying a property.
How much can a First Time Buyer borrow and what deposit is needed?
With some lenders First Time Buyers actually have a slight advantage. Nationwide, for example, does something called a Helping Hand which is only for First Time Buyers. There are some criteria points that you do have to get past though. They will potentially lend you 5.5 times your income if you meet these.
With most lenders you might be able to borrow anywhere from 4.5 times your income, based on your income, expenditure and your specific circumstances.
In terms of deposits, the majority of lending starts at 95% so you would need at least a 5% deposit. However, there are one or two schemes that are a little bit different. For example, Barclays have what we call a Springboard Mortgage, where you can put down a 0% percent deposit – however a family member needs to put 10% into a savings account. It doesn’t go into the property, it’s held as savings in the background.
That money gains interest, and as long as the buyer has made all their payments over a five-year period, the family member can then take back that 10% deposit plus the interest accrued. [information correct at time of recording in March 2023]
How do I know what my credit score is and how do I improve it?
It’s really easy to find out your credit score. The two main credit agencies are Experian and Equifax, which are the paid-for ones that lenders generally look at. As a company, we recommend TransUnion, which is a good one that’s free to use. Credit Karma is another free one to look at.
Don’t get too carried away with the score. Often it is the content that we want to see – we want a lot of green ticks, which means you’ve not missed any payments. The credit score isn’t the be-all and end-all. But it’s a good idea to keep up to date with it and make sure that there are no irregularities.
There are various things you can do to improve your score, like making sure you’re on the voter’s roll and keeping that up to date when you move property. Plus, if you are renting but you’ve still got your bank statements registered at your parents’ address, that can affect your credit score. Make sure everything is registered at the same place.
An obvious one is to make sure you’re not missing any payments or paying late. Don’t max out your credit cards. Your credit score is quite individual. The relevance of your credit will also be affected by the size of the deposit you’re putting down.
How we can help you
No matter what stage in life you’re at, our expertise will help guide you along the way. We’ll take the time to understand you, your aspirations in life and what you want to achieve in the short, medium and long term. Our team of experts are on hand to help people all over Wiltshire and the surrounding areas, from our Salisbury office.
We want to give you peace of mind, knowing that no matter what happens, you’ll enjoy a financially secure future.
What is the First Time Buyer ISA and are these still available?
They’re still available – first there was a Help to Buy ISA which is no longer around, but it’s been replaced by the Lifetime ISA. It’s available to anyone between 18 and 39 and you’re allowed to save £4,000 a year in that. The government will top it up to £1,000 – they add 25% of what you put in – and you can use that to buy a property.
The only criteria is that the maximum property price has to be £450,000. It’s a great way to save, with a bonus from the government to help you build a deposit.
What other help is available for First Time Buyers?
Aside from the specific lender support we mentioned earlier there are various schemes to have a look at.
A Joint Borrower Sole Proprietor mortgage is like a guarantor mortgage, where you can buy a property with someone else. In most instances that’s a parent, and their salary is used as part of the affordability. The only downside to that is that generally the maximum age in those mortgages is 70 or 80, so the term is based on the older person. If your parent is 60, then you potentially can only have a maximum term of 20 years.
The reason why these are popular is that the parent doesn’t go on to the title deeds, which means there’s no additional stamp duty to pay.
Shared Ownership is the part-buy, part-rent scheme. You find a property and you might choose to buy 50% of that property. Your mortgage is based on that 50% and then you pay rent on the other 50%. These are predominantly available on new build sites, but you can also buy properties that are reselling. This is becoming increasingly popular since the Help to Buy equity loan closed.
Another Help to Buy replacement is called Deposit Unlock, which gives you the ability to buy with a 5% deposit on a new build property. It’s a bit limited at the moment and only three major lenders support it. Builders have to be specifically signed onto the scheme. But it’s something we feel that’s probably going to grow over the next sort of 6 to 12 months.
What sort of fees are involved when buying your first home?
For First Time Buyers there is currently no stamp duty on a property up to £450,000 which is a big saving. On properties over that value, it’s 5% of the difference up to a certain level.
Then you have your normal mortgage fees including an arrangement fee. There are searches, as part of your solicitors costs, which are usually around £250 to £300. The overall legal costs might be around £900, which is the cost on a property we’re buying at the moment. Costs can vary depending on the size of the property and whether it’s freehold or leasehold. We always sort of tell people to earmark around £2,000 for their first purchase.
Then there are surveys. With any property you will have an initial mortgage valuation which determines the value of the property. But if you want to do a more enhanced survey like a Homebuyers report or full structural survey, those prices can go up to £400 plus.
Protection is another cost – and it’s always important to think about covering your mortgage. It’s obviously going to be one of your largest ever debts, so make sure it’s covered for any unforeseen circumstance. That could mean life cover, critical illness cover or income protection. The cost of those will depend on your situation, your age and your health.
How can a mortgage broker like Verve Financial help if you are a First Time Buyer?
As a First Time Buyer everything is all very new to you. Like everyone, you have probably gone online to look at mortgage calculators etc., but these generally aren’t as accurate as the ones we use. Plus, every single lender will look at Income and affordability slightly differently. Mortgage Brokers can help by giving you a really good affordability assessment on what you can do.
We can look at credit scores to make sure that you are creditworthy before you really get excited about properties. You’ll have a good idea of what you can afford and that there is someone prepared to lend you money.
As we mentioned, there’s quite a few schemes out there which can be quite complex. We can make sure you qualify for these schemes and that you understand how they might help you.
We’re here to put you in the best place to start looking. You’ve probably had a look on Rightmove, but the idea is to know exactly what you want to do before you find a property. From then on it’s about managing that mortgage application and getting you an offer.
We help with protection too, and we’re just here as a sounding board to help you all the way through to completion. We’ve all been First Time Buyers at some point and we know it can be quite daunting. We just want to make sure that it’s as easy as it can be for you.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 31/3/23