Posted on: March 21, 2023
A First Time Buyers’ Guide To Mortgages and Property Ownership
*11-07-2023 Correct at time of publication, but subject to change
If you are thinking of buying your first home there is lots you will need to know.
If you are planning to save for a deposit then normally the minimum deposit is 5% of the purchase price. But with the minimum deposit comes some issues. The lower your deposit the less lenders will lend and the rates charged are likely to be higher. Reductions in interest rate happen with every extra 5% that you put down and higher multiples are generally available at 85% loan to value.
So you will need to work toward saving a deposit or going cap in hand to a generous parent perhaps? Or a mixture of both. When saving look out for Government incentives that they operate from time to time to support first time buyers.
Then you need to consider the mortgage amount available to you. A lender will have their own affordability calculator to decide how much they can lend you. This calculator will build a picture of how much they expect your household running costs to be, as well as factoring other things such as whether you have any children and the overhead they create, as well as for example any loans or credit cards, extraordinary travel costs, maintenance payments or other extra committed expenditure. This will help the lender ensure they lend you the right amount without over committing you the borrower.
Your mortgage adviser can advise you of the maximum borrowing available and who the most appropriate lender might be to achieve this, as well as helping you establish a budget so that mortgage payments can remain affordable. They can explain the differences in products available to you, and will also be able to recommend a specific product once they understand your circumstances. Your mortgage adviser will need proof of ID and supporting documents such as payslips and bank statements for them to get a fuller picture as well as satisfying regulatory rules that they the adviser knows you as a customer.
Once you have your funds in place you will also need to consider other fees you will incur…
Stamp duty
A government tax. You will pay a percentage of the purchase price on a sliding scale to the HM Revenue and Customs. This is due on completion. There are generally stamp duty incentives to help first time buyers, but this doesn’t mean you won’t pay any stamp duty at all. For further guidance about what you might pay you can visit www.gov.uk/stamp-duty-land-tax. Your mortgage adviser can also give you guidance on costs.
Solicitor’s fees
You will need to pay a solicitor for them to act on your behalf as well as on behalf of the lender. A solicitor’s fee will typically be between £1,000 and £1,800 plus VAT.
Solicitor’s disbursements
On top of this you will have to pay various disbursements to your solicitor. These break down into 3 main areas as follows…..
- Search pack – this pays for a number of searches that your solicitor is legally liable to carry out including a local authority search, flood, drain and mines searches. In our experience search packs are typically £250 to £350.
- Land Registry – It is a legal requirement that any new residential property purchase is registered with HM Land Registry. This fee is typically £140 to £200. Your solicitor will give you more formal guidance on the costs.
- Miscellaneous charges – There are a fees other charges, such as Telegraphic transfers to send funds electronically from the lender and to the buyers solicitor. Bankruptcy search which check whether you have previously been bankrupt. And extra solicitor’s charges for work required outside of their standard fee, for example looking at the lease for a leasehold property.
Survey
Surveys fall into 3 main categories…
Basic valuation report
The lender will insist on a valuation report on the property. This is to ensure the property is worth what you are paying for it. The report is for the lenders purpose only and borrowers have no reliance upon it. Some lenders provide these reports for free, others will charge.
Homebuyers report
This provides the buyer with a more in depth report based on the general condition of the property as well as the valuation. The report is a hybrid report which gives the buyer reassurance as to the properties condition without providing the specific structural advice of a structural report.
Structural report or Building Survey
This is a specific report which concentrates the structure rather than the general condition. This is the most thorough report and is designed to identify structural or building defects.
Your mortgage adviser can advise you of the costs for each of these reports.
The process
You’ve got your deposit, and your mortgage adviser has advised you how much you can borrow and what it is going to cost. You are ready to start looking at property.
Before you start this process it is advisable that your mortgage adviser obtains an Agreement in Principle for you. This is a pre-application decision that runs a credit search and a credit score to ensure that “in principle” you can borrow the funds you need. It will assist with proving credit worthiness to an estate agent should you wish to make an offer on the property. It also give you as the borrower the reassurance that in principle a lender is going to agree your application.
In order to boost your credit score before you apply here are some hints and tips…
· Make sure you are registered on the voters roll.
· Do not miss payments on things like credit cards and loans as this will adversely affect your credit file.
· If you don’t have credit, consider getting a credit card with a small limit. Use it for small amounts of expenditure, but ensure the balance is cleared every month. Set up a direct debit for the full balance so that you don’t miss payments. Having well managed credit helps demonstrate you can run your financial affairs prudently.
· If you swap or close your mobile phone contract ensure that you leave the direct debit open until you are certain all payments due have been made in full. Mobile phone defaults are a major reason for problems with mortgage applications.
· Avoid pay day loans. Lenders consider these to be a problem as a payday loan demonstrates you can’t financially manage and will almost certainly result in a high street lender declining to lend.
Once you have identified a property that you like you need to make an offer to the estate agent. This will start the process of bartering before you finally agree (or don’t agree!) on a mutually acceptable price.
Once this price is agreed you will need to instruct your solicitor to start the legal work. You will also need to apply formally for the mortgage and supply supporting documentation to prove deposit and income and affordability.
It will also be time to consider how you protect your mortgage with Life Assurance, Critical illness cover, income protection and home insurance. Your mortgage advise can provide costs and advice.
Once you have received your mortgage offer and your solicitor is satisfied legally you can proceed to exchange contracts with a future completion date set. Your deposit is due on exchange of contracts and once you have exchanged you are legally liable to complete on the designated completion day. The period between exchange and completion will allow you to book time of work, speak to utility companies about billing and swapping services into your name as well as speaking to the local authority to sort out your council tax payments.
On the day of completion your solicitor will pass over any mortgage funds and formal completion takes place. Pick your key up and enjoy your new home!!
