First Time Buyers

Paul from Fiducia Mortgage Solutions joins the Mortgage & Protection podcast to talk about First Time Buyers.
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How is the mortgage process different for First Time Buyers?

The process itself is pretty much the same regardless of what type of buyer you are. We still have to do things in a certain order. What’s different for a First Time Buyer is that you might feel a little bit vulnerable because you haven’t done this before – you may need a little extra support to understand different types of mortgages, interest rates and budgets.

We make sure that you’re really happy with what you’re doing and that you aren’t overstretching yourselves to buy that first house.

What is an Agreement in Principle?

We give a lender a client’s income and expenditure details and that lender will give you a ‘mortgage in principle’ – which is a statement that they will theoretically lend you a stated amount.

A client could do this themselves, but there are some pitfalls to watch out for. A bank or building society might do a hard credit search, which could impact your ability to borrow more in the future.  Plus if you accidentally put information in incorrectly, you could have an invalid agreement.

Many estate agents will insist on an Agreement in Principle from a broker as these are seen to be more reliable.

How much can a First Time Buyer borrow?

In the past a First Time Buyer might have heard that they can borrow around four to five times their income, but that doesn’t really work any more. All banks and building societies use different affordability calculators now and there are many factors involved.

It can vary depending on whether you receive a basic wage or if there are overtime bonuses and other benefits. It also depends whether you’re employed or self-employed. So there aren’t any general rules about how much somebody can borrow, it’s a very specific calculation.

The term of the mortgage can make a big difference too. You might choose a 25 year mortgage or even a 40 year mortgage – which changes how much you can borrow. Some lenders will offer more if you choose a five year fixed rate mortgage product as opposed to two years. There’s even one lender that will increase the size of the loan if you earn more than £35,000.

This is why it’s such a good idea to come to a broker, to explore all the options. If you go to your high street bank they might offer you £100,000. But if you come to a broker we might get you to £125,000 – and that’s a big difference for a First Time Buyer.

What deposit is needed for a First Time Buyer?

Lenders are fairly supportive for First Time Buyers, and so the minimum deposit now is five percent of the property value.

What’s important on the deposit side of things is that it must be your own money: personal savings, a gift or perhaps inheritance.  You can’t take out a loan for a deposit or borrow money from an employer. Also, the bigger your deposit, the better the deal you might get – so saving hard is a good thing.

How do I know what my credit score is and how do I improve it?

When they consider you as an applicant, most banks or building societies will use Experian, Equifax or Transunion to look at your credit details. Although there are lots of online places to check your credit score, it’s important to look at one of the main credit agencies at least.

In my experience, it is particularly important for First Time Buyer to get on the electoral roll. Even if you’ve just turned 18, if you’re in rented accommodation and you don’t want to vote, being on the electoral roll actually increases your credit score by quite a lot. So get registered wherever you live – it doesn’t cost anything.

What is a First Time Buyer ISA?

These were previously called Help to Buy ISAs. You can’t actually get these any more, but if you’ve got one already then great. You could put up to £200 in the ISA and when you are ready to buy a property the government would boost the total you have saved by 25% for your first home.

Instead, there is now a lifetime ISA which works in a very similar way, but the key difference is that you’ve got to be under 40 to open one.

It can be either used for a first home or to help towards retirement. So if you’re searching Help to Buy ISAs, look for a Lifetime ISA instead.

What help is available in terms of schemes for First Time Buyers?

There are quite a few available…

Help to Buy Equity Loan Scheme – available on new build homes where the government will boost your deposit with a loan to reduce your mortgage payments. You will need at least a five percent deposit.

The Mortgage Guarantee Scheme is the reason why there are more five percent deposit mortgages. There’s a little trick on this – if you can even just get to a six percent deposit it might mean that you get a slightly better deal and improve your chances of acceptance.

Shared ownership – where you own a share of the property via a mortgage, and pay rent on the remaining share. These schemes are mainly available through local housing associations. It’s good to get registered with the different shared ownership schemes to be in with a good chance.

Joint Borrower Sole Proprietor – these mortgages are getting more common as a way to buy a house on your own but with financial support from a family member. They can be named on the mortgage without being on the property deeds, which means there’s no additional stamp duty to pay.

Guarantor schemes. Here, a parent or family member might put a security deposit down with the bank to act as a guarantor.

There’s quite a lot of help that First Time Buyers might not even know about – and we can explore the options with you.

What fees are involved when buying a first house?

It’s difficult to put an exact number on it as everything can vary.

First Time Buyers don’t pay stamp duty on property worth up to £300,000 – but this changes all the time. Look at the government website to see what stamp duty costs are but, generally, no duty for First Time Buyer is a big saving.

Then there are mortgage fees – a lot of banks don’t charge these for First Time Buyers, but again, deals change all the time. You’ve also got solicitors’ fees which cover local searches to make sure that the land is legally available to buy. Every purchase is different so it is difficult to put an exact price on the legal costs – it could be £1,000 or £1,500 perhaps.

You will also need a survey and when you’re buying your first house, especially if it’s an older property, it might be worth spending extra money on a full survey. That way when you get the keys you know exactly what to expect.

A final cost might be protection – types of insurance that go along with buying property such as buildings cover, life insurance and critical illness insurance.

What advice would you give to a First Time Buyer?

As brokers we’re here to give you advice in plain English. Use us as your trusted advisor to support you through the whole process. We’re here to look at all of the different options across all of the banks and building societies and see who fits you best to get you that dream home.

We can get you that Agreement in Principle, with solicitors’ quotes – even negotiating with the estate agent if you need us to. We deal with them day in, day out and we might be able to get you the property for a little bit less than you think.

Buying a house can be a lengthy process. The average is around four months from making an offer through to getting the keys. And there will be times when you’re not sure what’s happening or what a legal letter means, and that’s exactly where we can help you. We’re by your side every step of the way.

Your property may be repossessed if you do not keep up with your mortgage repayments.

Why choose Fiducia Mortgage Solutions?