How to make sure you're ready to be a first-time buyer

Being a first-time buyer is not easy, particularly in today’s overheated property market.

But understanding how the borrowing process works can help you on your journey from outside the estate agent’s window to receiving the keys to your own front door.

But there are a number of things you need to consider before you dive in at the deep end of your first mortgage, and it shouldn’t be undertaken lightly.

If you are wondering where to start, read on for a guide to what to do to secure a first-time buyer mortgage.

First, ensure your finances are in order

Browsing Rightmove or other property websites might feel like an obvious place to begin your trip towards homeownership, but there are a few steps you will need to take before you start wondering about online floor plans and furniture arrangement.

The first thing you need is a deposit.

The Covid-19 pandemic made lenders very wary of giving mortgages to those with low upfront deposits, but a new government support scheme means that it is now possible to get a 95 per cent mortgage. The more you can save, the better the rate is likely to be on your loan, so bear this in mind when budgeting.

Miles Robinson, head of mortgages at online mortgage broker Trussle, says that although it is possible to get a deal with a five per cent deposit, there are better rates available for those with ten per cent.

‘If you’re able to spend some time saving more towards your deposit, you could secure a mortgage deal with a more competitive rate in the future,’ he says.

While you are saving, take time to also check your credit score and monitor your outgoings. All lenders will run a credit check before deciding whether to lend to you, and will want to see evidence that you regularly pay off debts and do not have too much borrowing.

‘Your credit score has a huge potential to impact a variety of important life events, such as when buying your first house,’ explains John Pears, CEO of credit management company Lowell.

You can check your credit score for free via sites such as Experian.co.uk or creditkarma.co.uk. If your rating is not good, you can then take steps to change it. Missing payments or having lots of loans and store cards will negatively impact your credit score, but having credit cards and paying them off each month can have a positive effect as it tells lenders you are trustworthy.

If your score is low, you can take steps such as ensuring you are on the electoral roll, and by writing to correct any errors on your file, such as any link to ex partners with poor credit.

If you have never had a credit card, taking one out and paying it off each month can build up your credit record.

Cutting out monthly expenditure will also help ensure you are approved for a higher mortgage, as lenders will take your bank statements into account when deciding what you can afford.

Monthly gym memberships, magazine subscriptions and other spending could all hinder you being approved for as much money as you might hope for.

Collate your paperwork

When applying for a mortgage for the first time you’ll need a lot of paperwork, so it makes sense to check you have it all in advance.

In some cases, if all of your bills are online, you will need to send off for paper copies for lenders to see.

As a start, it would be a good idea to collate the following:

  • Passport and proof of identity documents
  • Utility bills
  • P60 from your employer
  • Three months’ worth of payslips
  • Your bank statements for the last three to six months
  • If you are self-employed you may need other paperwork, such as two to three years’ worth of accounts.

Get an agreement in principle

The property market is moving fast at the moment, thanks to initiatives such as the stamp duty holiday. Successful first-time buyers tend to have arranged finance in advance, to ensure that they are able to move quickly when they see a property that they like.

This means scoping out a good mortgage for you as soon as possible.

There are many different types of mortgages available, and the ones most suitable for you will depend on your deposit, your earnings and whether you need to use a scheme such as Shared Ownership to get onto the property ladder.

Speaking to a mortgage adviser can help you to decide on the right type of product for you. Some first-time buyers may prefer the comfort of a long-term fixed rate, so that they know what they are paying every month, while others may prefer a shorter fixed period at a lower rate, or a tracker mortgage.

Many mortgage brokers do not charge any fees to their clients, but may take commission from a lender, so it is wise to ask up front how it will work if you speak to a broker.

The advantage is that brokers have access to products from many different lenders and will also be able to advise you about what you can borrow.

The information below, from Moneyfacts, shows some of the most attractive deals for first-time buyers with five or ten per cent deposits.

Lloyds Bank offers a deal at four per cent for those with a five per cent deposit, with no fee, while those with a ten per cent deposit can get slightly lower rates. But Eleanor Williams, mortgage expert at Moneyfacts, says that borrowers should consider more than just a headline rate.

‘Prospective borrowers may want to consider if it would be possible to stretch their deposit to ten per cent for greater choice and the potential for lower rates.

‘It is vital that the overall true cost of a deal is compared, taking into account details such as the fee and any incentives that may be available,’ she says. ‘Seeking independent, qualified advice could therefore be invaluable in ensuring consumers can consider all the options and select the right deal for their circumstances.’

Once you have decided which mortgage could work for you, it is wise to get what is called an Agreement In Principle.

These agreements are not binding, but they involve a potential lender carrying out a soft credit check — a credit check that will not show up on your credit file when other companies check it — and checking outgoings, credit worthiness and whether you are trying to borrow an affordable amount.

Potential buyers with an Agreement in Principle often find that they are more likely to be taken seriously by sellers and estate agents when they make offers because the deal is less likely to fall through for financial reasons.

Amelia White, 26, is in the process of buying her first home, moving from London to Sheffield, with her partner.

‘We are both really looking forward to being able to make somewhere our own and feel settled after renting for five years,’ she says.

However, when they found the property they wanted to buy, the first-time buyers nearly came unstuck because they didn’t have an Agreement In Principle from a lender first.

‘That was the most stressful 48 hours. There were other people interested and we thought we were going to lose out,’ she adds. ‘Luckily, I think because we were first-time buyers, we were the preferred choice.’

Because Amelia, who runs gift box company Little Leopard Co, is self-employed, the process of getting a mortgage ‘wasn’t straightforward,’ she says. ‘Certain banks wouldn’t accept us.

‘I was so glad we had the mortgage adviser who could research who would offer us a mortgage. There was plenty of paperwork, so I would advise anyone to be as prepared as possible before you start viewing any properties.’

Make an offer

Armed with your mortgage Agreement In Principle, you can make an offer on properties you like. Once an offer is accepted, you then apply formally for a mortgage.

At this stage your lender will credit check you thoroughly and decide whether to accept or reject you.

Once you have an offer, a mortgage is usually valid for up to six months.

Your lender will also perform a valuation on the property you want to buy, to ensure you are not paying too much for it.

This is also when a conveyancing solicitor will carry out the other necessary checks and instruct surveyors on your property.

If everything stacks up, you will be able to exchange contracts with the seller, at which point the whole thing becomes legally binding.

If it all goes wrong

The process of buying a property is not always smooth and events outside of your control — such as a bad survey, gazumping (when someone outbids you after your offer is accepted) and issues with chains of buyers and sellers breaking down — can all occur.

By ensuring that you take all the steps you can to make yourself financially ready to buy, though, you minimise the chance of the process breaking down because of issues with your mortgage application.

And you will be readier to go through the process again if the purchase doesn’t go through.

The best first-time buyer mortgages

(Available direct from providers)

Yorkshire Building Society

Rate: 3.50 per cent
Rate type: Fixed
Period: 31/07/2023
Max LTV: 90 per cent
Min fee:

Lloyds Bank

Rate: 4.00 per cent
Rate type: Fixed
Period: 31/08/2023
Max LTV: 95 per cent
Min fee:

Virgin Money

Rate: 3.34 per cent
Rate type: Fixed
Period: 01/08/2024
Max LTV: 90 per cent
Min fee:

Hinckley & Rugby Building Society

Rate: 3.29 per cent
Rate type: Fixed
Period: 5 years
Max LTV: 90 per cent
Min fee: £999

Coventry Building Society

Rate: 3.89 per cent
Rate type: Fixed
Period: 30/06/2026
Max LTV: 9r per cent
Min fee: £999

Virgin Money

Rate: 3.389 per cent
Rate type: Fixed
Period: 01/08/2023
Max LTV: 90 per cent
Min fee: £995

Do you have a story to share? We want to hear from you.

Get in touch: [email protected]

How to get your Metro newspaper fix

Metro newspaper is still available for you to pick up every weekday morning or you can download our app for all your favourite news, features, puzzles… and the exclusive evening edition!

Download the Metro newspaper app for free on App Store and Google Play

Source: Read Full Article