This is the first time you're buying a home of your own, the first time you'll own a freehold or a leasehold interest in a property in Britain or abroad. That officially makes you a first time buyer, and you'll need a mortgage. So what, exactly, do you need to know? This is your guide.
Can you afford your mortgage repayments?
Your first step is to find out whether your income provides you with enough money to pay back a mortgage. If you have a regular income, it needs to be big enough to leave you the spare cash you need to pay the mortgage every month. If you have one or more large loans already, lenders might not feel happy about lending you more and potentially leaving you in an impossible position.
Your car finance or credit card or personal loan repayments might be too large, leaving you without enough money to set aside each month to pay off a home loan. You might have a bad credit record or CCJs – County Court Judgements - against your name. All this will affect your mortgage application and impact the interest rates the lender will want to charge.
You can fully expect the mortgage lender to ask a lot of questions and make plenty of checks. They'll not only make sure you can genuinely afford to pay the loan back, but they'll also ‘stress test’ your ability to pay if interest rates go up or your circumstances change. And they'll want to see actual evidence of your outgoings as well as proof of income. Once you've explored your finances and confirmed you'll have enough money, it's time to think about the deposit you'll need to pay.
How much deposit do you need to save?
Once upon a time, 100% mortgages were common. Now they're as rare as hen's teeth. It's more than likely you'll need to pay a deposit on your first home, and that means saving anything between 5% and 20% of the purchase price. If the home you want costs £150,000 you will need at least £7,500 to hit the 5% deposit mark. The more you save, the better and cheaper choice of mortgages you'll have.
What about the other costs involved in buying a home?
As well as a mortgage, you'll need to fork out money to pay for a collection of other sale-related things. Surveys, solicitors, removals, home insurance, the cost of decorating and furnishing your new place, plus any fees associated with arranging the mortgage and valuation. And there's Stamp Duty, a special tax the government levies on the property market. In Scotland it's called Land and Buildings Transaction Tax, and in Wales it's called Land Transaction Tax. But whatever it's called, as long as your property is liable for Stamp Duty you will have to pay it. Bear in mind first time buyers don't pay Stamp Duty on the first £300,000 of a home worth up to half a million pounds.
Know the difference between freehold and leasehold
If you want to buy a house, it’ll probably be freehold. A flat, however, will probably by leasehold, unless someone in the building has already bought the freehold for the residents to share. The difference is simple – a freehold lease includes ownership of the land under and around the property, a leasehold doesn't. Plus most leaseholds come with the burden of paying ground rent or yearly service charges so make sure you check these both with the estate agent and via your solicitor.
Check for any relevant 'affordable home-buyer' schemes
You might struggle to get on the property ladder at first, which is why it's always wise to explore the potential for government-backed schemes designed to give home buyers a helping hand. The lender will, however, still want proof you can afford to pay back the loan. Before you find a home to buy, find out whether there's an affordable housing scheme, Help to Buy scheme or shared ownership scheme that you can take advantage of.
Use a specialist broker to find the best mortgage
Unless you know the lingo, understand the jargon, and are familiar with the way the financial services sector works, it's best to talk to an expert, an experienced mortgage broker. They'll have a deep understanding of the different types of mortgage available, and they'll give you the best advice for your unique circumstances. The team at Prospect Tree Mortgages can offer you mortgage advice and arrange a mortgage that suits your needs and circumstances.
Apply for your mortgage
The mortgage application process usually involves proving your income via payslips and bank statements. If you’re self-employed, it'll involve your annual accounts and tax returns, going back at least two tax years, though there are some lenders who might lend on just one year of accounts.
Bear in mind that someone else responsible can guarantee a mortgage for you if you're having trouble finding one you can afford. A guarantor mortgage can be a life-saver under these circumstances, where a parent or close relation agrees to be legally responsible for paying the mortgage if you suddenly can't manage. It's a legally binding contract and should never be taken lightly. Your guarantor must be able to take your mortgage over and pay it if the lender demands it.
Prospect Tree Mortgages are mortgage broker in Kent but can offer advice nationally. Prospect Tree Mortgages can arrange a mortgage agreement in principle or agreement in principle certificate so that you can view properties in confidence knowing that you can move quickly to purchase the right property. Happy home hunting!
To speak to a local Kent mortgage broker near you, call 0800 8620 840 or use this contact form.