Buying your first home is an exciting milestone, but it can also feel overwhelming. From understanding the costs involved to navigating mortgages and the buying process, there’s a lot to take in. This guide breaks it all down into manageable steps, helping you move confidently toward owning your first home.
What Is a Mortgage?
A mortgage is a loan that helps you buy a property, with your home acting as collateral. If you fail to keep up with repayments, the lender can repossess your home, although this is usually a last resort.
For example, if you’re looking to purchase a house costing £180,000 and you’ve saved a £18,000 deposit, you’ll need a mortgage of £162,000 to cover the rest. Lenders such as banks, building societies, or specialised mortgage providers can offer this loan.
There are two main types of mortgages:
- Repayment Mortgages: You make monthly payments to reduce both the loan and interest, so by the end of the term, you fully own the property.
- Interest-Only Mortgages: You pay just the interest monthly and repay the full loan amount as a lump sum at the end of the term. These are less common for residential buyers.
Types of Mortgage Rates
Mortgages come with interest rates, which determine the cost of borrowing. Two common types are:
- Fixed-Rate Mortgages: The interest rate remains constant for a set period, such as 2 to 5 years. Your payments are predictable, but you won’t benefit if rates drop during this time.
- Variable or Tracker Mortgages: These rates fluctuate, often tracking the Bank of England’s base rate. Payments may decrease if rates fall but could rise if rates increase.
Choosing between these depends on your financial situation and risk tolerance. Fixed rates provide stability, while variable rates can save money when market conditions are favourable.
Loan to Value (LTV): Understanding the Ratio
The loan-to-value (LTV) ratio compares your mortgage amount to the property’s value. For instance, if you’re buying a £200,000 home with a £40,000 deposit, you’ll need a £160,000 mortgage. This means your LTV is 80%.
A lower LTV usually results in better interest rates because the lender takes on less risk. Saving for a larger deposit can help secure a more favourable deal. For example, with a 60% LTV (40% deposit), you’re likely to access the most competitive rates.
Understand the Costs of Buying a Home
Buying a home involves more than just the property’s price. Be prepared for additional expenses, including:
- Deposit: Typically, you’ll need at least 5% of the property’s price as a deposit. The more you can save, the better mortgage deal you’re likely to get.
- Stamp Duty: First-time buyers in the UK can often benefit from reduced Stamp Duty rates, but this will vary depending on the property price.
- Legal Fees: Solicitors or conveyancers charge fees for handling the legal aspects of your purchase.
- Survey Costs: A home survey ensures the property is in good condition and highlights any potential problems.
- Mortgage Arrangement Fees: Some lenders charge fees for setting up a mortgage.
- Removal Costs: Budget for moving your belongings into your new home.
Save for Your Deposit and More
The deposit is the largest upfront cost, but it’s not the only one you need to save for. Start by assessing how much you can afford to put toward your deposit, then aim to build an emergency fund to cover unexpected costs.
Consider opening a Lifetime ISA (LISA) to boost your savings. The government adds a 25% bonus on savings up to £4,000 per year, which can be used for a first home.
Check Your Credit Score
Your credit score plays a significant role in securing a mortgage. Lenders use it to decide if you’re a reliable borrower. Improve your score by:
- Paying off outstanding debts.
- Ensuring you’re on the electoral roll.
- Avoiding late payments on bills.
Check your credit report for errors and fix any inaccuracies before applying for a mortgage.
Explore Mortgage Options
Mortgages can feel complex, but understanding your options makes the process easier. Speak to a mortgage broker who can help you find the best deal for your situation. Key mortgage types include:
- Fixed-Rate Mortgages: Your interest rate stays the same for a set period, providing stability.
- Variable-Rate Mortgages: Interest rates can change, meaning your payments might go up or down.
- Help to Buy Equity Loan: Available for new builds, this government scheme helps first-time buyers with their deposit.
Use online calculators to estimate how much you could borrow and what your monthly repayments might look like.
Get a Mortgage Agreement in Principle (AIP)
An Agreement in Principle (AIP) is a statement from a lender confirming how much they might be willing to lend you. While not a guarantee, it shows sellers you’re serious and ready to buy.
Understand the Property Market
Research is key when choosing your first home. Start by:
- Deciding where you want to live. Look at local amenities, transport links, schools, and crime rates.
- Exploring online property portals like Rightmove or Zoopla.
- Attending viewings to get a feel for what’s available within your budget.
Be realistic about what you can afford and prioritise your needs versus wants.
Make an Offer and Arrange a Survey
Once you’ve found the perfect property, make an offer through the estate agent. Negotiation is common, so don’t be afraid to offer below the asking price.
After your offer is accepted, arrange a survey. There are different types of surveys:
- Condition Report: The most basic survey, suitable for newer homes.
- Homebuyer Report: More detailed, highlighting any potential issues.
- Building Survey: Comprehensive and recommended for older properties.
Work with a Solicitor or Conveyancer
Your solicitor or conveyancer handles the legal process of transferring ownership. They’ll:
- Perform property searches to check for potential issues.
- Draft and review contracts.
- Arrange for Stamp Duty payments.
Make sure to choose a qualified professional with good reviews.
Exchange Contracts and Complete the Purchase
Once the legal work is complete, you’ll exchange contracts with the seller. At this point, the sale is legally binding. You’ll pay your deposit, and your solicitor will set a completion date. On completion day, the remaining funds are transferred, and you’ll receive the keys to your new home.
Prepare for Moving Day
Moving day is an exciting but busy time. Plan ahead to make it smoother:
- Hire a removal company or rent a van.
- Start packing early, labelling boxes by room.
- Inform utilities and services of your change of address.
Get Expert Help from Paveys Estate Agents
Buying your first home is an exciting journey, but it’s always helpful to have experienced professionals by your side. At Paveys Estate Agents, we’re here to guide you every step of the way, from finding the perfect property to navigating the buying process with ease.
Our team understands the challenges first-time buyers face and offers personalised advice tailored to your needs. Whether you have questions about mortgages, deposits, or the local property market, we’re here to help.
Ready to take the first step toward your dream home? Contact us today for expert advice, property viewings, and dedicated support. Let’s make your home-buying experience simple, smooth, and successful.
Common Questions First-Time Buyers Ask
How much deposit do I need?
Most lenders require a minimum deposit of 5% of the property price. Larger deposits often mean better mortgage rates.
Can I get help as a first-time buyer?
Yes, schemes like the Help to Buy Equity Loan and Lifetime ISA are designed to support first-time buyers.
How do I choose the right mortgage?
Speak to a mortgage broker who can compare deals and recommend the best option for your needs.
What is Stamp Duty?
Stamp Duty is a tax on property purchases. First-time buyers may qualify for reduced rates, or no tax at all, on properties up to £425,000.
What if something goes wrong with my purchase?
Until contracts are exchanged, either party can back out. Ensure your finances and mortgage agreement are ready to minimise risks.
