Help for First Time Buyers: Tips and Advice
Can I get help as a first-time buyer? Here’s some essential advice and help for first time buyers. Buying that first property is exciting, nerve-wracking and a step towards independence for many of us. But many aren’t sure where to start – and it’s easy to see why. From deposits to mortgages, there’s a lot to get your head around.
Top tips for first-time buyers
Trying to get a leg up onto the property ladder? Here’s an overview of some top tips that can help for first time buyers:
- Leverage existing schemes
- Work out your finances
- Explore your mortgage options
- Widen your search area
- Decide the type of property you need
- Save, save, save
- Get your head around extra costs
- Find a good solicitor
Are there any government schemes for first-time buyers?
Unsurprisingly, with all these problems, many new buyers need financial assistance to get their foot on the property ladder. So, what government help is available for first-time buyers?
We’ve summed up five government schemes for you:
- Help to Buy ISA
- Help to Buy Equity Loan
- Right to Buy
- Shared Ownership
- First Homes
Help for first time buyers: Help to Buy ISA
You’re limited to saving £200 a month but the government’s Help to Buy ISA boosts your savings by up to 25%. This can be the helping hand many need to become homeowners. Similar schemes exist in Scotland and Northern Ireland. The Help to Buy ISA closed to new accounts on 30 November 2019. If you have already opened a Help to Buy ISA (or did so before 30 November 2019), you will be able to continue saving into your account until November 2029. You can use it for a deposit if you buy before December 2030.
Help to Buy Equity Loan
The new Help to Buy Equity Loan runs from April 2021 until March 2023. This shared equity mortgage is where government will lend you between 5-20% of a newly built home (40% in London). There are rules in place, like you’ll need a deposit of at least 5% of the purchase price and you must pay the loan back in full. This scheme is only running in England and can’t be used to buy a second home or a buy-to-let property. For the first 5 years, you don’t pay interest on the equity loan but you’ll start to pay interest in the 6th year, on the equity loan amount you borrowed.
Help for first time buyers: Right to Buy
Right to buy is for those who rent their home from the council, it also includes housing association tenants. Those who qualify can apply to buy their home at a discount. Usually, tenants must have rented from the council or housing association for at least three years. However, these don’t need to run back-to-back.
Shared Ownership
Shared ownership is where you buy between a quarter or three-quarter share of a home from a council or housing association. You then pay rent on the rest of the house that you don’t own – at a reduced rate. Later down the line, if you can afford to buy, you can extend your share to 100%. It may surprise you that anyone earning under £90,000 a year inside London, or £80,000 outside London, is eligible for shared ownership.
First Homes
The government’s First Homes scheme launched on 4th June 2021, helping local first-time buyers onto the property ladder by offering homes at a discount of at least 30% (compared to the market price). On the future sale of the property, that same percentage will then be passed on to other first-time buyers, meaning homes will always be sold below market value.
Help for first time buyers & stamp duty
There’s good news for a first time buyer when it comes to stamp duty. First-time buyers don’t need to pay any tax up to the first £425,000 on their home. So, what is a first-time buyer? To be eligible, this must be the first home both you, and whoever you’re buying with, have owned. Stamp duty isn’t technically a ‘scheme’, rather, a helping hand to get buyers on the property ladder. Use a stamp duty calculator to find our how much you’ll be paying if buying a home over £425,000.
It’s known as Land Transaction Tax in Wales, and Land and Buildings Transaction Tax in Scotland.
Exploring first time buyer mortgages
It’s little wonder mortgage help is in such high demand. Raising enough money for a deposit is tough. Most people save between 5-20% of the purchase price, but it’s recommended you save as much as you can for a greater range of mortgage deals. Particularly if you’re paying very expensive rent, saving up can feel near-impossible.
So, one tip when it comes to mortgages is to get quotes. Don’t go with the first offer, alone, speak to an adviser to find the best deal for your individual circumstances.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
Types of mortgage loans
Even with government help, many first time buyers need a mortgage. But, there are many types of mortgages available to first-time buyers, including:
- Variable (SVR, tracker, discounted rate)
- Fixed rate
- Cashback
- Offset
- Capped-rate
There are pros and cons to all options, so it’s important to work out the right one for you.
Friends’ mortgage
Another solution which makes sense to many people applying for a mortgage, especially those working in a city – is to buy with friends (or family).
It makes owning your own property more affordable (even if it’s a 50% or even 25% share) and gives you that much-needed step up to the first rung.
Guarantor mortgage
A guarantor mortgage is when a parent or close friend/family member agrees to make the mortgage repayments if the borrower can’t.
The deal is set until the borrower manages to get his mortgage LTV down to around 80%.
Some guarantor mortgages are for 100%, where the guarantor puts their own property down as security.
Family offset mortgage
A family member puts money into an account which is linked to the borrower’s mortgage. These savings can be offset against the mortgage so it’s more manageable for the borrower.
The borrower must put in 5% deposit of their own money.
Once the lender is satisfied with the LTV rate the family members receives their savings back, plus interest.
The mortgage application process explained
The main priority for lenders is that they can confirm you can make the repayments. This applies even if interest rates rise. So, they’ll want proof of income and evidence of outgoings, including information on any debt. Don’t try and hide anything from your lender; ensure your application is accurate. If your situation suddenly changed, would you be able to afford the repayments? It’s recommended you only apply for a mortgage when you’ve been in a job for at least 6 months, and your employment is stable.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
Advice for getting a mortgage
There are ways to make getting a mortgage for the first time easier. While a lot of the press surrounding the subject matter is negative, it doesn’t have to be this way!
When it comes to improving your chances of getting a mortgage, these tips can help:
- Check your credit rating – a good report makes all the difference
- Have mortgage finance in place before you seriously look for a property
- The size of the property deposit affects this figure as does the length of time the mortgage is for
- Deduct any expenses and monthly outgoings from your salary after tax – that’s the amount you can afford
It may sometimes feel as though the hassle isn’t worth it. But, remember, when renting, you’re using your hard-earned cash to pay off someone else’s mortgage. Why not pay off your own instead?
Handy hints for home ownership
Feeling overwhelmed? From interest rates to loans, there’s a lot to think about when it comes to buying a property. Following a first-time buyer checklist is always handy – to help ensure you don’t forget anything. Here’s some help for first time buyers taking you through the steps to becoming a homeowner:
Help for first time buyers: Location
Location can increase property value! But, far too often, finding the right home in the right location is extremely difficult.
When it comes to choosing where to live, many people choose one of the following options:
- Move as close to the desired area as possible
- Check out where the next up-and-coming area is going to be and move there instead
- Buy something less expensive and renovate it
Freehold or leasehold?
Unsure of the difference between freehold and leasehold? Freehold means that you own the property and the land it sits on. This means you’ll be financially responsible for maintaining both.
Leasehold is slightly different, as you own the property and the land for as long as your lease agrees. For example, a flat will usually be a leasehold, as the freeholder owns the block. Also, if you buy through shared ownership, this will be a lease property. Every lease has a different length and until you extend it, the property goes back to the freeholder. This is why many people are wary to buy a short-lease property. In Scotland, most properties will be freehold.
Deposits
Many home buyers are unclear on exactly how much they’ll need to save for a deposit. There are no exact figures, as this depends on the property and the individual circumstances. But, generally, try to save between 5-20% of the initial cost of your new home. The more you manage to put away, the better! This will mean that you have more options open to you.
Help for first time buyers: guidance on costs
If you haven’t owned a home before, you might assume that the upfront cost of the property is all you need to worry about. But, you’d be wrong! Here’s a closer look:
Solicitor fees
A solicitor will take on many responsibilities, from organising legal contracts to handling funds. One essential role is to oversee the survey on a potential property. Choosing a solicitor can be tough, as they’re essential to the house buying process! Look for those with experience in the type of property you’re buying, and ensure they have capacity to take you on.
Removal costs
It’s important to find removal quotes to ensure you get the best deal!
Buildings insurance
There are many types of insurance needed when buying a home:
- Home buyer protection insurance
- Buildings insurance
- Insurance for possessions in transit
- Contents insurance
Mortgage arrangement fees
You have to pay a fee to your lender for them to set up your mortgage. The amount varies depending on the individual property and situation, but you’re looking at between £1,000-£2,000. But, this is an estimate figure. It could be much higher or lower due to your circumstances.
Help for first time buyers: Survey costs
Before buying a house, it’s essential you get a survey. These can help you avoid any unnecessary expenses later on down the line by identifying any potential problems. But, this will cost you!
Furnishing and decorating costs
You’ll want to make a house a home. So, ensure you’ve factored any redecoration and new furniture into the budget.
Help for first time buyers: Energy bills
Make sure you compare and switch energy providers to avoid overspending on your bills.
Buying a house for the first time?
Whether you’re a first-time buyer or not, you should always thoroughly research the area you’re planning to move to. From crime rates to purchase prices for similar properties nearby, Phil Spencer’s property report can tell you everything you need to know. Get yours below.
Last Updated: November 1st, 2024
