Property prices in parts of the UK have slowed down, and with prices predicted to moderate further, buying a house seems like a sensible thing to do. We’ve put together all the important advice a first-time buyer could need – about first-time buyer mortgages, stamp duty relief for first-time buyers, and first-time homebuyer programmes to help you to buy property in today’s market.
Save your first-time buyer deposit
When you buy property, you must be able to put down a deposit on the home you would like to buy. The deposit reduces the amount of money you will pay back against your home loan, as well as the interest. Most mortgage lenders want a deposit of at least 5% but a first-time buyer mortgage may require a deposit of as much as 20%. The higher your deposit, the lower your mortgage repayments will be.
If you’re struggling to save for a deposit, a deposit scheme might be the answer for you. For example, you can put your Lifetime ISA funds and bonus towards a deposit. If you are between 19 and 39 years of age, you can open a Lifetime ISA – an Individual Savings Account. You can then deposit a lump sum of £4,000 in your Lifetime ISA or make several payments throughout the year. A government bonus (or tax-free allowance) is paid into your account on a monthly basis to boost your savings. You can put no more than £20,000 into your ISA in the 2019/20 tax year – this is your ISA allowance. This means you will have to save for at least a year to be able to use your first-time buyer ISA as a deposit when buying a house or apartment.
Shared-ownership mortgages, on the other hand, allow you to buy part of a home while renting the rest. You could be eligible for a shared ownership mortgage if your household earnings are less than £80,000 and you live outside London, or £90,000 if you live in London, and you rent a council or housing association property. This will reduce the size of both your deposit and mortgage.
If you have a long-term disability, a dedicated first-time home buyer scheme for people with long-term disabilities can be helpful, but only if the properties available through other programs to help you buy a house are not suitable – you may require a property that offers ground-floor access, for example.
Help for first-time buyers over the age of 55 works in a similar way to general shared ownership mortgages, although you are restricted to buying up to 75% of the home only, while you will have to pay rent on the remaining share.
Another deposit scheme in the UK that can help first-time buyers get their hands on new homes for sale is a shared equity scheme if you are interested in buying into a new housing development. Usually, the required deposit is just 5% and the rest of the deposit – up to an additional 20% – is lent to you by the property developers and in the form of government loans.
New developments offer buying off-plan opportunities, which is an excellent option for first-time buyers. As an off-plan buyer, you could pay less than the property value, particularly if you get on board during an early phase. Off-plan buyers who invest in Strawberry Star developments can take advantage of a reserve-to-buy scheme that allows buyers to raise part of the money to reserve the purchase of an apartment, and receive government help for first-time buyers to pay the balance.
Stamp duty exemption for first-time buyers
Stamp duty is usually taken off as a percentage of the value of the property you are buying, but fortunately for first-time buyers in England, Wales and Northern Ireland, this fee is exempt up to a point – depending on where you live and how much your property is worth.
In England and Northern Ireland, first-time buyers are entirely exempt from the fee for properties worth up to £300,000. If the home costs over £300,000 but less than £500,000, you will only pay %5 stamp duty, and only on the value above £300,000.
This stamp duty exemption only applies to first-time buyers who are purchasing a property as their primary residence and in their individual capacity.
Research first-time buyer mortgage
Once you have a deposit, the next step to buying a house is finding out how much you can borrow on a mortgage – this is the home loan you will have to pay back each month over several years. Your affordability study should begin with your yearly income as well as the incomes of any other people you are buying with. Typically a lender will offer you a mortgage that is no more than four and a half times your combined annual income. It may be in your best interest to apply for a mortgage agreement in principle or an AIP. This is confirmation that a lender will, in principle, lend you a certain amount to buy property.
Decide where you’d like to own your home
Looking for property for sale in a particular area begins with taking your commute to work, proximity to family and friends, as well as traffic and noise levels into consideration. You’ll also want to research the movement of property prices in the area, keeping in mind that future returns on your property investment will be closely linked to the fortunes of its location. We recommend that first-time buyers, in particular, should consult a professional and reputable estate agent with extensive knowledge of property for sale in London or your area of choice.
Time to buy your first home
When looking for houses to buy, register with reputable estate agents who will be able to give you insight into property prices in the area and the types of homes available for your budget. They will also be able to guide you through the financial implications of buying freehold (owning both the house and the land it sits on) or leasehold (buying into a share of the freehold in the case of a flat).
Once you’ve found the property for sale that’s right for you, it’s time to make an offer. Deciding whether to offer above or below a property’s asking price will depend on the competition between buyers in that area. In recent years, there has been intense competition in certain areas while others have recorded slow movement. Although, taking a general view, now is the time to buy. The advice of your estate agent will be invaluable when it comes to making the right offer, and how to negotiate if your first offer is turned down.
Get a first-time buyer mortgage
Start by approaching a mortgage broker who will guide you through the complicated business of applying for a mortgage and deciding on the deal that’s right for you. Being given a first-time home buyer loan will depend on whether a lender believes you are capable of continuing to make your mortgage repayments even if interest rates rise or an unplanned incident affects your financial situation. To this end, you will need to provide evidence of your income and expenses including your debt burden. If you are self-employed, you will have to submit two years of tax returns and business accounts which must be prepared by an accountant.
If you’re finding it hard to get a mortgage as a first-time home buyer, you can get a parent or guardian to take responsibility for making your mortgage payments if you’re unable to. This is called a guarantor mortgage.
As a first-time home buyer, you could choose a government scheme to help you buy a house. You will still need to prove to potential mortgage lenders that you can afford to make your mortgage payments. Government help for first-time buyers has allowed many people get a foot on the property ladder. Do your research carefully before deciding on a first-time buyer government scheme so when the time comes to buy property, you are not disappointed.
Sort out the legal details of buying a house
You will need to include these costs in your budget when buying a home: survey costs, your property solicitor’s fee, mortgage arrangement, and valuation fees, building insurance, stamp duty, and the cost of furniture removal and decorating.
Get a professional survey of the property for sale to ensure there are no hidden or potential issues with the house or flat. Next on your list is hiring a property solicitor who will take care of the legal work involved with your purchase. Don’t forget to take out building insurance on your new home.
Once your property solicitor has exchanged contracts to confirm that you will buy the property, you will pay the exchange deposit, and it as at this point that your property purchase is legally binding. Now you’re ready to move into the first home you’ve ever owned.