First-time buyer’s guide

Buying a home for the first time is one of the most exciting steps you can take.

But it can also be one of the most daunting and it’s fair to say there are plenty of dos and don’ts when it comes to buying a property.

Our guide to everything you need to know as a first-time buyer can help, though, and will ease you through the process, while also giving you some great tips along the way.

Step-by-step guide for first-time buyers

When you embark on the journey towards buying your first home here in the South West, it really helps to know what to expect.

Registering with your local CJ Hole branch is a great first step and can help you get ahead of the competition when properties first hit the market.

While almost every property purchase is different in some way, here are the eight other steps you’re most likely to go through before you collect the keys to your first home.

1. Save your deposit and establish your maximum budget
2. Speak to lenders and get a mortgage agreement in principle
3. Search for properties within your budget
4. Make an offer on a property
5. If your offer is accepted, arrange your solicitor and a survey for your new home
6. Finalise your mortgage application
7. Exchange contracts with your seller
8. Complete your purchase and receive the keys

Tips for getting a mortgage as a first-time buyer

While some first-time buyers are in the position to be able to buy a property with cash, the overwhelming majority will need a mortgage to fund the purchase of their first home.

Because of the sheer amount of money involved, getting a mortgage can be one of the most daunting phases of first-time homeownership.

Here are our top five tips for getting a mortgage as a first-time buyer:

1 Search for the best rates

If you were spending money on a new car, or looking for insurance, you’d shop around for the best deal, wouldn’t you?

Mortgages are no different and lenders are in competition with each other for your business, so make sure you explore the mortgage market and find a deal that works for you.

Your mortgage rate will largely depend on the size of your deposit – the more you borrow against the value of your property, the higher the interest rate you’ll pay in most cases.

Search comparison websites for the best deals and speak to a mortgage broker in the first instance, as they often have access to more rates from the lenders they work with.

2 Understand the different types of mortgage

Securing a mortgage isn’t simply a case of being loaned money and paying it back with interest.

There are various types of mortgage available as a first-time buyer, including:

• Fixed rate mortgages: You pay a fixed rate of interest for a period of time, before reverting to the lender’s Standard Variable Rate (SVR)
• Tracker mortgages: Your interest rate tracks the Bank of England’s base rate, meaning it can go up or down depending on whether the base rate does the same
• Discount mortgage: The interest rate on these mortgages is discounted from the lender’s SVR, meaning it can go up and down in the same way a tracker mortgage does
• Guarantor mortgage: Some lenders offer these mortgages to first-time buyers with smaller deposits. Your guarantor, usually a parent, takes on some of the risk by agreeing to cover mortgage payments if you can’t and the lender agrees to lend a bigger portion of the property’s purchase price in return

3 Save a big deposit

Saving a deposit is one of the most difficult aspects of buying your first home.

It’s estimated that the average deposit required by a first-time buyer in the UK is now more than £40,000, with the South West’s average hitting £42,318 during the first half of 2020, according to Statista.

But while saving a large deposit is sometimes easier said than done, doing so can make securing a mortgage much easier.

When you buy a home with a mortgage, your lender will calculate the loan-to-value (LTV) percentage of your mortgage.

This is the amount of the property’s purchase price that you are putting forward as your deposit and the amount that will be covered by your mortgage.

For instance, a £40,000 deposit on a property costing £400,000 would equate to 10%, so your LTV would be 90%.

Put simply, the larger your deposit, the less you’re borrowing, so lenders will offer more generous interest rates for lower loan-to-value purchases – usually those below 80% LTV.

Our guide to saving for a deposit has plenty more tips you can use to help you.

4 Boost your credit score

When you take out a mortgage, your financial history and current status will be assessed by your lender.

Part of that assessment will include them performing a credit score on you – the higher your score, the more likely you’ll be able to secure the mortgage you need.

Take a look at our guide for plenty of tips on how to improve your credit score.

5 Pay off your debts

While having debt and paying it off regularly can actually help boost your credit score, mortgage lenders really don’t like buyers with lots of unpaid debt.

Having debt and not paying it off, or only paying minimum payments on things like credit cards, suggests to a mortgage lender that you’re not a good borrower and perhaps even have problems with money.

Before you apply for a mortgage, take a look at your debt levels and work out how you can pay things off.

The costs of buying your first home

As well as your mortgage, you’ll need to factor other costs into your budget when buying your first home.

Those could include:

• Stamp duty (if you’re paying more than £500,000 for your home)
• Legal fees
• Valuation fees
• Survey fees
• Mortgage arrangement fees
• Removals costs

Our guide to the costs associated with moving home gives more detail on what you can expect, as well as outlining the new rates for stamp duty in England.

Government incentives for first-time home buyers

Your deposit and being able to borrow enough money through a mortgage are the key financial factors that will decide whether you are able to get that first foot on the property ladder.

Some first-time buyers are unable to save a large enough deposit, while others find that their salaries aren’t high enough to secure them a big enough mortgage to buy their dream home.

However, there are two government schemes you could consider if you’re struggling to make the step to homeownership:

Help to Buy

Help to Buy is an equity loan scheme, where the government will lend first-time buyers 20% of a property’s purchase price, with the buyer providing a 5% deposit.

The equity loans are interest free for five years but track the value of your property.

So, a 20% equity loan on a property worth £200,000 would be £40,000.

But if you sold that property five years later for £250,000, you loan amount you would pay back would be £50,000.

Equally, if your property fell in value to £180,000, you would pay back less – in this case £36,000.

Shared Ownership

The Shared Ownership scheme sees you buy a share in a property with a mortgage and pay rent on the remaining amount at a discounted rate.

Under the current Shared Ownership scheme, you can purchase a share of between 25% and 75%, but from April 2021, the minimum share available will be 10%.

Once you own your share, you can purchase further shares in the property all the way to 100% ownership – this is known as ‘staircasing’.

Currently, you can buy shares in 5% or 10% increments, but from April 2021, 1% shares will be available through staircasing.

A first-time buyer’s guide to utility bills

Once you’ve collected the keys to your new home and your belongings are moved in, it’s time to set up your utility bills.

When you’re surrounded by boxes and almost certainly pretty tired from your move, it can be easy to forget to speak to your gas and electric suppliers and get your accounts set up.

Here’s what you need to do:

Switch if you need to

When you move into your new home, you’ll need to contact the gas, electric and water companies that supply the property to let them know you’ve moved in.

But that doesn’t mean you need to use those gas and electric companies.

Often, you’ll be placed on their standard tariff, which can be more expensive.

So, before you get too settled, hop on to some comparison websites, see what other deals are available and switch once you’ve found one that works for you.

The seller of your property, or the developer if it’s a new-build, should have given their suppliers final meter readings and settled their bills when they moved out or sold the property.

So, you’ll need to supply further readings to your new suppliers and cover any shortfall that remains with the old suppliers to settle those accounts.

Set up water and sewerage accounts

Depending on where you live, you water and sewerage bills could come from one company or two.

You can’t switch water and sewerage companies as these are allocated to different parts of the country.

Give the company, or companies, looking after your water and sewerage a call and get set up. You could consider installing a water meter if you’re worried about estimated bills.

Don’t forget council tax

As a homeowner, you’re responsible for paying council tax on the property you’ve purchased.

Your property will have been banded by the local council and what you pay in council tax will depend on what band your property is in.

If you live alone, or your property will be empty for a period of time, you can claim a 25% discount on your council tax.

Broadband and TV services

If you’ve come from a rental property and want your broadband or TV services to come with you to your new home, you’ll need to arrange this with your suppliers in advance of your move.

Once you know your completion date, speak to your internet and TV providers and arrange moving the services as close to your moving day as you can.

Waiting to arrange this once you’ve moved in could mean you have no broadband or subscription TV for days or even weeks.