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What Do First Time Buyers Need To Know

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  • 31-10-2022
What Do First Time Buyers Need To Know

Are you asking about What first time buyers need to know? We look at the buying and mortgage options available and what you need to prepare.

What you need to know about buying your first home

Purchasing your first property is a significant moment in everyone's life. It's not uncommon to spend hours upon hours just searching through different property sites so you can assess all the potential options and see which options you will be able to afford.

Before you can begin the next step in this exciting journey, we would recommend reading up and collecting as much information as you can about all the financial aspects of purchasing a home.

This can include figuring out exactly how much money you can borrow, how saving for a deposit works, how to correctly choose the mortgage that's right for you, and working out the amount of stamp duty you will have to pay.

How much can I borrow?

In the past decades, lenders would take your annual income and multiply it in order to work out the amount that would be acceptable to lend to you—these days, the process is much more focused on affordability.

Of course, income is still a key part of the considerations, but the amount will be compared against your outgoing costs so that the lender can construct a full image of your finances. Lenders will deeply scrutinise your fixed spending. This includes aspects such as your loans or credit card repayments.

This is because these cannot go through the process of being reduced or stopped in the way that other spending can. The lenders will be less worried about discretionary spending, for example, the costs of eating at restaurants, as this is money spent that can very easily be reduced. 

Unfortunately, even if you have only a small amount of debt or none at all, you might still fall on the wrong side of the affordability checks. This is because lenders will usually stress-test your finances in order to see whether you can afford an interest-rate hike.

The amount that you can borrow will be decided upon after seeing the deposit you can afford to put down, as well as the affordability of the loan and the overall loan-to-value. The intricacies of the loan-to-value, also known as the LTV, will be discussed later in the guide.

How much deposit will I need?

Within the current market, you will need at least a minimum of five percent. Although the more money you can get together, the better it will look.

Putting down a larger deposit has various benefits. Firstly it means that, ultimately, you are borrowing less money.

Even if this amount is just slightly smaller, with interest rates, the difference can be large. Larger deposits also mean you will have access to a much higher number of lenders.

This essentially means that you will have more choices. Finally, another benefit of a higher deposit is that it is much more likely for you to receive a better rate.

Finding the money for a property deposit is not an easy task, and this means that there is no quick fix.

Some individuals looking at purchasing a property will be lucky enough to be given money from their families. Still, for the majority, the key is simply to cut back, save, and look where money is being spent.

Some will even try to earn extra money by taking a second job.

No matter what your plan may be, the fact of the matter is that if you do not put down some kind of deposit, then it is highly unlikely that you will be offered any kind of mortgage.

What Do First Time Buyers Need To Know?

Mortgage Options

There are many different options for mortgages when you are looking at purchasing your first property. It is of the utmost importance that you are aware of all your options and what they can mean for your home and your future before you dive in.

As the name would suggest, the interest rate with this mortgage stays exactly the same for the specific amount of time named. Once that period of time has come to an end, then you should expect to be taken over to the lender's standard variable rate, also known as SVR.

One of the major benefits of this type of mortgage is that you will not have to worry about the amount that you are paying back through monthly charges being altered. This means that you can more efficiently plan ahead and think about your money in the future.

However, there is one major issue with this type of mortgage, and that is fixed-rate mortgages are usually much more expensive than other options that use variable rates. You are essentially paying a higher price, so you do not have to stress about the variable rates.

This is a type of mortgage that commonly will follow the bank rate that the Bank of England sets. The bank rate is usually tracked by quite a specific margin, so it is not uncommon for this type of rate to change.

If the bank rate has increased, then this means that your mortgage will as well. Much like with a fixed-rate mortgage, once the fixed term has ended, then you will be transferred over to an SVR.

Discount mortgages are commonly tracked at a discount to the lender's SVR for an agreed-upon amount of time. This means that the rate itself can vary.

Usually, the higher that the reduction is, then the shorted the amount of time will also be. Once this period is over then, the usual transfer over to the lender's SVR will take place.

This is a type of mortgage that doesn't really have any connection to any deals or discounts. It is considered to be one of the most expensive ways to clear your mortgage.

You are also not protected from any potential rate changes, so for most people, it is advised that they move from an SVR mortgage.

These days there are a growing amount of lenders that are licensing parents to assist their children in getting on the property ladder by giving them some kind of financial contribution.

If family members or parents make an agreement to make repayments in the case that the mortgage holder becomes unable to, then the lenders are more likely to agree to a bigger sum at a far better rate.

This is a type of mortgage that allows you to connect your current account and your savings accounts to your mortgage.

By making this decision, you will essentially be cutting down on the amount of interest that you will have to pay; this is because you will only be charged on the net balance.

What does loan-to-value (LTV) mean?

When speaking with lenders, you may often hear them discuss the loan-to-value or LTV on a property. In simple terms, the explanation of this is the size of the loan in comparison to the value of the property.

So, for example, if a mortgage is ninety percent LTV, then you will need to have a ten percent deposit.

In order to work out the total deposit needed, you will first have to know the value of the property. Then you should get a calculator and subtract the loan-to-value from this amount.

So here is an example. If the value of the property is £400,000 and the mortgage is 90% LTV, then all you have to do is take away the 90% from the £400,000, which will then lead you will £40,000.

This is the amount that the deposit will need to be in order to ensure that you can get a mortgage.

If the figure that you discover after doing all of your sums is much more than the amount that you have saved so far, then you will have some options.

You can either find a mortgage with a higher LTV, try to negotiate the price of the property to a lower number, locate a property that is cheaper, or just try to save up more money.

What Does Loan-To-Value (LTV) Mean?

What Is Stamp Duty?

Stand Duty Land Tax, also known as SDLT, is the tax that you legally must pay when you purchase a property or a piece of land over a certain price in the United Kingdom. The amount that you will need to pay is dependent on the value of the property.

However, you will find that first-time buyers do not have to pay any stamp duty on the first £300,000, right up to the value of £500,000. A rate of 5% is applied, but it only applies to that portion of the purchase. Meaning nothing below the £300,000 threshold. In order to be eligible for this discount, you must never have owned a property

 This includes properties that have been gifted or inherited. You will also need to love within the home you are buying and will not have the option of renting it out.

 Are you looking for home buyers surveys in Maidstone and Kent? If you have any questions regarding our services please simply get in touch to speak with our chartered surveyor.