How do I buy a house for the first time? (UK)

 

 

 

 

Are you a first-time buyer looking to buy your first house?

It can feel overwhelming to get started! Have you felt that you don’t know where to begin?

Don’t panic at all. Take at look through these 5 key tips to help you get started.

Tip number 1 – Do your homework, on your budget and on your home

This first tip involves one rather big task – do your homework.

You can separate your homework and research into two different areas: one on your budget, one on your home that you want to buy.

Do your homework on your budget

If you already have a chunk of saving ready to go, it is great news! Generally speaking, you will need at least 5% deposit (5% of the home purchase price) in order to get a mortgage. A general rule of thumb is, the higher proportion of deposit you put into your home, the less cost, specifically less interest you may have on paying for the mortgage.

Getting your budget right, is nowhere near just having a deposit in place. There are other costs involved in the home buying process, such as legal fees, mortgage adviser’s fees, survey costs and moving costs. 

One benefit for most of the First Time Buyers is the likeliness of not having to pay any stamp duty land tax if your property price is below £425,000. You can have a quick check on this zoopla’s guide to find out whether you are qualified for that tax exemption.

After considering all the costs and fees that may involve in your home buying process, you should reach one conclusion – the maximum property price you can afford to buy your first home. This amount is crucial as it will help set your expectations when it comes to looking for your home.

Do your homework on your home

This is something people may think is easy, but it may completely confuse you further down the line of your house search. I think there is often one common issue why house buyers (whether they are First Time Buyers or not) find it difficult and time consuming to locate the house that you want to buy.

What is it? You may ask. It is this – buyers are not clear what they actually need.

You need to separate these two ideas, the house that you want versus the house that you need and can afford. As a first-time buyer, we don’t often have the budget that we would hope to get our ultimate dream home, yet many of us tend to have this one cling of hope in our mind that this dream home may exist with the limited budget that we have got.

My advice to you on this is, be REALISTIC. You cannot chase a rainbow, remember.

However, you deserve a lovely home as it is bought with your well-earned savings. You just need to be clever and sensible on what your search criteria are. 

Tip number 2 – Use government schemes when possible

Now, for this tip, I am not going to explain every government house buying scheme out there. You can read the government website to find out more about them. There are two elements we are looking at here, one is the purchasing schemes, one is the ISA saving schemes.

Government home purchase schemes

Here are some of the most commonly known and used home purchase schemes offered by the government:

  • Help to Buy Equity Loan
  • Shared Ownership, and
  • Right to Buy
Help to Buy Equity Loan

Essentially, for this scheme, you must purchase a new build to get the support from the government. You may have seen loads of advertising banners across different new build sites and developers about this scheme. What you need is just 5% deposit of the house price. You can borrow up to 20% equity from the government (via local Help To Buy Agencies). This means that you will only require 75% mortgage from a lender.

There may be pros and cons. For instance, for pros, you only need a small amount of saving as a deposit and still enjoy lower interest rate for 75% of the house price as a mortgage, comparing to getting a mortgage for 95% of the property price (which limits mortgage products that you can apply for). You can get a house that is completely brand new. And the equity loan you borrow from the government doesn’t need to be paid back for 25 years.

As for cons, you will have to get a new build home, so you can’t really look for any second-hand homes with characters like a Victorian or Georgian house. Also, you don’t technically own 100% of the house as up to 20% of the equity will be owned by HTB agencies.

Shared Ownership

As the phrase suggested, this scheme means you are a partial owner of a house or a flat. Usually you can purchase between 25 and 75% of the property value. The rest will be owned by the local housing associations. Similarly, you may be required to have a 5% deposit to be eligible (there are many other criteria, do refer to your local housing associations). For the part that you don’t own, however, you need to pay a monthly rent on it. It can be a few hundred pounds a month for the rent, on top of any mortgage payments that you are paying as well.

You can purchase more equity once you have purchased the house, but you may never be able to get the 100% equity of the home. This scheme has different eligibility criteria depending on the local housing associations. Also, you will need to buy from a limited stock of new builds that offers this scheme, or you can purchase a second-hand shared ownership home that the owner is putting on the market. Do your research on this one, as it doesn’t suit everyone’s situation and needs.

Right To Buy

Right To Buy is purely for current council and housing association tenants, who want to purchase the place that you are living in from the housing association. The benefit is mainly the discount you may get as a tenant, depending on how long you have been living in the property. The longer you have been living there, the more discount you will get for the purchase.

There are certain requirements you need to meet to qualify for this scheme. Do check out the government website for more details.  

Government saving schemes

The Lifetime ISA is the main ISA (individual saving accounts) offered by the government to help you save the crucial deposit for your home purchase.

This ISA is offered by the government to help first-time buyers save up for their first home purchase. It offers an additional 25% of what you save in the accounts towards your house purchase.

If you are looking to buy in the next 12 months then a LISA isn’t for you. You can’t access the money within 12 months.

You can think about having a Stocks and Shares version of the LISA but this will depend entirely on your attitude to risk and when you plan to buy your house. If you are saving for a longer term (5+ years), then investing your money may help to grow it faster, but beware, it can also go down in value too, so the closer you get to wanting to use the money, you will need to de-risk it and put it into cash or low risk bonds.

Tip number 3 – That feeling may not always come

This tip is simple. It is more to do with the home that you want to find and buy. People often say, ‘you get that feeling when you walk into the house’. ‘If you have that feeling, it normally tells you this is the one‘. Statements like this are heard many times. This is for most people probably true. However, you also need to recognise the possibility of not having that feeling at all and still can make a decision to put an offer on a home as your first ever home.

Why is that? You may ask. I have already mentioned above, the house you want, may not always be the house that you need or can afford. This key concept can affect what kind of houses you can look for.

Also, when you first walk into a house, don’t dismiss it if you don’t get that “feeling”. Down the line of your search you may actually slowly realise that house you didn’t quite get the feeling for ticks many boxes for your needs. So you need to ask yourself, ‘can I really keep searching for that ‘vibe’ or should I be more realistic’.

“The house you want, may not always be the house that you need or can afford. Don’t get into the trap of buying a house on a “feeling”

Tip number 4 – Trust the experts

There are a number of people who can help you with your home buying dreams.

What experts? You may ask.

The A team

During the home buying process, you will encounter many processes and things to deal with. Most of us simply don’t have the time to do the research ourselves, or to do the paperwork ourselves, and sometimes you simply are not supposed to do everything yourself.

These experts may include your:

  • bank
  • financial or mortgage advisor
  • solicitor or conveyancer
  • surveyor

It is crucial to discuss with your partner and consider the cost you may need for hiring these experts to do the job for you. Take a look at The Little Black Book for recommended experts you could speak to.

What about builders?

And if you are looking for a place that needs some renovation, you would probably need to consider the cost on hiring building experts too. You may want to do most of the work yourself. However, there are some things that just are not safe to tackle yourself, and some that you can’t (for things like wiring and plumbing). You probably won’t need to pay if you simply ask the building experts to give you a quote on the potential work you are looking at getting done. This will give you a brief idea on how much you may also need to save or leave aside for the work on top of everything else.

Although you should trust your experts to do the jobs for you, you should also be careful to choose the right ones. Do some research, ask for recommendations and get a few quotes around before you make your final decisions. Just remember, the experts are there for a reason, they are all here to help you, to make sure your home buying journey is smooth with as little stress as possible.

Tip number 5 – Get ready to go

So, this is my final tip: get ready to go.

It sounds simple, right? For home buyers, it might not be as simple as it sounds. You may think, yeah, when the time is right we will look for a house, we will think about it then. You may think, yeah, we are more or less there, we got the deposit, shouldn’t be far from ready right?

Are all your costs in place?

First, if you underestimate the cost that may involve in the home buying process, you may find yourself in a little bit of a pickle when you think you are ready as you have the deposit, but actually you haven’t got enough extra saving or budgeting planned for the other costs that it may involve. Or, you may think looking for a house is not that hard and just need a few days off to do some viewings. Depending on your search criteria, with the combination of the location you are looking to buy, and the market situation at the time, the difficulty may vary.

Finally, you may even think, we just found THE house we want, I am ready to go, no? Well nearly….

Does the bank agree?

Have you got an Agreement in Principle, or Decision in Principle from a lender before you make an offer on a house? The AIP or DIP is an agreement that a lender shows their willingness to lend you a specific amount of money for the mortgage. This is not a guarantee that you will be accepted if you apply for the mortgage with the same lender. Rules and criteria change often. However, this is a good start. AIP and DIP can give you a clear idea on your home buying budget. This really helps setting your expectations. And it helps the seller to be more sure about your financial position, that you are ready to move forward in the process, so it may be more likely to have your offer accepted too.

So, if you did have a AIP or DIP in place and got a house accepted, what should you do? Should you go straight back to the same lender to get a mortgage? Yes, you can. However, there are thousands of mortgage deals out there that are offered by many lenders. If you want to make sure you can pay the least amount of mortgage payments possible in the next few years, spending a little on getting a mortgage expert to get the mortgage process done for you, as well as finding you the most suitable mortgage product would be something you can consider investing on.

Final Thoughts

Finally, Phil Spencer, well known from his and Kirstie Allsop’s ‘Location, Location, Location’ TV show on Channel 4, has put together a simple video for his 5 tips for first time buyers. Have a watch and you may also find this helpful.

 

If you have done the right homework, utilised the government schemes when possible, been realistic about your search and trusted the experts along the way, I think you will be in the best position to be geared for getting your first home ever.

House buying is a complicated business, but it is incredibly exciting. Trusting your experts is so important – after all, you want to make the best decisions for you. But as always, make sure you get some good recommendations and shop around.

Don’t forget that you will still need to LIVE in your house after it has been purchased – work out your cost of living and make sure you have that emergency fund in place for the little things that go wrong (like the washing machine for example!). Insure your boiler and get it checked regularly so that it doesn’t break down. Factor in contents and buildings insurance and all the things you will need to buy (like furniture and cutlery!).

Finally, you will need to decide if you need life insurance (if you have dependents then this is a big YES), and you’ll need to sort out a will. Yes it seems morbid, but its a fact of life that we all need to accept.

It’s an expensive process, but it is certainly worthwhile.

Good luck in your search and in saving up the money you need.

Until next time,

 

 

 

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