First-time buyers guide to getting a mortgage and buying a house
BUYING a house is a complicated process and getting the funds together for a deposit is only the beginning.
Disheartening stats revealed earlier this week that four in 10 Brits wouldn't be able to buy one of the cheapest homes in their area, even with a 10 per cent deposit.
But if you're lucky enough to beat the stats then you'll need to know what the next steps to take are.
From securing a mortgage "in principle" to knowing which survey to pay for, we've got you covered with our guide to buying a house.
Work out how much you can afford
There are a whole host of costs to consider when it comes to buying your first home.
There's the deposit, which tends to be at least 5 per cent of the property's value, mortgage fees (anything up to £2,000), stamp duty on homes that cost more than £125,000, solicitors fees and surveys.
What are the extra costs of buying a property?
BUYING a property is more than just saving a deposit. Here are some of the hidden fees you can expect when buying your first home:
Mortgage broker - Around £500 although online brokers such as Habito and Trussle shift the cost onto the provider so it's free to use for the buyers.
Arrangement fee - The amount lenders charge for borrowing from them - this costs around £1,000 to £2,000.
Booking fee - Sometimes you'll need to pay a booking fee on top of the arrangement fee that is around £100 to £250.
Valuation survey fee - Ranging from £150 to £1,500.
Transfer fee - The charge from moving your mortgage money from the solicitor's account to the seller's solicitor's account. Around £25 to £50.
Mortgage account fee - The lender charges for setting up, maintaining and closing down your mortgage account. It usually costs between £100 and £300. You can choose to add this to the mortgage but then you'll end up paying interest on it so pay upfront if you can.
Solicitor's bill - Usually between £500 and £1,500 plus 20 per cent VAT.
Register the sale with the Land Registry - Your solicitor usually does this and the cost depends on the price of the property.
Stamp duty - If you're buying a property above the £125,000 threshold then you'll need to budget for 2 per cent of the portion that's between the £125,001 and £250,000 threshold, 5 per cent between £250,001 to £925,000 and 10 per cent on properties worth between £925,0001 and £1,500,000.
Removal vans - These can cost between £300 and £600.
Typically, lenders will offer you a mortgage of up to four and a half times your yearly salary.
So if you're earning the average UK salary of £26,000, this means you will likely be able to borrow a maximum of £120,000.
These are the types of homes you will be able to afford on that budget across the UK - although none of them are in the South East.
You may be able to extend your budget using the government backed Help to Buy schemes.
There's Help to Buy Isas which are tax-free savings accounts designed for people saving to buy their first home.
For every £200 you put in the account, the government will add an extra £50 towards buying your first home, up to £12,000.
The maximum you'll be able to earn is £3,000 tipping your savings up to £15,000.
The government will also lend you up to 20 per cent of the value of the property - or 40 per cent in London - as long as you can stump up the cash for a 5 per cent deposit.
This is the Help to Buy equity loan which can be used towards buying a new-build property.
It's interest-free for the first five years but remember it's another loan on top of your mortgage and will need to be paid back.
How to get a mortgage and what are the fees
Often when you apply for a mortgage you'll need three months worth of bank statements and a good credit score in order to pass the affordability checks.
Shop around for the right deal by checking offers for first-time buyers on or on the .
Most people get advice from a mortgage broker. This is essentially a qualified middleman who has a duty of care to recommend a suitable mortgage for you but their services often come with a fee of around £500.
Agreeing a mortgage "in principle" allows you to get an idea of how much the bank is likely to lend to you and how much interest you'll pay.
They usually last between 30 and 90 days and put you in a position to make an offer when you find the property you like.
What's the difference between a two-year or a five-year deal?
WHEN it comes to mortgages, there's a lot to take in.
Andrew Hagger from MoneyComms weighs up the pros and cons of a fixed-term mortgage to help you decide what one will work for you.
"With a five year fix you have the peace of mind that your interest rate and monthly repayments won't change for 60 months, even if the Bank of England puts rates up.
"This is a great help with budgeting.
"Also most fixed rate mortgages charge a product fee - typically £500 to £1,000 - so it's better to only have to pay this once every five years rather than every two years.
"The slight downside with a five year deal is that you are liable to pay an early repayment charge if you exit the loan early - and rates come down.
"It's not applicable if you move home, but say for example, if you split following a relationship break up and had to sell before the end of the term, then you'l have to fork out for the fee."
Do I need a survey and how much do they cost?
A survey gives a detailed inspection into the condition of a property, highlighting any major repair work that’s needed.
They're not compulsory but can help you decide whether or not you’re paying the right amount for your home.
The reports are carried out before you exchange contracts by qualified surveyors and costs vary from company to company.
There are also different types of surveys depending on the depth of the report that you want and your budget.
Here are the range of surveys you can get and their typical prices, according to the Homeowners Alliance:
- Valuation survey, £150 to £1,500 - This is carried out by the lender to make sure that you're paying the right amount for the property.
- Condition report, £300 or more - This gives a traffic light report to indicate the conditions of various states of the property - green for okay, orange for cause for concern. The report provides you with a summary of defects and possible risks but won’t provide any advice or valuations.
- HomeBuyers report, £450 or more - On top of everything you get in the condition report, you’ll also get a valuation and an insurance reinstatement value - which is an estimate of how much you’ll receive if the building were to burn down.
- Home Condition survey, £400 to £900 - These are carried out by the Residential Property Surveyors Association (RPSA) rather than the Royal Institution of Chartered Surveyors (RICS) and includes information on broadband speeds, a damp assessment and boundary issues to consider. The price depends on the valuation of the property.
- Building survey, £500 or more - These are extensive reports where the surveyor will go into places such as the attic, check behind walls and look between floors and above ceilings. It will also provide advice on repairs, estimated costs and timings, and what will happen if you don’t carry out the repairs. Prices depend on the size of the property.
If the results from the survey throw up any problems with the property, now's the time to go back and renegotiate prices.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers own their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
When do I put my deposit down?
When buying a house there are technically two down payments - the exchange deposit and the mortgage deposit.
The mortgage deposit is the amount that you've promised to put down, for example 15 per cent of the value of the property.
When your offer has been accepted then you'll need to exchange contracts. This is when you'll need to handover a hefty "exchange deposit" that you'll forfeit if you back out of the purchase.
This is usually 10 per cent of the value of the property but it can be negotiated down.
For some first-time buyers the exchange deposit is their entire mortgage deposit for example, if you're putting down 10 per cent.
But if you've promised your lender a bigger deposit then you'll need to handover the rest of the money when you complete.
For example, if you're putting down a 15 per cent deposit, they may ask you for 10 per cent to exchange contracts, so you'll need to put the remaining 5 per cent down when you complete.
This is when you also transfer the rest of the mortgage loan, fees and any Help to Buy boosters.
This is when you'll get the keys to your new property.
MORE FOR FIRST-TIME BUYERS
Latest figures from Hometrack suggest that first-time buyers need an income of at least £53,000 for a home in Britain's 20 biggest cities.
The sum is up by £8,000 — 18 per cent — in three years due to sharp house price growth.
It may feel like an impossible task but according to UK Finance the number of first-time buyers is actually at a 10-year-high.
Have you managed to buy your first home and fancy sharing tips on how you did it? Why not take part in our My First Home series?
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