Buying your first home

Buying your first home is an exciting time. But it’s also one that can be daunting. Property is likely to be one of the biggest purchases you ever make and with mortgages now regularly lasting more than 30 years, it’s a long-term financial commitment.

The first step to buying your first home is saving up a deposit. Typically, lenders will require you to put down a minimum of 10% of the property’s value as a deposit, though there are some lenders that will ask for only 5% or none at all. The bigger the deposit you can put down, the better the interest rates you’ll usually be able to access.

Saving up a deposit is no small task, especially as the average house price continues to rise. If it’s something you’re struggling with, there are ISAs (Individual Saving Accounts) that can help:

• The Lifetime ISA (LISA) can be opened by anyone aged between 18 and 40. Each tax year, up until you’re 50, you can place up to £4,000 into a Lifetime ISA and receive a 25% bonus to your savings, up to a maximum of £1,000 per year. However, if you withdraw the money before turning 60 for a reason other than purchasing your first home, you’ll pay a withdrawal charge of 25%. Find out more.
• The Help to Buy ISA closed to new applicants on 30 November 2019, but if you already have a Help to Buy ISA, you will be able to continue saving into your account until November 2029 and claim your 25% government bonus by November 2030 (providing you meet the eligibility criteria). This ISA was designed for first-time buyers to provide additional help with building up a mortgage deposit.

How much can you borrow?

When you start looking at properties you’re keen to buy, this is an important question to keep in mind. How much lenders will be willing to offer will depend on several factors, including:

• The deposit you’ve saved up; usually you’ll need 10% of the property’s value.
• Your household income – as a general rule of thumb, you can expect to borrow up to four or five times your income.
• Your (hyperlink to blog below) credit score, which will give lenders an indication of how likely you are to meet repayments.
• Your ability to meet stress test requirements, which gauge your ability to continue to pay if interest rates increase.

You can get a rough idea of how much you can borrow by applying for a mortgage in principle. This doesn’t guarantee you’ll be accepted for a mortgage, but can give you a guide when searching for a potential home.

Whilst tempting, you shouldn’t always look for a house with the maximum mortgage value in mind. Be sure to assess your own affordability and understand how it will affect your day-to-day finances.

Planning for the future

With an idea of budget in mind, it’s time to start looking at the property market. With thousands of properties for sale, it can be overwhelming to sort through the options. As a result, having a list of essential features can help you narrow down the field, though keep in mind you’re likely to need to make some compromises.

Moving home can be expensive. So, it’s worth thinking about how suitable homes you’re interested in are for the future. If you’re hoping to start a family in the next few years, for instance, is there room for little ones? Of course, there may be cases where you only plan to stay in your first home for a few years, but having a plan means you can put aside the money you may need to make the move.

The house buying process

Finding a home that’s right for you can be a challenge. But what happens after that? It can seem complicated, however, getting a clear idea of the steps can help:

• Purchase agreement: Once you’ve found a house you want, it’s time to put an offer in; this is known as a purchase agreement. Expect some negotiation to take place, but set yourself a price that you won’t exceed with affordability in mind. Even if your offer is accepted, the sale isn’t legally binding.
• Mortgage application: The next step is to apply for a mortgage. If you have a decision in principle, it doesn’t have to be with the same lender; search the market or use a mortgage broker to find the best deal. Lenders will take your personal situation into account, but will also want to check the value of the property you intend to buy too. There are also different types of mortgage.
• Conveyancing: Conveyancing sounds complicated, but it’s just the term for the legal process of passing property from one person to another. A conveyancing firm will handle legal areas, such as drafting contracts and exchanging money. You’ll need to set aside money for paying conveyancing fees, typically around £1,500.
• Searches and surveys: The conveyancing firm will handle searches, which will highlight any potential issues with the property or surrounding area. A property survey will also be undertaken by your lender to assess value. Whilst not compulsory, it’s often advisable that you pay for your own comprehensive property survey that will assess the property’s structural integrity, compliance with building regulations and more.
• Set a completion date: The completion date is when everyone in the chain will swap keys. As a first-time buyer, you’ll be in the fortunate position of not needing to wait for a seller, but it can still be a frustrating wait depending on the needs of the rest of the chain. You’ll need to organise your deposit here too.
• Exchange contracts: The sale isn’t legally binding until you reach this point. You’ll have a final few bits of paperwork to tick off as you make plans to move.

This article is for information purposes only and does not constitute advice or a personalised recommendation.
Your home or property may be repossessed if you do not keep up with repayments on your mortgage.
Information correct as at 06/04/2024.