How to take the stress out of buying your first home
Buying your first home can seem daunting, after all it may be the biggest purchase you ever make.
At SK Financial we have access to the whole of the mortgage market so we can work with you to achieve the best solution for you. Here are a few tips and things to consider when you are looking to buy your first home.
Start saving as soon as you can
The bigger the deposit you save, the easier it will be to get on the property ladder and by maximising your deposit, you will have access to both a wider range of mortgage options and more competitive rates.
Small things like taking your own packed lunch to work rather than buying it every day can generate big savings over the course of a year and is a great way of topping up your savings account.
Check your credit
You can check your credit score and obtain a full report free of charge. It is worth doing this to see what your credit report looks like and to ensure there are no factual errors. The report will show all credit agreements you have, including credit cards, loans and mobile phone plans and looks at whether you make repayments on time and in full. Student Loans are not factored into your credit report but could have an impact on affordability if you’re still paying it off.
Your credit score may be lower if you have never borrowed any money, as it marks and absence of proof that you are a good borrower. It is important to be registered to vote at your current residential address as it can be harder to obtain credit if you are not listed on the electrical roll. It is also an easy way to improve your score.
There are multiple providers you can use to check your credit score, Experian is one commonly used as well as Equifax. Both of these providers are also used by most mortgage lenders so it is important that you see what they can see before you submit your application.
Consider government schemes
There are a couple of useful government options that are worth looking into when you are buying your first home:
1. Help to Buy Equity Loan
This is available to first time buyers, purchasing new-build properties costing up to £600,000. You need to put down a 5% deposit, but the government will lend you a further 20% of the property price interest free, or 40% if you’re buying in London, for the first five years.
After the five-year interest free period finishes, you’ll be charged interest on your loan from the government at 1.75%. The interest rate will increase every year by the rate of inflation, as measured by the Retail Price Index (RPI) plus another 1%.
2. Lifetime ISAs
The Lifetime Individual Savings Account (ISA) was introduced in 2017 and it was designed to help first time buyers save up a deposit for their first property purchase. It replaced the Help to Buy ISA which is no longer open to new subscribers although if you already hold an account, you can keep saving into it until 30th November 2029, after which additional contributions will no longer be allowed.
You’re able to open a Lifetime ISA if you’re aged between 18 and 39 and can save up to £4,000 each tax year, every year until your 50th birthday and the government will then pay an annual bonus of 25% (capped at £1,000 p.a.) on any contributions you make.
The funds can be withdrawn tax-free at any time in order to buy a first home worth up to £450,000, and from age 60 for any purpose. You can open more than one Lifetime ISA, but will only be able to pay into one in each tax year.
Know your budget
Find out how much you can borrow before you start house hunting. We can determine how much can be borrowed based on your current earnings and any outstanding financial commitments you still have to pay.
As part of that process, we would give you a sense of which lender/s were coming back as the most suitable and the monthly costs involved. We can then also run an agreement in principle to check that one of the mortgage providers identified would consider lending you the required amount.
Any full application that follows will then still need to go through a full underwriting process, but it does show a provisional agreement is available and is what prospective sellers / estate agents will be looking for, when deciding whether or not to accept your offer.
As well as the deposit and monthly mortgage payment, other costs to consider are mortgage arrangement fees, legal fees and stamp duty (if applicable), all of which we could discuss with you.
What happens when you find a property?
Once you have found a property and have had an offer accepted, we will then confirm the mortgage numbers and either proceed with the lender we have the arrangement in principle with or progress with an alternative, if there is a more suitable option available.