Buying your first home can be a daunting process, from the excitement of finding a property you love to the worries of waiting for your mortgage to go through and the long wait for the legal work to be completed.
Taking your first step on the property ladder is a journey, but we’re here to help you navigate the twists and turns and help you purchase your first home in 2021.
1. Work out how much deposit you’ll need
Saving for a deposit is one of the biggest challenges facing first-time buyers, and the COVID-19 outbreak means you might need to save more than before.
In normal times, you’d need a deposit of at least 5% of the property’s purchase price, but with so few 95% mortgages available, you’re now likely to require at least 10%.
This means that for a home costing £200,000, you’d need a deposit of £20,000 rather than £10,000.
You can use our deposit calculator below to discover how long it might take you to save enough to buy your first home.
2. Give your savings a 25% boost
Interest rates on savings are at rock bottom, but the government has an initiative in place to help you grow your deposit and buy your first home more quickly.
If you’re under 40 and are saving to buy a property worth up to £450,000, you could open a lifetime Isa.
A lifetime Isa allows you to save up to £4,000 each year until you’re 50. For every £4 you save, the government will add a £1 bonus to your savings. This means you could get an extra £1,000 each year.
Bear in mind if you make withdrawals before you’re 60 for something other than buying a home, you’ll face a penalty on the amount you withdraw.
3. Find out how much you can borrow
We’ve looked at how much you might need to save, but the other crucial element is how much you’ll be able to borrow when applying for a mortgage.
The amount you can borrow will usually be calculated as a multiple of your annual income. Most mortgage lenders allow you to borrow a maximum of four and a half times your income.
This means that if you’re buying a home with your partner and you earn £40,000 a year between you, you might be able to borrow around £180,000.
Use our mortgage borrowing calculator to get an idea of your borrowing power.
4. Look into your mortgage options
As we mentioned earlier, the withdrawal of 95% mortgages is a big blow for cash-strapped first-time buyers, but the good news is that some of the biggest lenders have now relaunched their 90% deals.
If you’ll struggle to save a 10% deposit, you could consider schemes such as Help to Buy or shared ownership (more on these shortly), or you could ask a family member if they will act as a guarantor for your mortgage.
Guarantor mortgages usually involve a parent or grandparent using their savings or property as collateral, but other alternatives include joint mortgages or joint borrower, sole proprietor deals. It’s worth taking advice from a mortgage broker, who can explain the pros and cons of these different types of deals.
5. Research first-time buyer schemes
Help to Buy and shared ownership are two of the most common options for first-time buyers struggling to save a house deposit – but both come with some pitfalls.
Help to Buy allows you to purchase a new-build home with a 5% deposit, by taking out a 20% loan from the government and getting a mortgage for the remaining 75%. Help to Buy has faced criticism for inflating the prices of new homes, but it is set to be relaunched with regional price caps from April 2021.
Shared ownership allows you to buy a share of 25% to 75% in a property (usually a leasehold flat) and pay rent on the remainder. It can be a good way of getting on the housing ladder in expensive cities such as London, but the combined costs can be very high, and there are concerns over the safety of some blocks.
6. Get a mortgage agreement in principle
Getting your mortgage agreement lined up before you start looking at properties can be helpful for two reasons: it clarifies your budget, and it can prove that you’re a serious buyer.
An ‘agreement in principle’ usually requires a ‘soft’ credit search and is essentially a statement from a lender of how much they’ll be willing to let you borrow to buy a home. It’s an important step but isn’t a guarantee – your mortgage won’t be locked in until you’ve had an offer accepted and formally apply.
Again, it’s worth taking advice from a mortgage broker, who will be able to look at all the deals on the market and get you an agreement in principle.
7. Find the right property
Choosing your first property is one of the more exciting steps in the home buying process. Now you’re armed with your agreement in principle, you can spy out the areas where you’ll be able to afford a property. If you’re buying in England, you can use our area comparison tool to learn more and compare different towns.
Do your research into the local property market and check out our house viewing checklist (or our guide on viewing a show home if you’re looking for a new-build) before heading to viewings to give yourself the best chance of sorting the wheat from the chaff.
For more detailed advice on this part of the process, check out our full guide on how to buy a house.
8. Make an offer and apply for your mortgage
Once you’ve found a property, it’s time to make an offer. Our guide on making an offer on a house provides the lowdown on how to get a good deal and get the nod over other interested parties.
After you’ve had your offer accepted, you can return to the mortgage lender to formally apply for your home loan.
9. Play the waiting game and get ready to exchange
Now, the boring bit. Once your offer has been accepted, you’ll need to employ a conveyancer to sort out the legal aspects of the move. You’ll also need to have a house survey done to ensure there are no significant issues with the property.
The conveyancing process can take a number of weeks to go through, especially in the current climate, so manage your expectations over when you’ll be able to get the keys.
Once the process is nearing conclusion, your conveyancer will work with the seller’s solicitor to set a date to exchange contracts and complete the purchase.
