Buying your first home is a massive step, and with the average age, purchase price and loan size all steadily rising for First Time Buyers over the last 10 years, here are some of the key things to focus on before taking that first step onto the property ladder.
How much can you borrow?
One of the big difficulties with house-buying and being a First Time Buyer is the huge variance of mortgage lenders, their policies and particularly how much each will lend to you. They will all run their own unique affordability tests to determine the amount they are prepared to lend, but as a rule of thumb, you will be looking at roughly 4x annual salary. There are ways of maximising this and even going beyond it. Some lenders will be more generous with employed income, taking into account overtime, commission and bonuses.
For self-employed income, there are lenders who will work off your latest year’s net profit, if your business has been growing, and for those running Limited Companies, some of the market will factor in retained profit in your business in determining your income.
Whilst for those in the classic ‘professional’ occupations, such as doctors, lawyers and accountants, some lenders will go well beyond the traditional income multiple cap, and various Guarantor options still exist for those who need some family assistance to get started.
What about the deposit?
You will typically need a deposit at minimum 5% of the purchase price, with the best interest rates available with a 20% deposit. There are some government backed schemes to help with this. Opening a Lifetime ISA can be useful in boosting your savings with a government bonus when it comes to purchasing the property. Shared Ownership can be another way of living in a higher value property where you don’t have the minimum deposit for that price range, and a Help to Buy Equity Loan can help you both meet lender affordability and lower your mortgage rates. There are even some options where family can assist and the lender will potentially lend with no cash deposit. Different options will be useful for different people, always seek professional advice and guidance before making a final decision.
Making yourself ‘mortgageable’
Mortgage Lenders will carry out a credit check on you before agreeing to lend. Certain small steps can significantly improve your chances of success. Ensure you are registered on the Electoral Roll at your current address. Take time to check your Credit File online (Experian and Equifax are the main credit reference agencies). Beware of missing or making a late payment on any commitment as it may show on your file. Ensure to end any connections with past relationships – this can be done by calling the Credit Agency and notifying them. Also try and reduce the outstanding credit you may have as this could reduce the amount you are able to borrow
When you think you may be ready to take the step towards buying see an Independent Mortgage Adviser and discuss obtaining a decision in principle. This is where a lender will carry out a credit check and credit score on you and say whether in principle they will give you a mortgage and how much they may lend. This puts you in the best possible position if you see the property of your dreams and decide to make an offer. If for any reason the decision in principle is declined then it gives you the opportunity to see what the issue may be and iron out the problems. A decline at this stage isn’t a “no” for ever its just a no at this stage and with this information available.
Know your market
As I write this blog you would say it’s a buyers market. With the uncertainty surrounding the election, Brexit and the time of year the level of activity is quite low, and yet, interest rates are at a historic low and its true to say that lenders do want to lend and have lots of money available. There are ample resources available for assessing current house prices with sites like Right Move and Zoopla and these sites also contain large amounts of information about historic house prices. The key is to do your research on the type of property you want to buy and the prices that that type of property would typically go for.
There are some fantastic mortgage products currently available. Use the guidance of a reputable Independent Mortgage Adviser, get prepared and your dream first home awaits you.
Your home maybe repossessed if you do not keep up repayment on your mortgage.