Owning your own home is a dream that many of us share, but as house prices steadily increase, reaching that first run of the property ladder can feel more and more difficult.
Don’t despair, with careful planning and by keeping a close eye on your finances, getting the keys to your first house may be closer than you think.
Our first-time buyer top tips will help you prepare to make your initial steps onto the property ladder.
Build Up Your Deposit
When you buy a property, your mortgage provider will expect you to contribute a lump sum towards the purchase price; this is called a deposit. When reviewing mortgages, the deposit will be shown as a percentage. For example, if you are purchasing a property for £300,000 and have a £15,000 lump sum then, in percentage terms, you have a 5% deposit.
Each mortgage provider has its own set of criteria; however, as a general rule, the larger the deposit you have, the lower the interest rate will be on your mortgage deal. This means that you’ll pay less each month in interest.
The minimum deposit you will need to secure a mortgage deal is 5%. The most favourable interest rates will be available to buyers who have deposits of between 15% or higher.
Improve Your Credit Score
Whenever you apply for a financial product, the lender will typically check your credit score to help them determine if you’re a safe person to lend to.
If you have a poor credit history, perhaps from missing payments on a credit card debt, this can make it more challenging to secure a mortgage.
You can download your credit report online from a number of credit reference agencies.
There are several steps you can take to improve your credit score;
- Make payments on time, any missed or late payments can stay on your file for up to six years.
- Use a credit card to make a small number of monthly purchases. At the end of the month, pay off the outstanding balance in full.
- Register to vote. The electoral register is used by most financial organisations to confirm your personal details.
- Review your credit report for errors. If you spot something incorrect, contact the company it relates to and ask them to update the information.
Consider All The Options
In some areas of the country, the cost of properties makes it very difficult for many individuals to purchase a home on their own.
One option for those who find themselves in this situation is to consider buying a property with a group of friends. This way, the deposit and mortgage repayments are shared amongst the group.
Another option is to look for shared ownership schemes in your area. Under this type of scheme, you purchase a proportion of a property, for example, 50%, and a housing association will own the rest. This means that the required deposit will be reduced and your monthly mortgage payments will be less. Although, you will have to pay rent on the part of the property that you don’t own.
As a first time buyer, you may also be able to find financial support from the UK Government. Over recent years several schemes have been available to help people get onto the property ladder. Currently, a Lifetime ISA is the best option. This allows you to save up to £4,000 tax-free a year. The government will then award a 25% bonus on top of the sum you have saved.
Seek Expert Advice
The mortgage market is complex, and as a first-time buyer, it can be daunting to tackle it on your own. By working with a mortgage adviser, you get the benefit of their expertise and knowledge of the market.
A good mortgage adviser, such as Elems.co.uk, will assess your financial situation and provide you with the most suitable products based on your circumstances. They will guide you through the mortgage process and complete all the necessary paperwork on your behalf.
You will also find that a mortgage adviser will have access to products and deals that lenders do not make available to the general public. This may mean lower interest rates or improved incentives such as cashback offers.
Review Your Finances
When you’re saving for your first home, you need to know where your money is being spent and that none is being wasted. Tracking your finances and creating monthly budgets is a great habit to get into that will benefit you throughout your life.
Create a simple spreadsheet and make a note of everything you spend each month. Review your regular expenses such as phone bills, electricity and gas and check if you can switch providers and make a saving. Set limits for your expenditure on luxuries such as clothes and going out. Finally, ensure each month that you’re setting money aside into a separate savings account.