Purchasing your first home should be an exciting time. However, once you start to consider the financial side, it can seem a little daunting. Whether you’re worried about the deposit you will need, concerned about your credit score or simply don’t know where to start when it comes to mortgages, then this blog is for you. We take a closer look at five important tips for first time buyers to help remove the worry and get you back to feeling excited about your first property purchase.
Improve Your Credit Score
You’ve got your deposit, researched the type of property you want to buy and even picked out the picture to hang on your living room wall. There’s just one final thing you need to get a great mortgage deal, a good credit score.
There’s no such thing as a minimum credit score when it comes to buying a house. Each lender will have their own requirements, and your credit score is only one factor they look at. However, the higher your credit score is, the more chance you have of securing a good mortgage offer.
To increase your credit score, there are several steps you can take;
• Use a credit card to make a few small purchases each month, ensuring you stay well below the available credit limit. When it comes to making payments, pay off the full outstanding balance, not just the minimum re-payment.
• Make payments on time. Late payments will stay on your file for up to six years.
• Check your credit file regularly to ensure errors or fraud aren’t reducing your score. If you see a problem, contact the company in question and see if they can correct their mistake.
• Register to vote. Credit agencies use the electoral register to confirm your personal details.
Get a Little Help
The British government has had several schemes to help first-time buyers get onto the property ladder. At the time of writing this blog (January 2020), the Lifetime ISA is the best option. A lifetime ISA allows you to save up to £4,000 tax-free per year with the government adding a 25% bonus on top of what you save. This means that if you save up to the maximum allocation of £4,000 the state will give you £1000 of free money every year.
Lifetime ISA’s can only be used for purchasing a first property or for retirement. They are open to anyone aged between 18-39 and most UK banks or building societies offer them.
For more information on Lifetime ISA’s click here.
Build Up Your Deposit
A deposit is a lump sum you pay towards the price of the property when you buy it. When discussing mortgages, the deposit is typically expressed as a percentage. For example, if your deposit is £25,000 and the property you are buying costs £250,000 then, in percentage terms, you have a 10% deposit.
As a general rule, the minimum deposit you will need is 5% to secure a mortgage. However, with a larger deposit, you will have to pay less in monthly interest payments. You have more chance of securing a better mortgage deal, with the improved rates with a deposit of between 15% – 25%. Every lender has their own set of lending criteria, and so it pays to shop around whatever size deposit you have.
Consider a Mortgage Broker
If the thought of arranging a mortgage brings you out in a cold sweat, then it might be worth enlisting the help of a mortgage broker.
The mortgage market can be complicated, especially for first-time buyers. A good mortgage broker will guide you through the mortgage process and find you deals that are best suited to your circumstances. Many brokers may also have access to mortgage products that aren’t available to the general public.
When choosing a Mortgage Broker, it’s important to select a company that has access to a broad panel of lenders. Many mortgage brokers are restricted to one specific lender, which greatly reduces the number of products they can offer.
Tighten Your Belt
The last of our tips for first time buyers is something that all of us should do from time to time. When assessing a mortgage application, lenders will take into account your regular outgoings. Before applying for a mortgage review your monthly expenditure to see if you can make any savings. Are you paying for a gym membership that you no longer use? Have you reviewed your utilities, broadband and car insurance recently? Could you switch to a new provider and make some savings? Are you paying to eat out several times a week because you’d don’t fancy cooking?
Keeping an eye on your personal finances is a great habit to get into. For first time buyers, it’s an important step that will help you onto that all-important first rung of the property ladder.
Important Tips for First Time Buyers Summary
If you are planning to purchase your first property, there are lots of steps you can take to give your mortgage application the best chance of success. For help and advice on any aspect of the mortgage process, Elementary Mortgage Solutions are here to help. Our experts have years of experience in first time buyer mortgages and can make the whole process a lot less scary.