It isn’t easy being a first-time buyer in today’s property market. With rising house prices, high interest rates and a cost of living crisis, getting on the property ladder can be more challenging than ever.
However, understanding what’s involved in buying your first property, and ensuring that you’re financially prepared, can make it easier to take that first step. In this guide to buying a first-time home, we’re looking at the finances involved in buying a property and what you’ll need to consider as a first-time buyer.
Savings and Deposits
A deposit is the biggest upfront cost to buying a property and will usually be at least 5-10% of the property price.
As deposits are such a significant sum of money, saving for one can take time. Fortunately, there are a few things you can do to help get your savings off the ground.
- Cut back on luxuries, such as holidays or meals out.
- Switch suppliers or tariffs on essentials, such as energy bills or home broadband.
- Reduce the number of subscriptions or memberships you sign up for.
- Downsize or move in with family or friends to cut back on rent.
- If you have a car, you could save money by selling it and using public transport.
- Increase your income by taking on extra hours or setting up a self-employed side hustle to bring in a little extra money.
Mortgages
A mortgage is a loan that is secured against your property until it is paid off. Essentially, you borrow money from a mortgage lender to buy your home and you pay them back each month. You usually pay off a mortgage over several years (around 25 years on average, but up to 40 years in some cases) at which point, you will own your home outright.
Since the loan is secured, your property is technically owned by your lender so if you miss repayments, they may be able to repossess your home. That’s why it’s crucial to only take out a mortgage you’re confident you can afford, even if interest rates rise.
An online mortgage calculator can give you an idea of how much you might be able to borrow. If you want to improve your chances of being offered a mortgage or increase the amount you can borrow, you might want to consider buying as a couple, since this will allow you to take both of your incomes into account.
If you have a poor credit rating or are self-employed, obtaining a mortgage can be more difficult, but not impossible. A mortgage broker can help you find the right mortgage products for your circumstances.
There are also schemes designed to help first-time buyers. For example, some new build homes, like these in Skegness provide a first-time buyer assistance scheme to help people get onto the property ladder.
Interest rates and LTV
As with any loan, you’ll pay interest on your mortgage. A fixed-rate mortgage is where the interest rate is fixed for a set period so that you’ll know exactly what you’re paying. After this, you’ll usually be moved onto a variable-rate mortgage, where the interest you pay will fluctuate in line with interest rates.
LTV or Loan to Value is the difference between how much your property is worth and how much you’ve borrowed to pay for it. If you put down a large deposit on your home, you’ll have a lower LTV because you haven’t borrowed as much from your mortgage lender to pay for the property. Having a lower LTV is beneficial because your interest rate is likely to be lower and you’ll pay less interest overall across time.
Legal Fees
First-time buyers are exempt from stamp duty on properties up to £425,000 but there are other fees you’ll need to consider when budgeting to buy your first home.
You’ll need to instruct a solicitor or conveyancer to handle the transaction and transfer ownership of the property. This might include additional costs such as a Land Registry fee and property searches.
You might also consider undertaking a home buyer’s survey to ensure that the property is in good condition and not hiding any nasty surprises.
Other Costs
You should also consider the many hidden costs associated with buying your first home as these can quickly mount up. As a minimum, you’ll want to budget for:
- Removal costs.
- New furnishings, such as carpets and curtains.
- Redecorating or renovation costs.
- Building and contents insurance.
