Buying your first home is one of the most exciting and biggest things you'll ever do. To make the process as smooth as possible, here at Choice Mortgages we guarantee to help find the perfect mortgage for you.
With over 30 years' experience, we can help and assist you in taking that step onto the property ladder. To get you started, we have put together a guide which will help answer questions you may have. It also explains and provides definitions of new words, as well as giving a break-down of the application process which is involved.
What is a mortgage?
You always hear people speak about mortgages and how they can't wait to get one, but what is a mortgage? The Oxford Dictionary determines that a mortgage is:
"A Legal agreement by which a bank, building society etc. lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt."
Having a true understanding of the commitment you're about to take is crucial. Here at Choice Mortgages we are on hand to ensure you are happy to commit to the legal agreement you undertake, by taking you through every part of the process step-by-step.
How much do I need to save before buying a house?
According to the Money & Pensions Service, the average first-time buyer puts down a 20% deposit on their first home. Therefore, depending on the area you're based in and the property cost, you could be looking at, as a minimum, £20,000 or more.
Saying that, is it not a requirement that you have to put down a 20% deposit the first time. Some lenders will accept a minimum 5% deposit, and you could consider other options such as a Help to Buy Equity Loan, shared equity or shared ownership. Each situation is different, therefore take the time to go through the different options available and ensure you are happy with the choice you undertake. Gifting of deposits is also an option. This is where family members can help with deposits in cash gifts or a formal arrangement with the mortgage lender, by acting as a guarantor or providing part of the deposit themselves.
Aside from the deposit towards the mortgage, it is important to take into consideration not only your monthly mortgage payment - but also other costs you may incur; mortgage adviser fees, Stamp Duty tax, solicitor fees as well as survey costs and initial furnishing and decorating costs.
Is the property within my budget?
It is easy to get carried away when looking at properties for the first time, especially if you have your heart set on a dream home or location. Staying realistic and honest to yourself about what is affordable, in line with your salary, is important when buying your first home.
It is also important to consider all potential financial situations when deciding how much you are able to spend on your monthly mortgage. This could include change of job, saving for another large life event (marriage or a family) or what would happen if you were unable to work due to an accident or sickness.
Other monthly costs will begin to arise once you have purchased your first home, such as general household bills, council tax and property insurance.
Online mortgage affordability calculators are available to help you work out how much you might be able to borrow. They are not a guarantee, however it will help to plan and work out costs.
Finding the right mortgage
As well as choosing the right area and property for your first home, it is also important to make the right choice when selecting your mortgage deal. There are many different lenders in the mortgage market, which can make the process overwhelming.
The two main types of mortgages are ‘fixed rate' and ‘variable rate'. However, many other different types of mortgages are available. If you are struggling to select the right one for you, you can speak to our experts who are always on hand to assist.
Fixed rate: A fixed-term mortgage is an agreed rate over a set period, usually two to five years - but sometimes going up to ten or fifteen. Fixed-term mortgages are beneficial because during the term the price will remain the same, allowing you to budget around this. Things to keep in mind with a fixed-term is that even if interest rates drop drastically, your price will remain at a potentially higher rate. If you wish to exit the agreement early, you're likely to incur a large penalty fee. However, a fixed rate does protect you against future rate rises.
Variable rate: As the name suggests, the mortgage rate can move up or down throughout the duration of your agreement. The price is usually reflected as a result of the UK economy. In times of growth and inflation, you could potentially see an increase in interest rates and vice versa for a decrease.
Variable rate mortgages separate into a further three categories - tracker, standard and discounts.
Tracker: Tracker mortgages track external interest rates, usually the base rate which is set by the Bank of England. It is important to take into consideration the affordability of your repayments if the external rate were to increase.
Standard: Known as an SVR, this type of variable mortgage is set by the lender and commonly what you are moved onto once your existing mortgage product expires.
Discount: A discounted variable mortgage is fixed at a set percentage, usually below the lender's SVR. As with all variable rates, the amount you repay each month could change.
The application process
In between saving for your deposit and getting your keys, you need to apply for a mortgage on your property. The application process can be daunting, however at Choice Mortgages we understand communication is key and promise to provide a dedicated personal service throughout the entire process.
Before you put an offer in place, it is important to check your credit score. You will be able to correct any errors on your report, which could harm your application, and it will help to get an idea of your score. Lenders will look at your credit report when considering your application. You can check your credit score online and for free with Experian, Clear Score and Equifax. You will undergo a series of checks when you apply for your mortgage. Ensure you have taken steps such as registering on the electoral role, cancelling unused credit cards and maintaining a strong credit score and history. These are all steps which make a difference when going through the mortgage application process.
As you begin to look around different properties, you can apply for an agreement in principle. This will give an indication of the amount you can borrow, and is also handy to carry around with you when viewing properties and speaking with estate agents. Choice Mortgages would encourage only one agreement in principle as depending on the lender and the checks carried out it can affect your credit score. If you need to adjust the amount or should a lender decline the initial amount, Choice Mortgages would advise you on the best course of action.
After you've placed your offer on a property, it is then time to begin your full mortgage application. At Choice Mortgages we are on hand to assist with the application process. We have an unbiased view of the whole market and always ensure we help find your perfect mortgage. We usually recommend that you allow at least four weeks for a mortgage offer to be issued, however dependent on circumstances and the lender, timescales can vary dramatically. We promise to keep you updated throughout the whole process.
During your mortgage application process, we will request all the information required. Typically, this includes your passport, driving licence, utility bill dated within the last three months, last three months' bank statements, proof of deposit and evidence of income.
As previously stated, communication is key throughout your mortgage process, so finding the right solicitor who will ensure you are kept up-to-date is of high importance. You can source your own solicitor or licensed conveyancer to help assist with the handling of contracts, legal advice, transferring of funds and other aspects of the sale process. Choice Mortgages work closely with three legal firms and if you would like us to obtain a quote, we can arrange this for you.
A list of questions to ask your potential solicitor as a first-time buyer:
Q) What are their charges and what is included for the fee?
Q) Do they have any planned holiday during your purchase period? If so, who will take over while they are away?
Q) Are you able to track the progress of your sale via a portal?
Q) Do they have a local office? (Taking paperwork into an office can be more convenient without having to rely on postal services.)
Q) If purchasing a property using a specialised scheme, do they have experience with the scheme e.g. Help to Buy, shared equity, shared ownership, new build.
Family, friends, lenders and mortgage brokers will all have advice when it comes to solicitors. Take your time when selecting one to ensure they will be able to meet all your needs.
Now your full mortgage offer has been granted, and all necessary checks on both the property and you have been done, attention is focused on exchange and completion. Until you have exchanged contracts with the seller of the property, nothing is guaranteed. Once exchange of contracts has taken place, a legal commitment is made between the buyer and seller for the sale of the property involved. Up until the contracts have been exchanged, abiding by law, neither member of the party is legally bound and can withdraw from the sale/purchase at any time.
After the contracts have been exchanged, a completion date is usually set around one to two weeks afterwards. However, it is not uncommon to exchange and complete on the same day. A completion date is usually set in advance, allowing time to prepare for removals and deliveries.
When the keys to your first home are in your hand, you are finally able to relax and enjoy yourself before the hard work truly begins. Make sure you have registered with the required utility providers and that you have relevant insurances in place too. Also - don't forget to update your address on existing accounts, such as your driving licence and bank.
Our promise to you
With expertise, integrity and efficiency, we will provide a service above the rest. Offering a comprehensive range of mortgages across the market, you can expect a dedicated customer service and regular communication throughout. This will ensure your process as a first-time buyer completes as quickly as possible.
What does that word mean again?...
Whether you're meeting estate agents, speaking to your mortgage adviser or just browsing forums online, there are so many different words associated with being a ‘first time buyer'. Some you might understand, yet some may baffle you. We've listed the most commonly used words that you'll most likely hear throughout your purchase.
Agreement in Principle: Sometimes this can be referred to as a Decision in Principle. This is a written estimate from a mortgage lender and a certificate is usually provided giving an indication of how much you can borrow.
First Time Buyer: Government rules state that a first-time buyer is someone who has never owned a property.
Fixed Term/Interest Rate: A fixed-term interest rate is an unchanging rate on your mortgage. It will apply for a fixed amount of time, usually between two to five years. An interest rate in mortgage terms as a general description is an annual cost to borrow money from your lender.
Guarantor: A guarantor is required to sign a legal agreement, stipulating that they shall cover mortgage repayments if the borrower falls behind.
Help to Buy: A scheme, which is backed by the government, helping people get on to property ladder without a large deposit. Help to Buy is broken down into four sections - Equity Loans, London Help to Buy, Help to Buy Shared Ownership and Help to Buy ISA.
Lender: A lender is a financial institution or mortgage bank which offers and underwrites your home loan. Each lender will have specific borrowing guidelines to verify both your ability to repay your mortgage and your credit rating.
Stamp Duty: A Land Tax which applies to anyone buying a property or land costing a set amount. Always check whether you are liable to pay stamp duty.