First time buyers: top five mistakes
1. Overlook other living costs
Property insurance, council tax, property service charges, ongoing maintenance, furniture and utilities are some of the costs that first-time homebuyers forget to consider when looking for a new place.
2. Find dream home before their mortgage
It is natural to begin the process of acquiring your first home by looking around at what is on the market in your neighbourhood. Depending on exactly how you do this, it could be a bad idea. If you are scouting for sale signs and strategically driving past properties for sale on your way home, this will give you an idea of what you would like your house to look like and where you would like it to be. However, unless you look it up online or in the estate agent, this will not give you an idea on how much your dream home will cost you (and subsequently if you can afford it).
Sitting in a lender’s office to discuss your financial situation is not as fun as going window shopping for houses. But the former is a backward approach. If you are lucky enough to have enough money to pay cash for your first house, you can ignore this point. If not, get a mortgage agreement in principle first, then go shopping for your house and base your search on what you can afford.
3. Swerving professional help
Avoid an unmanageable mortgage repayment plan by doing your research and meeting with a trustworthy and authoritative mortgage adviser. There is a reason we go to qualified teachers for education advice and medically qualified professionals for health advice. The same applies when seeking marketing advice from a marketing agency. These people are professionals in their field and they will have spent time undergoing training and learning on the job. The same goes for financial advice and when buying a house. You can try to do it on your own but you will not be privy to the information and connections that estate agents, mortgage brokers, mortgage advisors and solicitors are.
It is difficult to know who to go to when you are a first time buyer. When it comes to money even the most reserved and non-business savvy amongst us do not want to pay something for nothing. You want to work with reputable and pleasant experts who you trust. If you find an estate agent, solicitor or broker without a referral from friends or family, ask for references from previous buyers – a good estate agent will be happy to provide these for you.
4. Use all of their savings
To reduce monthly repayments a lot of people scrape together as much money as they can to put down as large a deposit as possible. Whilst it is beneficial to do so, this needs to be within reason. That is, put down as large a deposit as you can afford with savings left for unplanned eventualities. It is never recommended to be left with absolutely no savings. You never know when you might need that rainy day fund.
5. Finance another big purchase too soon
Do not get any new loans until the deal is closed. Once the contract is signed it usually does not complete for another 30 days. Lenders can pull credit reports before completion to make sure the borrower’s financial situation has not changed since the loan was approved. And new loans on your credit report could jeopardise the deal being closed. One example of when this might happen is when buyers sign their contract and then realise they need to buy new furniture. Although a new sofa may not justify dipping into your savings pot, this point emphasises the importance of point numbers one and four.
How much should a first time home buyer put down?
You usually need a deposit of at least 5% of a property’s value to get a mortgage. The mortgage lender would then lend you the remaining 95%. So, if you wanted to buy a £300,000 property, you would need to save up at least £15,000 and borrow £285,000. However, research from Halifax showed that the average deposit put down by people buying their first home was 16% in the first half of 2018. As we have said, the more you put down on your deposit, the lower your monthly mortgage payments will be. But you need to think about where your deposit money is coming from.
The reason we have mortgages is because we cannot afford to buy the property outright. When applying for your mortgage you should aim to get the deposit and monthly costs to the levels that suit you best now and until the end of your mortgage term. If paying a lower deposit means retaining a healthy level of savings this is the least risky option. If your monthly living costs are expected to increase, for example you are expanding your family, obtaining an interest free loan from a friend or relative in order to pay a larger deposit may be a good idea. Less and less people buying in London are able to do so independently with many first-time buyers borrowing from friends or relatives.
Which loan is best for first time home buyers?
There are lots of online tools you can use to independently compare mortgage deals before you go to see a financial advisor. To find out about the differences between first time buyer loans and ISAs read our article on the future of Help to Buy.
Can I be a first time home buyer again?
You do not qualify as a first time buyer if:
- You’re looking to buy a property with someone who owns, or has previously owned, a home
- Someone else who already owns their own home, is buying the property for you and it is going to be bought in their name
- You’ve previously inherited a property – this stands even if you never lived there and have sold the home.
To summarise, some of the important steps towards homeownership are:
- Evaluating your financial situation by checking your ongoing and future living costs against your expected income
- Finding a property that is right for you and fits your budget
- Choosing the right estate agent
- Getting approved for a mortgage
- Sitting tight until you have the keys and are settled in
James Anderson have been a leading independent estate agent for over twenty years. Based at three offices in South West London, the James Anderson team pride themselves on their personal approach and excellent customer service. If you’re a first time buyer looking for a home in SW London, come and see us or arrange a viewing.