First Time Buyer
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First step to buying your first home
The first thing we advise all buyers, especially First Time Buyers to do is to speak to a mortgage advisor before you start your property search.
You need to fully understand how much you can borrow. It’s also advised to have an Agreement/Decision in Principle in place before viewing properties. Having this will help you when making an offer on a property as it shows the agent and vendor that you have the required loan amount agreed in principle and you’re a serious buyer.
Agreement/Decision in Principle
To obtain an Agreement/Decision in Principle we will first need to do a few things. Have an initial chat with us where we can gather some basic details. This also gives you the chance to ask any questions you may have about the process and getting your first mortgage. If you’re happy to continue, we will ask you to complete a Fact Find. Once you have completed the Fact Find we will then go through this information together to make sure everything is correct. We will request to see some documents from you before we go ahead with an agreement in principle like, Income evidence, ID bank statements and so on. This is so we can be sure that the information we will be using on the agreement in principle with the lender is 100% accurate.
The agreement in principle is an instant decision in most cases, and once the above is done only takes around 5 minutes for us to do. If you are approved at that stage, this means you have passed the initial credit check. Agreements in principle are generally valid for anything between 60 – 90 days, giving you enough time to find the perfect property. Most agreements are only a soft footprint on your credit profile, so it won’t affect your credit. This will only turn into a hard footprint once you have found a property, and we proceed with a full mortgage application.
We have helped so many clients with making offers on properties, and are more than happy for you to send us property links so we can offer suggestions on what you might want to ask, or find out about before making an offer. We have also had success with helping clients make offers for under the asking price, or where it’s a sealed bid scenario. REMEMBER we are here for you and to support you at every stage of this process.
If you want to discuss your options and get an Agreement/Decision in Principle, get in touch. We would be more than happy to arrange this for you.
Protecting you and what matters
It takes your income to get your mortgage, maintain your way of life and protect yourself from foreseeable financial harm. It’s all part of the process. All too often, protection is the last thing that is on a First-Time Buyers mind, BUT it’s as important as getting the mortgage in place. You need to factor protection costs into your budget when you’re looking to buy your first home. Remember, you are taking out what is likely to be the biggest financial commitment of your life, so protecting yourself is imperative.
When speaking to our clients about protection, we ask them to really think about how they would be able to survive financially should the worst happen. If your income was taken away due to ill health for a long period of time, what would you do? These are the things you need to consider. The best way to ensure your way of life can continue should a life changing event happen is to get yourself protected. It’s not the nicest of conversations to have but the reality is we never know when something is going to happen. Protection products are designed to give you peace of mind. See our Protection Page for more info.
How much can I borrow?
How much you can borrow is determined by several things. Your income and your commitments are the two biggest things, but there are several other factors which are taken into account like:
Your Age:
Your age is important for affordability. The older you are the shorter the term, which can at times affect overall affordability.
Children:
Having children can also reduce the amount you can borrow. Not in all cases as everything is case by case, but if you are a family with 2 or 3 children and have some form of monthly credit commitments then this can have an impact. Childcare is also something that can have an impact on the maximum loan amount.
Deposit Percent:
Your deposit size is important, so the bigger the better. Smaller percent deposits can reduce the amount a lender will offer you because they can cap their income multiples on their calculators for smaller deposits. So, whilst you may have a strong income and no commitments BUT you only have a 5% deposit, this can result in being offered less.
Not only can a deposit percent affect the amount you can borrow but it also has an impact on the rates open to you. You may have heard the term Loan to Value or LTV being batted around. This is the difference between the value of your home and the amount you owe.
So, if you want to buy a property for £200,000 and have a 5% deposit (£10,000), you will have a mortgage of £190,000. This will give you 95% Loan to Value (LTV).
Rates are driven by the % of the deposit. So, a 95% LTV mortgage rate will be higher than a 60% LTV rate.
Employment status/History:
Since Covid we have noticed lots of changes to the way people work or are employed. The type of employment you have can be a factor in whether you will be approved for a mortgage. Zero-hour contracts, fixed term contracts and other non-permanent contract types come with a certain criteria that needs to be met. Each lender can have a different approach to non-permanent contracts, but it can be difficult to understand. Self-employed applicants can also encounter difficulties. Permanent employment is more straight forward. Each lender will treat income differently. There is more information below on income and income types which can be used towards your affordability for a mortgage.
Pay slip Deductions:
Yes, believe it or not, pay slip deductions can be treated like credit commitments with some lenders. Aside from your Tax and NI contributions, other deductions like: Pension, Private Medical Cover, Life cover, Travel/Season Ticket, Bike Schemes, Childcare Vouchers, and anything else can be treated as an ongoing commitment.
Student loan deductions are always treated as an ongoing commitment until it no longer appears on your pay slip or Self-Employed documents.
Trying to navigate rates and affordability, rates and how to best present yourself to a lender can be difficult. Using a mortgage advisor will take all the hassle away from you as it’s our job to know the criteria of each lender and how to get the most out of your circumstances.
Call Us On: 07980 053814
*Figures are suggestive only and do not reflect any specific product. For more information, get in touch.
Income types and how they are used
Each mortgage lender treats income differently. The lenders calculate the maximum loan amount by using all applicable income through their own multiplier and then reduce this amount depending on your financial commitments, deposit size, how many children you have and your age.
PAYE Basic Salary:
100 % of this income is used subject to the lender’s employment criteria.
Overtime Income:
Up to 100% of this income can be used subject to it being regular/monthly and can be evidenced over the latest 3-6 months of pay slips and is sustainable (subject to lenders requirements). If you have one month where you have no overtime on a pay slip, but we can evidence you have commission paid monthly most of the time it is still possible to use overtime income.
Bonus Income:
The amount of bonus income that can be used for mortgage purposes will depend on how frequently it’s paid. If you get paid a bonus monthly, then a lender will generally use 100% of the average amount of the last 3 months’ bonus income and annualise this figure. So, for example: if you get paid £300 per month as a bonus, we could potentially use an additional £3,600 towards your income for affordability. If you get pain a bonus amounts quarterly or annually then the lenders will generally use less (%) of this income. Lenders will want to see a history of the bonus income so pay slips from the previous year or 2 may be required.
Commission Income:
Commission can be treated in a similar way to overtime income. If you are paid commission monthly and we can evidence this on the last 3 or 6 months’ pay slips (depending on lender) we can use up to 100% of this income. They will average the last 3 to 6 months of commission pay slips. Where things can be different is where you have commission income which far outweighs the basic salary. We normally see this in sales jobs. So, if you’re on a low basic salary but high commission some lender’s cap the commission amount to what the basic salary is. Another thing which is possible but will affect the amount you can borrow is if you get monthly commission but have one month without commission, it’s still possible to use your commission. Lenders will want to understand how often you have been paid commission in the past.
Employed Allowances – Car, Large Town, Attendance Allowance and so on:
100% of most employed allowances can be used for mortgage affordability. So long as we can show this to be regular income by assessing your pay slips this income can be used.
Self-Employed Income:
Typically, most lenders will want to see 2 years of self-employed income. Depending on the lender they will generally want to see the latest 2 years SA302 (tax Calculation) and the supporting Tax Year Overview for each year. Some lenders will request accounts.
It is possible to get a mortgage if you have only been self-employed for one year and we have one full year of earned income to show. They will potentially want to know more about your employment and if you have experience in your field of work. Again, what lenders are looking for is how sustainable this income is.
Zero Hours Contract Income:
Most lenders will want you to have been employed on a Zero-hour contract for at least 12 months at the time of application. It’s better if this has been with the same employer BUT they could consider the last 12 months if you moved employers, long as it’s the same type of work and there are no gaps between contracts. You will need to produce the latest 12 months’ worth of pay slips and a P60.
Fixed Term Contract Income:
See our Fixed Term Contract page for info.
What are considered as commitments?
Commitments are things that you pay each month and are committed to paying each month either with a credit agreement for things like, credit cards, loans, car finance and so on, OR things like student loan deductions, childcare, service charge/ground rent (for flats). They are things that you cannot just opt out of. Remember some lenders class pay slip deductions as ongoing commitments. Some lenders will disregard credit card balances that are going to be paid or have been repaid, whereas others will use the credit card balance as it appears on your credit profile even if you cleared it to zero the day before.
Each lender is different in their approach to credit commitments. The more monthly commitments you have the less money you have left over to pay a mortgage, which can result in a reduced loan amount offered by the lender. Just because you have commitments does NOT mean you need to pay them off now. Speak to an advisor before doing anything. There are many cases where the mortgage amount you need is possible even with the commitments remaining in place.
Gym memberships, and other subscriptions are not considered commitments as you can stop these at any time. BUT if these are unusually high, they can affect affordability.
Typical cost involved when buying a home
Buying a home can be expensive so it’s best to have a good idea of what to expect so you can budget for these costs.
Stamp Duty:
The recent Stamp Duty charges mean that some First-Time Buyers won’t need to pay anything, but depending on where you are in the country and the purchase price could mean you have to pay some Stamp Duty. Use the Stamp Duty Calculator below to get a good idea of the costs you need to include in your overall budget.
Legal Fees:
Anyone purchasing a property will need to have a conveyancing solicitor for the legal work. The typical costs are anything between £1200 and £1700 depending on the type of type of property you are buying. A freehold purchase (non-Flat) is likely to be less than purchasing a Leasehold property as there is more work involved when reading leases and so on.
Be sure to get a few quotes before instructing a solicitor BUT our advice is to speak to friends or family who can refer you to a solicitor, they have had a good experience with. Going for the cheapest quote isn’t always the best.
Mortgage Lender Costs:
Most lenders charge what’s known as an arrangement fee. This is a fee the lender charges to set up the mortgage. This fee is typically between £500 – £2000. You do have the option to add this fee to the loan, but you need to understand that by doing this you will be paying interest on the fee, so it will cost you more in the long run.
Lenders do tend to offer mortgages without a fee too. The rates they offer for mortgages with the typical fee tend to be slightly lower than those rates that come with no fee. Your mortgage advisor will be able to calculate which costs the least overall when it’s time to source the most suitable mortgage.
It’s sometimes not possible to add the fee to the loan. This can happen when the lender includes any fees being added as part of their overall affordability. Some lenders will include the fee being added as part of the Loan to Value, so if adding the fee pushes you over the Loan to Value bracket you will have to either reduce the loan amount to add the fee or pay the fee upfront.
If for whatever reason you don’t complete on the mortgage this fee is nearly always refundable.
A one-off cost is the mortgage valuation fee. Most lenders now offer a free mortgage valuation, but those who do charge will do so on application. Once the mortgage valuation has been carried out this fee is nonrefundable. BUT if you cancel the application prior to the mortgage valuation taking place they normally fully refund this fee.
Other small fees can include a CHAPS fee which is typically £35 and this is to pay for the lender to send the mortgage money to the solicitor to complete the transaction. Legal Fee which is payable on completion. There are some lenders who don’t charge this fee. Your mortgage advisor is there to explain all associated fees to you before going ahead with an application.
Mortgage Broker/Advisor Fees:
Many mortgage advisors charge fees, and there are some who don’t. The decision on which advisor/broker to work with is entirely up to you. Do your homework, have a chat with them to see if you could work with that person. Ask what they offer as part of their service, get an understanding of the support you will be given during the process. Look at their Google and other Reviews. All advisors/brokers are paid a commission known as a Procuration Fee from the lenders upon completion of a mortgage regardless of whether they charge a fee or not.
We charge a standard fee of £290 which is ONLY payable on application. So, you could be talking to us for many months before finding a property and going ahead with a mortgage application. It’s only then we charge our fee. If for whatever reason we are unable to obtain a mortgage offer for you, we fully refund this fee. BUT If we do get a full mortgage offer for you and you pull out of the purchase we don’t charge the fee again when you find another property. The £290 you pay is a one-off fee for that transaction and it includes all the other services we offer like insurance, support and so on. We don’t restrict ourselves to the amount of support we offer clients. We too have also been a First time Buyer (before becoming a mortgage advisor) and remember the process well, so we are here every step of the way to make sure you fully understand everything that is happening and to make it as stress free as possible.
Building Valuation/Survey Fees:
There are mainly 3 different levels of valuations/surveys that you can opt for when buying your first home. When it comes to deciding which type of survey to choose will depend on what type of property you are buying. If you’re buying a newer property some opt solely for the standard mortgage valuation, but if the property is older or in some cases very old you may want to have that peace of mind by instructing a more detailed survey.
Standard Mortgage Valuation:
This is the most basic valuation and is solely for the lender’s benefit to ensure the property is within criteria and is something they will lend on. This type of valuation can throw up major issues that are likely to cause the lender to decline or put a retention on the mortgage. As mentioned earlier in this section, this can be free of charge but in some cases, there could be a charge depending on the lender.
Homebuyers Report:
This will be more expensive than a standard mortgage valuation, but a more detailed appraisal of the property will be done. It gives a good and thorough visual inspection, but the surveyor won’t life carpets or remove anything to check for hidden problems. Other visual areas looked at are Gas, electricity, water, condition of boundary walls/fences and so on. It will highlight things that need attention and offer advice on ongoing maintenance and repairs. Crucially it will detail urgent problems and defects that need fixing or anything that may affect the property’s value. When applying for your mortgage some lenders offer an upgrade to the mortgage valuation so you can combine both the mortgage valuation and a home Buyers report. The lender will be able to give you an idea of the cost before deciding. The mortgage valuation would be sent to the lender and the home buyers report would be sent to you. Not all lenders offer an upgrade so discuss this with your mortgage advisor at the time.
Building or Full Structural Survey:
For total peace of mind and to get the most accurate picture of the condition of the property you want to buy a building or full structural survey is the best option. This will cover what is included in a Home-Buyers report and much more. The surveyor will inspect all visible and accessible areas including roofs, walls, floors, windows, and doors as well as chimneys, cellars, garages, and any other outbuildings. They have a legal responsibility to discover and inform you of any major defects. This is the most expensive type of survey BUT can save you thousands on future repairs.
Flats - What to be aware of during your property search
Lots of First-Time Buyers purchase a flat as their first home. Some key things you want to look out when considering putting an offer in:
Lease length (Leasehold):
You’ll have a legal agreement which is called a Lease, with the Landlord (sometimes known as the ‘Freeholder’). This is a contract where one party grants the right to another to use a property or land for a specific period of time. The length of the lease tells you how many years you’ll own the property for. Most flats are leasehold. Shorter leases can come with issues when purchasing a property as some lenders insist on a minimum lease length on application; this is normally around 70 years. If you are considering buying a flat with a shorter lease, you need to consider the cost of extending that lease at some point. This can be expensive. Ideally you want a longer lease of 99 years, but we have a lot of clients who have purchased with shorter leases, but as mentioned before there may come a time when you need to consider extending that lease.
Share Of Freehold (SOFH). This is better for you as the buyer if you are buying a property which is SOFH. This means that you own part of the freehold or in some cases all of the freehold. Meaning that there is no Landlord/Freeholder. There is still a lease on the flat but the landlord if you.
If you find the perfect property which has a shorter lease speak to a mortgage advisor before you consider making an offer.
Newbuild Flats:
Newbuild flats will generally have a Loan to Value restriction with most lenders. This is because they are considered to be a little riskier. Lenders will generally want a minimum deposit of 15%. Lenders generally consider Newbuilds to be first time being occupied/on the open market since being built or being fully refurbished/converted (if a house has been converted into flats).
Service Charge and Ground Rent:
Be sure you check what the service charge and ground rent are when buying a flat. A service charge is normally paid monthly which can help cover the costs of things like, the communal areas, buildings insurance and so on. Some flats come with a very small service charge and in some cases no service charge at all. BUT some can come with high monthly service charges, especially in newer properties that might have a concierge, gym and so on. The service for the flat you are buying will be used when assessing affordability with a lender. So, whilst the overall affordability may fit giving you the loan amount you need, adding in the service charge could make it unaffordable with the lender. Also Ground Rent. Most ground rent is small, but I have seen cases where the ground rent is higher than normal, so pay attention to this as this is also factored into affordability.
Flats above or VERY close to Commercial Premises:
Buying a flat above OR very close to a shop/commercial premises can come with issues for lenders. We advise that you speak to a mortgage advisor before considering a property like this. Lenders tend to avoid agreeing mortgages on properties like this re-sale value and potential. Lenders do lend on properties like this, but it generally comes down to what type of commercial is not only below but also very close by. Buying property next door to a pub, or petrol station can also be difficult.
We have lots of experience with flats above commercial so feel free to speak to us if this is something you may need advice on.
Insurances
Mortgages will come with one condition that you must have which is buildings insurance. If you are buying a leasehold property, the buildings insurance is often arranged by the freeholder as part of the lease BUT not in all cases. Your solicitor will be able to tell you if this is handled by the freeholder or not. You ought to have contents insurance as standard. This is to protect you should anything happen like a fire or something that damages your contents.
If you are taking on such a large debt you should expect to take out life cover. Especially if you are buying with a partner and/or have children. This will prevent you from leaving them with a huge debt if you were to die with a mortgage in place.
You also need to consider how you protect your income should you be unable to work for a prolonged period of time due to ill health or an accident. Remember it has taken your income/s to get the mortgage and will take an income to maintain your mortgage payments and way of life in general. We don’t like to think of bad things happening to us but it is a reality of life. You also need to consider what happens if you are diagnosed with a critical illness. How long will savings and family help last?
These are all typical insurances you need to bear in mind when taking on a mortgage. Not only do you want to protect the building and its contents, but you also need to protect your biggest asset, which is YOU. You are the one/s who must be able to maintain your bills and way of life should the worst happen. We are here to advise and arrange all the protection you will need to ensure you have full peace of mind.
What happens after we have an offer accepted on a property?
Congratulations: You have an offer accepted and now the fun begins. You should have obtained quotes from solicitors and have chosen one you want to work with. You need to instruct your solicitor before a mortgage application. You should then contact your chosen mortgage advisor (the one you have the agreement in principle with if you want to continue working with them). We will need further documents from you to support the mortgage application. An experienced advisor will know the typical list of documents requested by each lender. Please note that a lender reserves the right to request anything they deem necessary to support the mortgage application and help them make a decision.
Your mortgage advisor will then discuss rates with you. Rates change all the time so rates you might have been talking about a few weeks prior might have changed. You cannot secure a rate with nearly all lenders prior to having an offer accepted. This is where you will also discuss the most suitable term (full length of the mortgage). Your mortgage advisor will discuss all the options open to you at the time. As well as fees associated with that mortgage.
Once you have made a decision on the rate and term it’s time to submit the mortgage application to the chosen lender. Once the mortgage application has been submitted, it’s now time to get the mortgage offered. To do that we must submit the relevant documents to the lender. They will then underwrite the case. What this means is that they will check the evidence that is sent to them against the details on the application, along with looking at your credit reports. Once they are satisfied, they generally agree the mortgage subject to Valuation. It’s at this stage the underwriter will instruct the mortgage valuation to be carried out. Some lenders do instruct the valuation as they are underwriting the application.
The mortgage valuation is not carried out by someone who works for the lender. They will be an independent valuer who is local to the area you are buying. They do have the experience of knowing what is and isn’t acceptable for the chosen lender. If your mortgage advisor knows their stuff they too will know if the property is suitable for the lender. In some cases, it can be hard to know 100% beforehand if a property will be accepted or not BUT any decent mortgage advisor will do their research before applying. For example: if a property is above commercial premises the advisor should contact those lenders who lend on such properties and discuss in as much detail as possible the chances of the property being accepted.
Once the valuation has been completed the valuer will send this back to the lender. Providing everything is OK, the underwriter will issue a full mortgage offer. This is where you want to get to. This is where you need to have a chat with your mortgage advisor to discuss protection. It is advised that you arrange your protection in good time so it’s ready to start on exchange of contracts. You will also need to have buildings insurance ready to start on exchange of contracts and your solicitor will want to see a copy of the schedule before exchange.
The mortgage offer will be sent to you, your solicitor and your mortgage advisor will also have a copy. Your solicitor will be doing their legal work like searches, contacting the vendors solicitors, and getting you to the point of exchange of contracts. The process post mortgage offer typically takes around 8 – 16 weeks to reach exchange of contracts and completion BUT we have seen cases that have taken a lot longer.
Exchange of contracts only happens once both sides are happy with everything, and your deposit has been sent to your solicitor. This is when you are likely to set a completion date. There is normally a week or two between exchange or completion, but I have seen both take place on the same day, and some have 3 months between exchange and completion. It will all depend on everyone’s situation and each case is different. Exchange of contracts is the point where you become liable for the mortgage and property. If you were to change your mind at this point you would lose your deposit.
PLEASE NOTE When sending deposit monies to your solicitor be sure that the request has come from them as there are people who get caught out with scammers. The best way to be sure is to call your solicitor on the day you plan on transferring the money to check their bank details and so on. Once you have exchange and have a completion date set it’s time to pack your things. On the day of completion, you will get a call from your solicitor to inform you that completion has taken place. This is when you can go and collect the keys to your new home.
We hope you have found this First-Time Buyers page useful. We have tried to offer as much information as we can for a standard case to give you the best idea of what to expect.
Call Us On: 07980 053814
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.