So, you’re fed up of renting with your couch potato of a flat mate and reckon it’s about time you took those first tentative steps towards the housing ladder? Although there are some seriously exciting times ahead, navigating this frantic paper-trail of mortgage rates, deposits and unexpected fees can produce pulling-out-your-hair-levels of stress. But before you start Googling obscure German hair thickening shampoo brands, read our handy guide to securing your starter home. It all begins with the stuff that makes the world go round: money.
As a first time buyer, if you’re not lucky enough to have a bulging piggy bank, wealthy parents or generous family members, you’ll need to look elsewhere for funding. As well as the mortgage, you’ll need to factor in mortgage fees, surveyor’s and solicitor’s fees, stamp duty*, search fees, Land Registry fees, house insurance, a delivery van, and that’s before you’ve even thought about your soft furnishings. Use a mortgage calculator tool to see how much you’re likely to be shelling out each month, think long and hard about whether you can afford it and then line up an appointment with an independent financial advisor or your bank to discuss your borrowing options.
To secure a mortgage, you’ll need a minimum 5% deposit. However, it’s worth scraping together a robust looking deposit if you can. Money Saving Expert has these words of wisdom: “The golden rule is quite simple. The bigger the deposit, the better the interest rate, the lower your monthly repayments, the cheaper the mortgage.” If you have managed to save up a deposit, you’ll save yourself a lot of upset by securing a ‘mortgage in principle’. This certificate means you can be realistic about your budget while reassuring sellers and estate agents you’re serious about the move (just remember it’s not an official offer).
Maxing out multiple credit cards isn’t going to put you in any lenders good books (withdrawing cash on a credit card is a big nono), but neither will having no credit score at all. In an ideal world, you’ll disassociate yourself from joint accounts with ex partners or friends, never dip into an overdraft, definitely never have opened a payday loan and you’ll have a credit card you rarely use and pay off in full each month. If this doesn’t sound like you, it might be time to rein in the impulse purchases. Use legit credit reference agencies Equifax, Experian and TransUnion to check the damage.
Being on the electoral role could improve your credit rating as it’s an easy way for lenders to confirm your name, address and residential history. Not being on one slows down this process and in addition, means you don’t get to vote for the least worst politician come election time.
Apparently putting down an extra 0.1% on the deposit makes you look more attractive in the lender’s eyes. So scrimp, save, borrow and beg. That extra £100 could be the only thing standing between you and your dream home.
In some rare good housing news for the Capital, Mayor Sadiq Khan is offering Londoners ‘first dibs’ on new-build properties (worth up to £350,000) for three months before overseas buyers can get a look in. Local Londoners with jobs here will also get priority for a month.
This tax-free savings account earns holders interest of up to 2.58% and the government tops up this amount by 25% when you use it for a mortgage deposit. There are a few catches – the max limit is £3,000 and you can’t spend it on buy-to-lets or London properties that exceed the £450,000 mark. Better hurry though, the government is closing this scheme on 30 November 2019.
Just like the ISA, a LISA gets you that tasty 25% government bonus. So long as you’re over 18 but under 40, you can put away up to £4,000 a year and the max bonus is £33,000 (although the rules could change).
If renting hasn’t left you feeling jaded, you might want to consider this scheme which lets you buy a share of a property (usually between 24% and 75%) and pay rent on the rest. This shrinks the deposit needed because you only need a mortgage for the bit you’re buying.
Managed to cobble together a 5% deposit? The government will top up your funds with an interest-free loan of up to 40% of the cost of a new-build home in London. However, the scheme has recently come under fire for failing to make homes more affordable. But from April 2021, the scheme will be open to first-time buyers only.
Like anything involving suits and signatures, there will be jargon, lots of it. Here’s a quick look at some commonly confused terms.
LTV: The wad of cash you borrow (in comparison to the deposit) is known as the loan to value (LTV). So, a 10% deposit will require a mortgage of 90% LTV.
Stamp duty: A tax you have to pay when purchasing a property costing more than a set amount, unless you’ve opted for shared ownership, where stamp duty no longer applies. From March 2019, you have to pay this tax within 14 days of completion (ie after signing the contracts and you have the keys). No pressure.
Leasehold: This is when your right to live in a building is legit but you don’t own the bricks or the ground it sits on. This can leave first-time buyers in a sticky situation as this lady discovered.
Freehold: As sole owner of the building and the land it sits on, you’ll avoid costly add ons such as ground rent, service charges and permission fees.
Conveyancing: This is the bit where the legal title of a house is transferred from one person to another.
From helping you arrange a mortgage to pointing you in the direction of a decent solicitor, working with an agent such as Davies&Davies can lower your stress levels while ensuring the process is as smooth as possible. But sussing out how to get your hands on a mortgage is just the start. Next up, we discuss how to pick your perfect pad and all that entails-keep your eyes peeled.
If you want to know more about your options or have questions any about how to jump on that property ladder – we’re here to help!
020 7272 0986
Davies & Davies Estate Agents, 85 Stroud Green Road, London, N4 3EG
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020 7272 0986
85 Stroud Green Road
London, N4 3EG
Mon – Thurs: 0845 – 1815
Fri: 0845 – 1800
Sat: 1000 – 1600
Sun: Appointments by request