Our first time buyers guide is for people who want to better understand the many steps of buying a home, from the essentials of saving a deposit and getting mortgage ready, right through to our best tips for a straightforward moving day.
We know the mortgage and buying process can feel a bit stressful, even though it’s an exciting time too. Mortgages can seem complicated. But they don’t have to be with the right help.
The Co-operative Bank has experience helping people to buy their first home and we’re ready to support you all the way. Get yourself comfortable, because we’ve got plenty of expertise to share.
Most people who buy a home in the UK use a mortgage to help them pay for it.
A mortgage is a loan that’s secured against (linked to) the property and usually taken out over a long period of time.
Taking on a mortgage is a big commitment and it’s your responsibility to continue to make the full mortgage payments when they are due or you could ultimately face repossession of your property. Repossession is where the lender takes back possession of the property if you default on your mortgage payments.
As well as the mortgage, you also need to put down some money towards the cost of the home, as lenders won’t let you borrow the whole amount.
This is called a deposit and usually comes from your savings, although it could be a gift from your parents or another source.
Working out your budget for your first home is important. This will help you shortlist and view homes that are affordable to you.
Your buying budget depends on two things -
Usually, unless you’re a cash buyer, you need to save up a deposit before you can get a mortgage, and most people do that in a savings account or ISA.
The Lifetime ISA is designed for long-term tax free savings and the government will boost your savings by 25%, so it’s worth considering.
Some first time buyers are gifted money from parents or close family members to help with their deposit.
The bigger the deposit you can put down the better, as this provides less risk to the lender and yourself if property prices were to fall.
It also means that you may be eligible for more preferential mortgage rates. This is because a larger gap between the loan amount and the property value can reduce the risk of negative equity, which is when you end up owing more than your home is worth.
Those with a relatively small deposit will usually pay a higher rate of interest to reflect the greater risk the lender is taking. This is why Lenders reserve their most competitive mortgages for borrowers with bigger deposits.
The amount you borrow as a proportion of the property’s value is called the ‘loan-to-value’ ratio.
As an example, if you buy a £200,000 home with a £150,000 mortgage and a £50,000 deposit, you are borrowing at 75% loan to value, or LTV.
If you have a 10% deposit you can only choose from mortgages available at up to 90% LTV for example.
This is a bit technical but important. When you look for mortgage deals, they will state they are available up to a certain LTV (proportion of the property’s value), so you need to choose from those that you are eligible for.
Saving as much as you can makes good sense but remember to also budget for all the other costs of buying a home and set aside enough money to cover them.
Read our guide, The costs of buying a house
The Money Helper website (previously known as Money Advice Service) has an online mortgage calculator that can give you a rough idea of how much you can borrow.
This is just a guide and the amount you can actually borrow on a mortgage is dependent on each lender’s own affordability calculations, which are all different.
They will look at your income, outgoings and conduct a credit search.
You can get a free copy of your credit report from a credit reference agency, such as Experian or Equifax.
The lender will also consider the term of your mortgage, which is how long you want to borrow the money for.
Typically mortgages can run for 25 years but more borrowers are taking out longer mortgages of over 30 years to reduce their monthly repayments.
As a rule of thumb, you can expect to borrow a maximum of 4.5 times your income, but this could go to 5.5 or higher in some cases.
This is a guide though as all lenders have their own loan to income assessments. They will take into account commuting costs, any children you have and what you spend on monthly subscriptions or eating out, for example.
Some lenders will give you an indication of what you may be able to borrow through an online mortgage calculator. Or you can get a more detailed Mortgage in Principle (also called a Decision in Principle).
This is a statement from the lender suggesting the maximum amount they can lend you based on what you’ve told them.
It’s not a binding offer from the lender because they haven’t verified the information you’ve told them, and you’re not obliged to take out a mortgage with them.
But a Mortgage in Principle can be a useful way to get a clearer idea of the maximum mortgage you can borrow. It’s also good to show estate agents you are a serious buyer.
Book a phone appointment with The Co-operative Bank to get a Mortgage in Principle and find out how much you could borrow
If you are planning to buy a home, it’s a good idea to get mortgage ready by preparing your finances now.
That means saving as much as possible for a deposit as well as putting yourself in the best borrowing position.
You can do that in a few ways:
All of these things could make it easier for you to obtain a mortgage.
You can get a mortgage directly from a Bank or Building Society or through a mortgage broker.
There are lots of mortgage brokers across the UK, varying from one man band operations to large national firms.
Both will offer you mortgage advice to ensure you get a deal that meets your needs.
Mortgage Advisers and brokers are professionally qualified and regulated, and they are experts in the mortgage market.
Mortgage Advisers who work for Lenders will look for the most suitable deal from their own range, while a broker will look across a range or even the whole market to find the right mortgage for you.
Both may operate face-to-face, over the phone or online.
For borrowers who are confident about what they want and don't require mortgage advice, some Lenders/brokers will offer an 'information only' service which is also known as Execution Only.
There are thousands of mortgage deals available so it can be overwhelming to work out the right one for your needs.
Best Buy tables and comparison sites only tell half the story because not all borrowers are eligible for all mortgages.
Find out more about choosing the best mortgage deal for your needs in our guide to the different types of mortgages
There are two main mortgage types, Interest Only or Capital and Repayment.
An Interest Only mortgage, is where your monthly repayments only pay the interest accrued. Therefore, the original balance will still be payable at the end of the mortgage term. It is important that you have an appropriate repayment vehicle in place, i.e. savings or an endowment that will fully repay your mortgage at the end of the term.
The vast majority of mortgages are taken on a capital repayment basis, where each monthly payment consists of the interest on your debt, plus some of the amount you borrowed. The mortgage is fully paid off by the end of the term subject to making all your payments in full and on time.
The lender charges you interest on what you borrow, and your rate of interest can be fixed or variable dependent on the mortgage product you choose.
If it’s fixed the interest rate is set for an agreed period of time.
A variable rate of interest can go up or down and can include standard variable rates, discounted variable rates, capped rate and tracker rates.
There are various fees applicable when buying a property, for example, solicitor fees, stamp duty, valuation fees, survey fees, moving costs etc. Lenders also offer mortgage products with and without fees.
If you opt for a product with a fee, you can pay this up front or opt to add this to the mortgage, however, you will pay additional interest on this over the full term of the mortgage.
You can find out more about the costs associated with buying a home
Some schemes and mortgages are tailored to first-time buyers.
Most of these try to help overcome the biggest barriers to buying, such as saving up a big enough deposit. They include:
Learn more about choosing the right mortgage for you in our detailed guide to different types of mortgages
Although the order may change, and some things might happen at the same time, the below steps should give you a good overview of what needs to happen when.
Read our step by step guide to buying a house for more detailed information
Buying a property in Scotland has some differences. You make your highest offer for a property in a secret bid and arrange your mortgage in principle and solicitor in advance of this.
Read our step by step guide to buying a house for more detailed information
You may already have a location in mind but, if you’re still deciding, consider the things that matter most to you.
Maybe that’s local transport and how easy it is to commute to work, or perhaps you need access to local schools if you have a young family.
Does the area have the facilities you want, such as shops, restaurants or parks? Is it noisy or quiet?
Visit at different times of day, including rush hour and at weekends, to see what it’s really like.
Your preferred location is likely to impact what type of home you can afford. Researching properties and sold prices will help you understand how far your budget can stretch.
It can also be useful to make a checklist and split it into ‘need to have’ and ‘nice to have’ features. This will help you measure potential properties against your preferences.
When you book a viewing, prepare for it by writing a list of questions in advance.
Ask about all the things that are personally important to you, but remember to consider property specific questions too.
Below are a few viewing tips:
The legal process of transferring property ownership from one person to another is called conveyancing, and you can use a conveyancer or solicitor to do this work for you.
There’s a wide choice from one man bands to large national businesses.
Your estate agent may even have a close relationship with the local solicitor to do conveyancing work (although you are not obliged to use their recommendation).
However, lenders do have lists of approved conveyancers, so you should make sure your lender is happy with whichever solicitor or conveyancer you choose.
The solicitor or conveyancer does all the legal searches that are needed before you buy a property and interprets the results for you.
These include local authority and water authority searches, a coal mining search and the Land Registry search. They also check the title of the property and look at any issues or covenants in the title deeds.
If anything comes up from the searches or the information from the seller, they will raise questions with the seller’s solicitor to get the answers you need before you progress.
They also prepare the contracts for signing by both parties and liaise with the seller’s solicitor to arrange exchange of contracts and completion.
Finally, your solicitor arranges the transfer of money for both the deposit and the balance (the mortgage).
A good solicitor will stay in regular contact with you and make sure you understand what is happening at each stage of the process.
Finding a solicitor can be difficult as there are many good solicitors to choose from, but a word of mouth recommendation from friends and family is valuable, especially if they have bought in the same area recently. You could also ask your estate agent.
Solicitors play an important role in the purchase of your property and while costs can vary, the reassurance of dealing with a solicitor you trust is invaluable.
When you make any big purchase it’s normal to do a bit of research. But unless you are trained to assess properties, it can be hard to spot problems.
That’s why valuations and surveys are so important.
A surveyor can examine a property and tell you if there are any problems and if they’d be expensive to put right.
At the same time your mortgage lender needs to value the property they are lending against. They will insist on a valuation of the property as part of the mortgage deal, which is often paid for by the lender.
This is done on behalf of the lender for their benefit and is usually paid for by them. It will provide the lender (not you) with a valuation of the property for mortgage purposes.
A valuer will usually enter the property and, although they may spot major issues, they will not provide a detailed report of the property.
In practice many people pay for a more detailed survey, such as a HomeBuyer Report or Building Survey. This gives you reassurance about the property you are buying.
You don’t need to take out the valuation via your lender, but they may be able to upgrade you to a HomeBuyer Report or Building survey subject to payment of a fee.
You’re also free to take out a survey in addition and separate to the lender’s valuation with your own choice of surveyor.
The price of your survey will depend on the type of survey you request, the size of the property and also the value.
A survey is more expensive than a valuation but it’s money well spent if it reveals a problem you wouldn’t otherwise have spotted.
This a popular survey with clear but detailed information. You will receive a report back from the surveyor, including a valuation and a rebuild cost for insurance purposes.
It’s useful if you are buying a standard property in a decent condition.
The surveyor will assess the general condition of the property and grounds, and will go into rooms and concealed areas, such as basements, but only if possible without them having to move furniture.
The report uses a traffic-light-style system, which orders any defects from the most serious, red, through amber and green. It might suggest which need to be repaired now and which can wait.
If you are buying an old property, you are planning building work, or you just prefer more detail, a building survey is a good idea.
It costs more than a HomeBuyer Report, but you will get very detailed information about the condition of the property and a full report on its structure.
As well as doing everything in a HomeBuyer Report a building survey will describe the risk of potential or hidden defects.
The surveyor will also suggest the cause of any defects they spot and the work you need to carry out to remedy them, as well as what would happen if you didn’t make the repairs. They might even estimate the cost of any repairs.
Buying a home is expensive, and on top of your monthly mortgage repayments there are many other costs to consider.
It’s important that you budget for these expenses at the start of the process when you are working out your buying budget. Then you can decide how much to put down as a deposit.
Find out more about these costs in our detailed guide, the costs of buying a house
You will need to take buildings insurance as a condition of the mortgage, but you might also want to consider contents cover, life insurance, critical illness cover and income protection. You are not obliged to take these products with the same provider of your mortgage.
Exchanging on a property is when you and the seller exchange contracts, and you pay the deposit. At this point you are almost there.
Completion is when the actual transfer of ownership happens, and the remaining money is paid to the seller by your mortgage lender.
When the legal work is complete, the mortgage offer is in place, the survey has been done and both parties are ready, it’s time to exchange contracts.
At this point you pay the deposit, which you transfer to your solicitor, and they make the payment. It’s non-refundable once you’ve exchanged contracts but it’s extraordinarily rare for anyone to pull out after this stage.
Now you just need to agree the completion date, typically a week later. Lenders will want to see that you have arranged buildings insurance on the new property at the stage of exchanging contracts.
On completion day your solicitor calls you to tell you the transaction is done, and you are now the owner of your home. At this point you can collect the keys from the estate agent and move in.
Here’s five things to remember on moving day:
If you are worried that you won’t be able to pay your mortgage, get in touch with your lender. They will work with you to come up with a repayment plan based on your circumstances.
Find out more
Download our First time buyers guide for more information on buying a house.
You can also find out more about mortgages here
Your home may be repossessed if you do not keep up with repayments on your mortgage
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