Choosing to buy your first property is a huge decision. And there are a number of different factors to think about. It can be easy to get overwhelmed by a long to-do list of things which must get done.
Here are some tips for buying your first property:
Before you even start looking, it’s important to know exactly what you can afford. You’ll need to figure out your budget, and will usually need to speak to a bank or other lender to determine how large, of a mortgage you can afford, and the type of mortgage.
A mortgage is a loan like any other, except it’s solely for a house. In order to be approved for a mortgage, you’ll need to prove that you can afford to pay the repayments each month.
Typically, the bank will only allow your mortgage repayments to be up to a certain percentage of your income each month, and the more you earn, the more you can borrow. The interest rate will depend on the loan-to-borrow (LTV of your mortgage. This shows the percentage you own of the property, and how much the bank owns.
The higher your LTV, (and the less you’ve paid on the property) the higher your interest rates, since this is riskier for your bank. In 2014 the average person who was buying a house for the first time paid a 17% deposit, which worked out to be an average of £29,218.
Remember, the more you borrow, the more interest you will be paying over the years. The higher your deposit (or the cheaper the house) the less interest you will pay, since you can choose to pay it off quicker, instead of the usual 25 years.
When you do your calculations, it’s important to remember to include the mortgage fees, and any other administration fees which you may be charged by your lender. Some may insist that you have mortgage insurance, which would ensure that the mortgage is paid in the event that you re unable to work.
The UK Government has introduced some measures to help first time buyers to afford their own homes. One of them is the Help to Buy Scheme, which makes it easier for new buyers. Some select new-build homes allow buyers to purchase with a small deposit, and a low-interest loan, an excellent way to get their foot on the property ladder.
With just a 5% deposit, a first-home buyer could take a 20% home loan from the government which includes no fees for the first five years, and would equate to a 75% mortgage.
UK buyers can then secure an 80-95% mortgage on older and new-build properties which are priced under £600,000. If you find a house under £500,000 which is new-build, you can also secure it with a 5% deposit using this scheme.
Other things to think about are the stamp duty fees, which are taxes for the purchase of the property. The level depends on the value of the house, and you’ll pay nothing on the first £125,000.
For more first time buyer’s guide to purchasing property refer to the infographic below: