Buying a home is probably one of the most significant purchases you’ll make in your lifetime and it can be a particularly overwhelming process for first time buyers who might not know what to expect.
To help you with navigating solicitors and mortgage advisors, as well as understanding what certain terms mean, we’ve pulled together this First Time Buyer Guide that outlines the process of buying a property from start to finish and answers some frequently asked questions around purchasing a property as a first time buyer.
What is a first time buyer?
‘First time buyer’ is a fairly self-explanatory term used to describe someone who hasn’t previously purchased a property. In the UK, there are a number of initiatives in place to support first time buyers in purchasing their first property (for example, the Help to Buy scheme). First time buyers normally stand in good stead when applying to purchase a property as they won’t have another house/flat to sell before purchase, and therefore will not involve a ‘chain’.
What is the ‘Help to Buy’ scheme?
The ‘Help to Buy’ scheme includes a set of initiatives put in place by the government to support first time buyers in purchasing property. Initiatives include:
• Help to Buy ISA
• Shared ownership
• Equity loan
Is Help to Buy only for first time buyers?
There are a few different initiatives under the ‘Help to Buy’ scheme including equity loans, shared ownership schemes and the ‘Help to Buy’ ISA. Eligibility varies throughout the schemes, for example, the ISA and is only available to first time buyers, but the equity loan is available to first time buyers as well as existing homeowners who are looking to move.
Can I be a first time buyer again in the UK?
Unfortunately, you can only be a first time buyer once in the UK. This means the only time you’ll qualify for any government first time buying initiatives (such as stamp relief duty, or the Help to Buy scheme) will be the first time you purchase a property.
How do first time buyer mortgages work?
A mortgage is a loan specifically taken out to purchase land or property. You’ll normally lay down a deposit and then borrow the rest of the money from a lender. A mortgage usually runs over 25 years (although this can vary) and you’ll pay it back monthly until it’s fully paid off.
Before your mortgage is confirmed, the lender will need to assess your circumstances; looking into things like your salary, outgoings and check your credit history to make sure you’re financially reliable enough to commit to such a long-term loan.
There are other things to consider depending on what type of mortgage you choose. For example, if you opt for a first time buyer mortgage, the government provides an equity loan and you provide your deposit, meaning you’ll need to borrow less from your lender and will therefore have a wider range of mortgage rates to consider. This will completely vary depending on whether you take advantage of any first time buyer initiatives and which mortgage/lender you choose.
What does ‘loan-to-value’ mean?
This is the percentage of your home which is borrowed. For example, if you have a £100,000 mortgage and pay a 5% deposit of £5,000, your loan-to-value would be 95%. This is also referred to as a 95% mortgage.
Can first time buyers get a 95% mortgage?
Yes they can. There are lots of different mortgages on the market, many of which are 95%. 95% mortgages are well-suited to first time buyers as they require the minimum deposit possible. However, the smaller your deposit, the more limitations on mortgages accessible to you.
How much is a deposit for first time buyers?
The minimum deposit amount for first time buyers is 5% of the value of your property. For example, if you’re looking at a £180,000 property, a 5% deposit would be £9,000. This obviously varies depending on the value of your property.
However, many first time buyers save for a bit longer to increase their deposit, get a better rate and increase the amount of mortgages available to them. According to UK finance data (Dec 2019), the average first time buyer loan size was £174, 275. This is with a loan-to-value of 77% and therefore a deposit of £40,020. The average age of first time buyer was 32.
What is stamp duty?
Stamp Duty Land Tax (SDLT) is a type of UK tax you’ll need to pay if you purchase a property over a certain amount in the UK. The rules vary in different UK countries so you should take a look at the government’s website for official details.
Do first time buyers pay stamp duty?
This depends on the value of your property.
• Property costs less than £300,000 – No stamp duty
• Property costs between £300,000 and £500,000 – Stamp duty paid on value between £300,000 and £500,000.
• Property costs over £500,000 – Full stamp duty to be paid
First time buyer jargon buster
One of the most frustrating things about buying your first home is trying to wade through a sea of legal jargon. To help you out, we’ve outlined the meanings of some of the words you might hear when going through the process to buy your first home:
Agreement in Principle
An Agreement in Principle (AIP), sometimes referred to as a Decision in Principle (DIP) is a document provided by your bank or building society that confirms how much they would be willing to lend you for a mortgage. This amount will be based on credit searches, as well as financial information that you provide, such as your income and outgoings. You’ll need to speak to your bank, building society or mortgage advisor to arrange to get an Agreement in Principle. It’s also a good idea to have this before putting an offer in on a property, as some sellers won’t accept an offer offer (or even let you view a property) without one.
This is the term given to the legal work that will be carried out by your solicitor (sometimes called a ‘conveyancer’). This will usually include negotiating the contract, conducting local searches, registering your property with the land registry and transferring funds.
Once your offer’s been accepted on a property and solicitors have been instructed, your solicitor will receive a copy of the draft contract from the seller, which they will then send to you. Your solicitor will check the contract and negotiate the terms of the draft contract on your behalf. The contract outlines the following:
• The buyer and sellers details
• The agreed purchase price
• Which specific fittings are included in the price (e.g. light fittings, curtain tracks)
• Details of the seller’s title deeds
This is when signed contracts for the property are formally exchanged between the buyer’s and seller’s solicitors, and this is the final date that either party can pull out of the agreement. Upon exchange of contracts you will usually be expected to provide at least a 5% deposit payment, which you pay to your solicitor who then transfers the funds on your behalf. The rest is paid upon completion, which is when all money has changed hands and you formally own the property.
‘Freehold’ refers to the ownership of an entire property, whether it be a house, commercial property or block of flats. Essentially, if you are the freeholder of a block of flats then you own the entirety of the building, including all of the flats, and therefore you are responsible for arranging suitable insurance. If you own a single flat in the block, then you are likely to be a ‘leaseholder’.
A ‘lease’ is essentially a long-term rental agreement – a contract that allows a person to ‘lease’ a property from someone else for a certain amount of time. Lease agreements are usually over 99 years in length (but your solicitor will advise you on this), so if you decide to sell your flat you will be selling the lease, rather than the flat itself.
You can arrange for a survey to be carried out at your property before purchase, and this is separate to the local searches. A homebuyer’s survey will involve a detailed inspection of the property’s condition, just so that you can get a bit of an idea of how much you might have to pay in repairs further down the road.
The search is a mandatory part of the home buying process, as it is usually required by your mortgage provider before they’ll release the funds. The local authority searches will be arranged by your solicitor, and will include detailed information about any restrictions relating to the land or property, such as whether it’s listed, in a conservation area or subject to any tree protection orders. It’s also important to have a search as the information it brings up might give you an opportunity to renegotiate the purchase amount.
A ‘title deed’ is a legal document that proves you have legal ownership of specific property or land. Your solicitor will arrange to have the title deed transferred to your name upon completion.
How to become a first time buyer
Becoming a homeowner is a big step in anyone’s life. But how do you get the ball rolling if you’ve never done it before? Where do you start? What needs to be done? Let’s find out!
The 10 stages of buying a property
Now that you’re clear on the jargon, these are the 10 stages you’ll go through when buying your first home:
1. Save, save, save
Becoming a homeowner for the first time is incredibly exciting, but it’s also incredibly expensive. As house prices rise and mortgage providers become less willing to lend, it means that first time buyers are having to come up with larger deposits to get onto the property ladder.
At the moment (although this changes all the time), most banks will offer up to four and a half times your salary for a mortgage. Any shortfall between this amount and the purchase price will need to be provided by you in the form of a deposit, with the usual minimum deposit amount being 5% as we mentioned above.
Before you start looking around properties, have a preliminary conversation with your bank, building society or mortgage advisor to get an understanding of how much you might be able to borrow, and how much you could potentially save to bolster this amount. Create a budget and stick to it - the more you save, the more you’ll be able to spend on a new house or flat.
2. Get an Agreement in Principle (AIP)
How much you can borrow for a mortgage will depend upon a number of variables, such as how much you earn, or your credit history. Each mortgage lender has a different approach to mortgage underwriting, which means there is no way to guarantee that you will be offered a mortgage.
To get an Agreement in Principle (sometimes referred to as a Decision in Principle), your mortgage provider will perform a credit check, as well as assessing other financial information about you so that they can understand how much of a financial risk you pose. If you pass their initial lending criteria, the lender will normally supply you with a certificate or letter confirming how much you could potentially borrow. You can show this document to an estate agent as proof that you have passed the lenders initial checks.
Although it’s not necessarily a requirement to have an AIP before putting in an offer, it’s a good idea to do this first to make sure you can borrow enough to afford the property. Equally, some seller’s won’t accept an offer from you until you have an AIP, so it’s better to have one to be safe. It’s worth bearing in mind that it can sometimes take a while to get an appointment with your bank, so book a mortgage appointment with them to arrange this as soon as you can to avoid disappointment when you’re ready to put in an offer on a property.
3. Find somewhere you love
Honestly, unless you hit the jackpot with a property on the first go, constant house viewings can become a bit soul destroying. Remember that you will find the perfect home eventually, and don’t settle for anything less out of fear that you won’t find somewhere. New properties come on the market all the time!
But when you’re going on house viewings, there are a few things that you may like to ask the estate agent before putting in an offer:
What’s the parking situation? Does it have a drive, or is it permit parking only? How much does parking cost?
Is it gas or electric heating? If it has a boiler, have they had any problems with it?
Length of time on the market
How long has the property been on the market? Has anyone else made an offer? If so, how much for? This will give you an idea of how much under the asking price you can go when putting in an offer. If the property’s been on the market for a long time and the sellers are desperate to move, then they’ll probably be keen to offload it, even if it’s for under the asking price.
Is the property currently owner occupied or rented? Generally, owner occupied properties tend to be in a slightly better state of repair than rented properties as they have much lower turnover, so it’s worth bearing this in mind.
Is it a listed building? Is there anything non-standard about it that might make it difficult to get home insurance? Don’t worry too much about any geographical issues, as this will be pulled up in the searches after you’ve put in an offer. If there are any massive issues with the property, your solicitor should advise you on the best course of action. However, you don’t really want to be paying for searches on multiple properties because a sale has fallen through, so it’s always worth asking.
Have there been any large insurance claims or renovation works in the past 5 years?
Which council tax band does the property sit in, and how much are you likely to have to pay?
When was it built? If it’s a new build property, does it have a builders warranty should things go wrong?
What’s the ownership of the building? Is it leasehold, freehold or part ownership of the freehold?
If you’re looking to purchase a flat, how are the other flats occupied? Are they owner occupied or rented to tenants?
What are the service charges and ground rent? This will be outlined in your lease agreement, and your solicitor should advise you on the ins and outs of what you’ll need to pay. Double check how often the freeholder will be entitled to increase these fees, as they might bump it up on an annual basis. However, more often than not these charges will be fixed for a certain number of years.
How long is the lease? Your solicitor will be able to advise you, but as a general rule of thumb anything less than 99 years left on the lease might make it harder to sell the property when you want to move in the future. You may even need to pay extra to extend the lease when you start looking to sell it to make it more desirable to prospective buyer, so it’s worth asking the estate agent before putting in an offer.
There are also a few maintenance-related things you should be keeping an eye out for when looking around properties, as you don’t want to end up spending lots of money on repairs just after you’ve bought it. Inspect every nook and cranny for any potential maintenance issues and check the following as you’re looking around:
• Are there any funny smells that could indicate a problem?
• Can you spot any mould or damp on the ceilings, particularly in the bathroom or kitchen?
• What material are the windows? UPVC is usually the standard for new builds as they keep more heat in, which ultimately will make it cheaper to heat your home.
• Is there plenty of ventilation to prevent any future issues with damp?
• If it has a garden, is it north or south facing? This will tell you how much sun you’ll get at different points in the day, which will come in handy when you want to hang out your washing (or catch some rays!).
• If you’re buying a house, how sturdy are the drains and guttering?
4. Put in an offer
Once you’ve found a property you love and have your Agreement in Principle, you’ll probably want to call the estate agent as soon as possible to put in an offer.
From speaking to the estate agent at the viewing, you should already have an idea of whether the seller would be willing to take an offer under the asking price – if they’ve rejected lower offers recently, then you might want to go in above this price to avoid disappointment. You could even check sites such as Zoopla to get an idea of what the owner paid for it and when – this will give you an indication of how good an investment you’re making, and how much they might be willing to accept for it.
Once you’ve made your offer to the estate agent, they’ll propose it to the seller who will either accept or reject the offer. Once an offer’s been accepted, this is when you can kick off the process of legally purchasing the property.
Bear in mind that either party can pull out of the sale at any time up to the exchange of contracts, even if you’ve had an offer accepted - so it’s usually a good idea to hold off spending too much money on new fittings and furnishings until you’ve exchanged.
5. Instruct your solicitor
Once your offer has been accepted on a property, you’ll probably want to instruct a solicitor to carry out the conveyancing work for you. You can either appoint a solicitor, property lawyer, or licensed conveyancer to complete this work. Once you’ve appointed a solicitor, they will complete all of the required legal work and prepare the sale documents. This will usually include negotiating the terms of the contract, performing local authority searches and arranging the transfer of the title deed. They will also act as the middle man for any money that will go towards the sale of the property, including your deposit and the money from the mortgage, which they then transfer to the seller’s solicitors.
As soon as they have everything they need in relation to the purchase, they will send you a contract to sign, along with any relevant paperwork. You must read through all the documents and make sure you’re happy with what they say. Your solicitor will then send you a mortgage deed to sign and make the contract formal.
6. Apply for your mortgage
Once you’ve put in an offer and instructed your solicitor, you’ll also need to apply for your mortgage. This will usually be with the same bank that provided your agreement in principle.
It’s sometimes a good idea to consider using a qualified mortgage advisor, as it could save you a lot of time and money in the long run. If you’ve already hired a mortgage advisor, then let them know that you’ve had an offer accepted on a property, and to get the mortgage application underway.
If you’re dealing with your bank directly and already have your AIP, you’ll usually be able to apply for your mortgage online or book an appointment with one of their consultants.
Once you’ve applied for the mortgage, you’ll need to wait for their firm mortgage offer to come through. It can take a while for this offer to arrive, so it’s worth making sure you apply for your mortgage as soon as possible after having your offer accepted.
7. Wait around for a while
Once your solicitor has received the draft contracts, they can then apply for the local authority searches. This is usually a requirement for the mortgage before you can proceed to exchange stage, but you’ll also want to have more of an understanding of the local area and any potential issues you might face before signing any formal contracts. Similarly with the mortgage, it can usually take a few weeks for these searches to come back, so unfortunately there will be a bit of waiting around for you to do! As long as you’ve done everything you need to do, then it’s just a bit of a waiting game.
8. Arrange to pay your deposit
Once the local authority searches have been returned (or even beforehand), this is a good time to make sure you’re in the position to transfer the deposit money when you’re asked for it.
You’ll usually need to put down a minimum 5% deposit at exchange of contracts, and the rest of the funds will be transferred to the seller’s solicitor on the set completion date.
If you have any money tied up in ISAs or savings account, or you’ve taken part in any government Help To Buy schemes, then you’ll need to speak to your bank to understand how to access these additional funds. Make sure all of the money you need is ready and available for when your solicitor asks you to pay the deposit.
9. Exchange contracts
Your solicitor will send you a copy of the final contracts, which you will need to read through thoroughly before signing and returning them. Once you have signed the final contract, your solicitor will speak to the seller’s solicitor to arrange the exchange of contracts, and to set a completion date.
As above, the seller will expect a minimum 5% deposit at exchange, but you should make sure the rest of the money is available upon completion. Your solicitor will advise you on how much you need to pay and when, and what account it needs to be paid into.
Once the money has been sent and the contract signed, then you’re ready to exchange contracts. How many days you have to wait between exchange and completion will usually be dependent on how quickly your mortgage provider can arrange the transfer of the mortgage funds – this might even be on the same day as exchange if you’re lucky. But in most instances, there will be about a week gap between exchange of contracts and completion.
10. Pick up the keys
On the set date of completion, your solicitor will call you to confirm that you’re happy to complete, and your seller’s solicitor will do the same on their end. Once both the buyer and seller have confirmed, then the sale of the property is complete and you can arrange with the estate agent to pick up the keys to your new home!
However, there are a few additional things you’ll need to sort out as soon as you’ve completed, including the following:
• Arrange to pay council tax, and investigate whether you’re eligible for any discounts, such as a ‘single persons’ discount.
• If you need one, apply for your parking permit.
• If there are any service charges or ground rents applied to your new property, arrange to set up direct debits for the monthly payments.
• Set up direct debits for your utilities, such as gas, water and electricity – if you’re unsure, speak to the estate agent to understand how to arrange this.
• Think about arranging your broadband, as this can take a few days to sort out and you won’t want to be without internet for too long.
• You’ll also need to start thinking about insurance for your belongings – but we’ve covered off some more information about this below.
5 top tips for first time buyers
Now that you’re clued up on the home buying process, here are some tips that might come in handy when buying your first home:
1. Know what you’re looking for
Before you start looking at properties, understand what you can afford and only look at properties within your budget – you don’t want to find your dream house, only to realise that it’s outside of your price range!
Think about those little details that will affect your quality of life while living at the property, such as whether it has a parking space or a garden. Consider how big your new home needs to be - if it’s just you, then a one bed or studio flat might be sufficient.
When searching for properties, use property websites as well as speaking to multiple local estate agents to make sure you’re getting visibility of every property within your price range.
2. Have a look into ‘Help to Buy’ schemes
As mentioned, it’s becoming increasingly difficult to get on the property ladder, which is why the government have set up various ‘Help to Buy’ schemes to support first time buyers financially when purchasing their first home. Most banks will have some sort of ‘Help to Buy’ scheme in place, but they all work slightly differently. It’s important to understand the terms and conditions of your specific scheme to get an idea of how much government funding you might be eligible for when you purchase a property.
If you’ve taken advantage of any government schemes, you’ll need to let your solicitor know straight away - they’ll need specific documentation from your bank to apply for the government funds when you’re ready to complete.
3. Understand the different types of property ownership
If you’re looking around a mixture of flats and house, it’s important to understand how ownership of the property works before putting in an offer. If you’re purchasing a flat, they will usually either be leasehold or part-ownership of the freehold, which can have their own challenges attached. Don’t worry about it too much though – your solicitor will check through the details of your contract with a fine tooth comb before asking you to sign anything.
4. Chase everybody. Constantly.
Solicitors, helpful as they are, also work to their own timescale. If you want to get your property sale moving, it’s a good idea to call and email them regularly for updates. It’s also useful to find out when the searches are due back so that you can pin them down for an exchange date as soon as possible. If the seller’s solicitors are slowing things up, then don’t be afraid to chase them up at the same time!
5. Think about home insurance
If you’re buying a house, then it’s important to understand when it will become your responsibility to arrange buildings insurance, as it can sometimes be a bit of a grey area as to whether you’ll be required to insure the premises from exchange of contracts or from completion. It might even be a requirement for your mortgage to have suitable buildings insurance in place, so contact your solicitor to find out exactly when you’ll need to arrange this. As well having suitable buildings insurance in place, you’ll also want to think about contents insurance for any belongings that you'll be keeping at the property on a permanent basis, such as your furniture and clothing. If you have any expensive gadgets that you plan on taking out and about with you, then you might want to consider specialist gadget insurance, as this may not be covered under your home insurance.
If you’re purchasing a flat, while you may not be responsible for insuring the building you might still want to think about arranging contents insurance for your belongings and gadgets from the date that you move in.
If you have a car, then you’ll also need to contact your car insurance provider to notify them of the change in address. Bear in mind that there may be an additional premium for this, as a lot of insurers will rate insurance premiums based on the postcode where the car is stored overnight.