Getting a first footfall onto the property ladder is never an easy thing, in fact it is now harder than ever as thousands of potential buyers have found themselves squeezed out of the mortgage market by the controversial ‘affordability tests’, which were introduced a year ago by regulator the Financial Conduct Authority (FCA).
Alex Gosling, from online estate agent HouseSimple, tells us, “Lots of first-time buyers who thought it was tough enough saving up a decent deposit got a shock when they realised how detailed the mortgage application process had become”. Så, what does that actually mean for first time buyers and is there any steps you can take now that will make the process easier for you in the future?
If you aren’t currently in the process of applying for your first mortgage, or if the thought of buying your first property hasn’t even entered your head, it is absolutely essential to start thinking about it sooner rather than later so as to lessen the load when the time does come round. Fortunately for you, we have compiled a list of our top tips for helping you take that first step into the world of property and to hopefully make the process as easy as it ever possible can be.
It seems obvious, but by just putting a little bit of money aside each month into a designated savings account you will ease the pressure of paying for a deposit when you find your first house. To get the best mortgage rates, many lenders will insist upon a 40% deposit and there are very few first time buyers that will have access to this kind of money. Imidlertid, the absolute minimum deposit that lenders will accept is 5% of the property value and even this can be a struggle to save for. If you have managed to save some money, when it comes to buying your first house you will find that there are a lot more options available to you. It’s simple: the more you can afford to put down on a deposit, the wider your choice of mortgage and, best of all, the cheaper they will be. Husk, also, the other financial factors of buying a house:
- If the house you are buying is worth more than £125,000 you will have to pay stamp duty on it.
- Some mortgages have an arrangement fee attached to them, which can cost approximately £1,000
- Removal fees.
- Legal bills.
Sort your finances
Lenders ultimately want to know and trust that you are capable of paying them back. If you can show proof of income along with a clean credit history it is going to work in your favour. If you are worried about any past credit problems, or perhaps you haven’t even built up a credit history yet it is worth contacting a credit reference agency, såsom Experian, to find out what your current credit score is and what you can do to improve it. The Citizens Advice Bureau also have information on their website, AdviceGuide.org.uk, about what lenders will be looking for on your credit file and as the famous quote states, 'viden er magt'.
The more research you do into the different mortgages available to you, the clearer it will start to become. There will be a lot of new terms thrown at you when you are a first time buyer, so the more you read up on it the more you will understand and consequently will be more likely to find the best option for you. You must also remember that you are the customer and although some lenders are not so keen to lend to first time buyers, most will be literally chomping at the bit to get your custom. With this being the case, it is within your best interests to shop around and make use of the various mortgage calculators og comparison sites available online.
Take on the Affordability Challenge
The new affordability tests that came into force last April mean that lenders must follow even stricter guidelines when it comes to working out whether a borrower can afford their mortgage repayments at both the current rate of interest as well as if it were to rise up to 6-7%. What this means for first time buyers is that you need to get clever! Lenders will judge your financial status on various factors, one of which is the state of your bank account. Så, here is where you can ‘play the system’. Take a look through the past six months worth of bank statements and assess your lifestyle. Are there lots of payments made out to restaurants? Have you spent a little bit too much on clothes? Then ask yourself, which of these purchases you could manage without for the next few months and set about making your statements a bit more mortgage lender friendly. If lenders can see that you have money to spare each month they will be a lot more confident that you will be able to afford your mortgage repayments. Once you have done this, take a look back again at your statements and when they look a lot healthier, only then should you approach a lender.
Det Government have acknowledged that it isn’t always easy for first time buyers to get an affordable mortgage, which is why they have launched their Help to Buy ordning. This scheme acts as an insurance policy to mortgage lenders in that if you are able to put 5% of the property’s value down as a deposit, the Government will insure the next 15%. This basically opens up a lot more options to the buyer as the lender can then offer mortgages at 95 LTV (loan-to-value). Another option is to share the mortgage with someone else; a joint tenancy. As long as you both have good credit scores, a good deposit and good incomes this can sometimes be a good option. The most important thing to remember if you decide to apply for joint tenancy is to think about what might happen if one of you wants to sell at a later date and it is certainly one of the questions the lender will ask you.
Buying your first house isn’t impossible, but it is certainly challenging and hopefully this article has provided you with plenty of food for thought and will set you on your way to your first steps on the property ladder. Good luck!