It doesn’t matter whether someone’s a property expert like Phil Spencer from TV show Location, Location, Location or just starting out, buying a home demands a large amount of preparation and planning.
Why? Because unless a first-time buyer is a recent lottery winner or has inherited a wedge of cash, it’s time to get a mortgage.
For first time buyers this means saving up a deposit, sorting out their credit rating, bank account and credit cards. This is our step-by-step walk through the process.
Start saving
It’s standard for a buyer to save up a 10% deposit of a property’s value to get a mortgage, plus a fighting fund to pay the costs of buying, which are likely to be a few thousand pounds.
This ‘fighting fund’ is to pay costs such as the mortgage arrangement fee, legal and conveyancing fees, a Homebuyer survey (although this is optional), removals bill, Stamp Duty (most first-time buyers are exempt at the moment) and to buy new furniture or white goods.
It’s also a good idea to have a dedicated saving account to squirrel away any spare cash.
Read our full guide to saving up a deposit.
Even better, the government offers first time buyers an ISA, the interest from which is tax free, and into which the government contributes cash too.
Case study: How much should someone save up?
Here’s an example of how much a first-time buyer may need to save up if they’re purchasing a property for sale at £234,000, the average house price in the UK according to official figures.
Price: £234,000
10% deposit: £23,400
Average mortgage set-up fee: £1,000
Removals cost: £500
New furniture/white goods/moving in costs: £1,000
Stamp Duty: N/A
Legal/conveyancing costs: £800
Survey costs: £400
Total: £27,100
Check the score
Anyone’s attempt to get on the property ladder will be short lived if their credit rating is so bad that lenders won’t touch them or will only approve a loan with a high interest rate. This is why first-time buyers need to check their credit score as early as possible and, if their score is not high enough, do something to improve it.
Read our guide to improving your credit score.
One key way tenants can improve their credit score is to add the rent to their payments history, something CreditLadder has helped thousands of tenants do.
Pimp the bank account
When someone applies for a mortgage in earnest, the lender will ask to see up to three months’ worth of bank statements to gauge how well the applicant manages their finances.
They also look at recent spending. For at least six months and arguably longer it’s essential to keep a current account both in credit and keep incomings and outgoings ‘regular’.
Cut the spend
When mortgage lenders assess a borrower, they are required to look at three types of spending, namely committed, personal and contingency. ‘Committed’ are regular bills such as tax, National Insurance, council tax and debt repayments.
The second is what people spend their disposable income on such as entertainment, food, travel and gadgets, while the third is how much lenders think someone might have to spend on one-off payments such as a big service for their car, for example.
What does this mean? The best answer is to spend less on those little luxuries for approximately six months before applying for a mortgage such as delivery pizzas, restaurants, big nights out or that must-have but don’t need pair of trainers.
This proves to lenders that someone can budget if necessary and are good at managing their money. A good idea if they’re going to lend them several hundred thousand pounds.
Ditch credit card debt
When applying for a mortgage, many lenders will ask how many credit cards the applicant has and how much he or she owes them. It’s fine to have a couple of cards with modest balances showing but avoid maxing out the plastic in the months prior to buying a first home.
Pay bills on time
The biggest no-no for mortgage lenders is people who pay their bills late including mobile phone, gas, electricity and water. The utility companies often share this information and it’s one of the most common reasons why some people are refused a mortgage.
Get an ‘agreement in principle’
It’s hard for someone to sort out their finances if they don’t know how much they may want to borrow. It’s time to search for a property, nail down what’s affordable and then get a ‘mortgage agreement in principle’ offer from a lender.
To do that first-time buyers need to work out how much they’ve saved up; the price of the property they would like to buy; their weekly outgoings; and details of their salaries and other income. Once this has been completed online, the size and cost per month of getting a mortgage will be revealed.
This isn’t a full mortgage offer, but a good way to get a feel for how much the monthly mortgage payments will be.
To find out how we can help you get a mortgage, email us, particularly if you've already reported your rent payments through CreditLadder over the past 3 months.
CreditLadder can help you improve your credit score
If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.
CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.
Remember the information provided in this article is for information purposes only and should not be considered as advice.
