Avoiding the Pitfalls as a First Time Buyer
Buying a property is the single biggest purchase you will ever make and it certainly pays not to rush as this will save you time and money in the long run - especially if you have been ill prepared or bought the wrong property on an emotional whim! The average cost of a first property is £185,000 and spending this amount of money and committing yourself to a mortgage demands plenty of thought and good planning.
Assess Your Budget
It is pointless looking at property until you know whether you can afford to get onto the first rung of the property ladder. Leaving the deposit money to one side, there are many bills to consider, both for buying the house and living in it afterwards. Here is a useful tick list to help you decide what your property budget will be:
- Do you know exactly what your monthly living expenses are and how much money you could pay on a mortgage each month from your net salary?
- Are your figures realistic or are they over-ambitious?
- Have you built in some wiggle room or 'rainy day' money in case your car breaks down or you have large family commitments such as weddings to attend?
- Have you added in all the extra costs of buying a property such as legal fees, survey costs and conveyancing charges plus removals?
- Have you allocated money for annual bills such as house insurance council tax and utility bills? These can add up to an astonishing extra £5,500- £8,500 each year.
- Do you need to buy furniture? You will also need money for some furniture (thank heavens for eBay, Freecycle and charity furniture stores!
Know Your Limit
It is far better to be conservative in the amount that you feel you can afford otherwise you may find yourself in the difficult situation of not being able to afford you mortgage repayments. The average portion of monthly salary that is spent on a mortgage is 28%. If your parents or another family member is helping you with your deposit money, get them to write a formal open letter stating where the money has come from and that it is a gift as money lenders have tight regulations these days and do need to be confident that you will not be asked for the money back at any stage!
House buying for the first time can be daunting but luckily there is plenty of good advice available on line. Santander are holding a number of events across the UK aimed at first time buyers that explain the process involved and all the jargon used. Needless to say, these presentations have been well received.
* At this early stage, before you start applying for mortgages, it is well worth checking that you are on the Electoral Register as it is something you will be asked when making a mortgage application and is an unnecessary time delay. To apply go online to www.gov.uk.
Decide What Type of Property and Where
It is very easy to be swept away on a tide of emotion when choosing your first home but it is a mistake to buy a property in the wrong location that will cost you dearly in time and money just to commute to work. In reality, it is very unlikely that your first property will be your perfect home and there will be an element of compromise – but not on the basic essentials you need from the property. Spend time thinking about the type of property you would like to buy:
- Are the transport services good? Where is the nearest railway station and bus stop?
- Is there a good road network with access to main roads and motorways?
- Can you get to an international airport easily?
- Are there shops and sports facilities within easy reach?
- Have you looked at the property prices in this area? Are they in your budget?
- What type of property appeals?
- Will you have the time for decoration and/or renovation if you find a suitable property with a cheaper price tag?
- Is off road parking or an outside area either garden or balcony important to you?
If you are buying a family home, there will be many more aspects to research including schools, children's activities and medical facilities. It is well worth noting that mortgage lenders hold a list of solicitors that can help with your property purchase and using one of them could save time and money.
Understand the Jargon
Before you begin looking at properties, familiarise yourself with some of the different terms used. The main ones will be 'freehold' – when you own the property and the land it stands on. 'Leasehold' usually applies to flats and it means that the land is owned by a freeholder and you will be contributing to the cost of renting the land that the flats stand on (known as ground rent). The number of years that the lease agreement is for is clearly stated on the lease. If there are only limited years to run on the agreement, you may not be able to secure a mortgage.
Being a leaseholder does incur extra charges too. As well as the annual charge for ground rent you may well have to pay an annual fee that covers such things as the cleaning of the communal hallways and stairs. Do check these charges as they can be unrealistically high.
Mortgages Can Be Difficult for Some Properties
Surprisingly, getting a mortgage on a new build property can sometimes be difficult because their place in the local market has not been secured and mortgage lenders could be concerned that their value will drop in the first few years after competition. Some lenders are also reluctant if the property is situated above shops or commercial businesses.
Check out the Government Incentives
The Government's Help to Buy scheme helps first time buyers get on the property ladder with just a 5% deposit. There are certain qualifying conditions etc. but all the facts are available on https://www.moneyadviceservice.org.uk/en/articles/help-to-buy-scheme-everything-you-need-to-know.
Secure a Suitable Mortgage
There is no point in viewing any properties until you have a good mortgage promise in your hand. Once you have secured your mortgage promise you can certainly start viewing properties, knowing that if you find one that you like you will be able to act fast to complete your mortgage application. Before approaching your bank, building society or a mortgage lender, you must check your credit score as this will be assessed by lenders. If you have a poor credit score, your application could be turned down.
An Agreement in Principle or Mortgage Promise is a certificate that is provided by the mortgage lender and is valid for 30-90 days, but is not an official mortgage offer. The certificate clearly defines your budget and is viewed by estate agents as a reassurance that you can afford the particular properties you are planning to view.
It is important to realise that it does take time for a mortgage – 18 - 40 days is the normal time frame so it is well worth starting your mortgage application before you start viewing properties so that there will not be a great rush if you find a suitable property and want to place an offer.
Don't Rely on One Lender
It is well worth shopping around to secure a good mortgage and the ones offering a fixed rate (which range from 1.4% upwards – the average is 2.4%) are particularly attractive. As well as checking with banks and building societies there are specialist mortgage brokers that can help too. These companies have the advantage of having access to all the different mortgages available on the market. Interestingly, 70% of first time buyers use a mortgage broker, whilst the other 30% secure mortgages through their bank or building society.
Check out Your Chosen Property Carefully
Like many first time buyers, you will probably be searching for your ideal property online in the first instance. It is well worth popping into your local estate agent and drawing on their personal knowledge of the area to help in your decision making. They will be able to s tell you about any proposed plans that could affect your chosen area such as new roads, housing developments etc.
When you have found a suitable property, do spend the money on having a full survey done. The thought of spending about £2,000 could make you wince, but it is money well spent as it will reveal any problems with the structure of the property and such aspects as drains and electrical wiring. Unfortunately, it is not possible to have this survey completed on a flat, but it is possible to commission a 'middle ground house buyers' report' which will highlight any serious problems in the block.
If you are happy with the results shown in this report, then it is 'full steam' ahead to complete the purchase of your first new home, happy in the knowledge that you have done so successfully avoiding all the pitfalls.
With thanks to Chris Stevens for this article.
Posted on in Buying