With so much negativity surrounding the topic of first-time buyers getting a foot on the property ladder, we want to share our steps to help make the process less daunting.
At a time of higher interest rates, the first-time buyer market remains slow. For many thinking about purchasing their first home, they quickly squash the idea believing it is unaffordable for them without actually checking what lenders would be willing to offer them in terms of a mortgage. Conversely, many will get excited about the property of their dreams, however have no idea if it is within budget.
To avoid this uncertainty, the first step is checking what is affordable to you and your circumstances. Having a decision in principle in place with a lender will determine what level of borrowing you can achieve. This will then give you confidence knowing how much you can borrow, allowing you to make an offer as soon as the right property comes along.
Before going through the process of having a decision in principle submitted, you should ensure you are in the best position possible to maximise your affordability and attractiveness to a lender. Below are some simple steps to help get you started:
Credit Report
Lenders want to see a steady credit report showing good financial discipline as well as a good repayment history. Key points to look out for on your credit report when looking to get on the property ladder are:
- NO missed payments – make sure you always pay your bills on time
- Tidy up your finances – close old and inactive accounts
- Register to vote – Ensure you are registered to vote at your current address
- Manage available credit – Lenders look less favourably on those maximising their credit cards and relying on their overdraft each month. If you have debts, lenders prefer they make up less than half of your available credit. Therefore, it is important not to maximise credit cards or take out lots of unnecessary borrowing.
TIP: Many lenders include buy now pay later debts such as Klarna, PayPal, Clearpay etc – so be careful not to rack up too many of these!
We would always advise to check your credit report when you are considering applying for a mortgage. This will highlight any problems and allow you to try and correct any issues. You can then work to improve your score further before applying for a decision in principle. Your credit score will not improve over night so it is important to do what you can to improve your credit score as early as possible in your property search.
Size of deposit
When applying for a mortgage, the bigger the deposit the lower risk you pose to the lender. This means the more you can contribute as a deposit, your chances of a better mortgage deal will improve.
However, we know saving for a deposit can be an issue for many who struggle to find additional disposable income each month to lock away in savings for their mortgage deposit.
If you are in the position where you are struggling to save, there are other ways to help get onto the property ladder:
- Many lenders now accept as little as a 5% deposit on your home
- If you have family supporting you, gifted deposits are also accepted to help boost your contribution towards the new purchase.
- Track Record mortgage: Up to 100% loan to value (i.e. NO DEPOSIT) mortgages are available to current renters who can demonstrate a track record of affordability of all monthly rent for at least 12 months. This type of mortgage can be great for those who do not have the ability to raise a deposit (5% or less) but have the income to support their living expenses.
- Government schemes: There are currently very limited options available, however is always worthwhile keeping an eye out for any available schemes.
TIP: In addition to the mortgage deposit there are other expenses you need to consider having the funds for upfront when applying for a mortgage. The main fees that are likely to apply are:
- Stamp Duty/ Land Tax
- Legal fees & Land Registry Fee
- Moving costs
- Furnishings
Essential ongoing expenses that are required in addition to your monthly mortgage cost should also be considered as part of your affordability and include:
- Protection
- Home Insurance
- Council Tax
Utilities
- Maintenance & Repair
It is important to ensure you consider these costs in addition to just the mortgage or you could leave yourself in a position where you cannot afford the move and/or day to day life.
What can you do now to help improve your chances of obtaining a mortgage?
It is worth tightening your spending initially. This could be as simple as not buying a coffee from your local shop every morning, skipping a takeout every week or walking/ using public transport instead of a taxi. On the larger scale this can be not booking that summer holiday, to not committing to a large car payment each month and going for a cheaper alternative.
The best way to review your outgoings is to go through your bank statement and highlight the essential outgoings required as well as the additional expenditure each month. You will quickly be able to spot trends in your spending that you could look to cut down on, prioritising what is most important to you.
Not only will this help towards savings towards a deposit but will adjust your outgoings in preparation for your next step of owning your first home.
– Lifetime ISA: This is great if you are saving up a deposit for your first home. You can contribute up to £4,000 each tax year and the Government will add 25% to your contribution. This means if you put in the maximum amount each year, the government will add £1,000 to your account for FREE. The account must be open for at least one year before you purchase your first home and there are penalties for withdrawing monies for any reason other than your first home/ retirement so make sure this suits you before contributing. *Other restrictions apply
– Set a realistic target. Work out what you can afford to save each month and transfer this directly into your savings account or LISA on payday so you are not tempted to spend it.
If you buckle down and follow these steps, you could be well on your way to purchasing your first home. At IFAC, we are here to support you throughout every step of the mortgage journey. We are there for the first stages and throughout your mortgage lifetime. Should you have any questions on any of the topics discussed or want to get started on your house buying process, please get in touch.
