Buying a home for the first time in the UK

Last updated: April 2024 | 4 min read

Planning to buy your first home can be exciting, but the current soaring living costs and house prices might dampen your spirits. Learn how to make your house-buying journey smooth and productive. Here, we tell you about the types of government aid accessible to first-time buyers, mortgage types, bidding and making an offer successfully, and how to find a good estate agent and your ideal house.

Find in-depth understanding of the conveyancing process and learn about the steps of buying a house as you begin your home ownership journey.

The housing market offers attractive opportunities for first-time homebuyers, but there are advantages and disadvantages that come with owning your own house.

Pros and cons of homeownership

Knowing both the advantages and drawbacks of owning a property can inform your decision. Buying a home requires a significant financial undertaking. That is a key consideration when deciding whether to rent or buy your home.

Pros

  • Building equity over time: as you pay off your home loan, you steadily accumulate ownership.

  • Potential for appreciation: historically, property values tend to rise, making property a solid investment for the long term.

  • Tax benefits: in the UK, there are specific tax reliefs for first-time homeowners.

Cons

  • Maintenance costs: unlike renting, homeowners are responsible for repairs and upkeep. These can be expensive without adding value.

  • Upfront costs: down payments, home inspection fees, and other initial charges can be steep.

  • Long-term commitment: selling a house involves more steps and can take longer than ending a tenancy agreement.

  • Ongoing costs: Monthly mortgage payments, property taxes, and unexpected repairs can strain your personal finances.

Before jumping into the real estate market, consider how ready you are for this long-term financial and emotional commitment.

How will you pay for the deposit?

One of the first challenges in the home buying process is accumulating a deposit or down payment.

Savings

Typically, you should set aside at least 10% to 20% of the purchase price.

Opening a dedicated savings account helps many first-time buyers.

Individual Savings Accounts (ISAs): is a scheme specifically designed to help save for deposits. This account is augmented by the government, adding 25% of the total saved amount when used for property purchase. It is for individuals aged 18 to 40.

Schemes for first-time buyers

There are also some assistance programmes, to help enable more people to step onto the property ladder, in the UK, which offer financial support to first-time homebuyers.

First Homes Scheme

The First Homes Scheme by the UK government is worth looking at. When purchasing a home for the first time, there's a possibility to acquire it at a discount ranging from 30% to 50% off its market price. This offer is exclusive to England and applicable only if the purchased property is intended to be your primary or sole residence.

Right to Buy

The Right to Buy initiative was implemented over four decades ago. It is a government programme that grants council tenants the chance to purchase their residences at a reduced price.

While Right to Buy has ceased in Scotland and Wales and has restrictions in Northern Ireland, it remains accessible to potential homeowners in England. Typically, individuals eligible for the scheme utilize mortgages to finance their property acquisitions.

It's possible that a deposit won't be necessary if the discount you receive exceeds the required deposit amount. However, depending on factors such as your financial standing, credit history, and the specific mortgage product selected, some lenders may still request a deposit.

For instance, if you're acquiring a property valued at £200,000 and receive a scheme discount of £80,000, you can utilize this sum as your deposit. In this scenario, a lender would perceive this as a 40% deposit equivalent (without utilizing actual cash savings), resulting in a 60% loan-to-value (LTV) ratio.

Help to Buy

Help to Buy was a government initiative aimed at assisting first-time buyers with limited deposits to secure more affordable mortgages. As of March 2023, the Help to Buy programme has officially ended, meaning you can no longer submit applications for this scheme. See what it will be replaced with.

It still exists in Wales and Scotland.

The government offers an equity loan of up to 20% of the house value, interest-free for the initial five years. You only need a 5% deposit. This arrangement enables buyers to obtain a smaller, less expensive mortgage for the remaining portion of the property.

The condition is that the property must be newly constructed by a participating developer.

In London, buyers can receive an equity loan of up to 40% of the property's value (requiring a mortgage for up to 55%). Outside London, the equity loan can cover up to 20% of the property's value (resulting in a mortgage requirement of up to 75%).

Shared ownership

This program enables purchasers to buy a share of a property, ranging from 25% to 75%, instead of acquiring the entire property, thus necessitating a considerably smaller deposit.

Although having a deposit equivalent to at least 5% of the share is commonly required, some lenders may accept no deposit whatsoever.

The buyer would then pay rent on the portion of the property they do not own and have the option to incrementally increase their ownership percentage over time.

The eligibility is for individuals earning less than £80,000 (or £90,000 if residing in London). Here's more detail about shared ownership pros and cons.

How to boost your credit score

Your credit score significantly influences the interest rate you receive on a home loan. Lenders view higher scores as an indicator of trustworthy borrowing.

To enhance your credit score:

  1. Regularly review your credit report for errors. Notify discrepancies immediately.

  2. Prioritise paying off high-interest credit card balances.

  3. Limit the opening of new credit accounts, as frequent enquiries can negatively impact your score.

  4. Ensure timely payments on all credit accounts.

How much can you realistically afford?

The average first-time buyer in the UK spends about £213,000 on a home. With the sheer variety of houses on the market, assessing what's within your financial reach becomes a top priority.

Let's explore the factors that shape this decision.

Considering monthly payments, taxes, and other costs

Monthly mortgage payments aren't the sole expense of homeownership.

You should also factor in property taxes (such as stamp duty, which first time buyers pay), utilities, and potential maintenance or repair fees.

A good rule of thumb is to ensure that your monthly housing expenses don't surpass 30% of your monthly income. This helps to maintain a balanced financial life while ensuring your mortgage payments remain manageable.

For instance, if you earn £3,000 per month, your total housing expenses, which include mortgage payments, property taxes, utilities, and maintenance, shouldn't exceed £900.

To gauge how much you might spend on property taxes, the UK Government's official website provides details on how council tax is determined.

Master the mortgage process

In 2023, 293000 people bought their first homes in the UK. The average price of a house for the first-time buyer was £236,000. 28% of the population own their homes, while 22% have a mortgage.

It is the second year in a row, that homeownership has seen falling numbers. Knowing your mortgage options can transform this seemingly complex process into a straightforward task so you can get fast approvals.

Financial health check: bank statements, pay stubs, and debt

Presenting a clear picture of your financial standing to mortgage lenders streamlines the home-buying process.

They'll want to see bank statements, pay stubs, and an overview of any debt you might have – from credit cards to student loans.

A lower debt-to-income ratio – the percentage of your income that goes towards debt repayment – increases your appeal to lenders.

For a smoother process, gather at least three months' worth of bank statements and pay stubs before approaching lenders. This paints a detailed portrait of your financial consistency.

Mortgage options to consider

Fixed vs variable rate

Fixed rate means your interest rate remains the same throughout the loan term. You'll know exactly what your monthly mortgage payment will be for the duration of the loan.

A fixed rate for the lifetime of the loan is unusual in the UK (although common in Europe). More likely, you'll be given a fixed rate for a fixed period of time- 2 to 5 years usually, after which the loan will revert to being variable rate.

The variable rate after a fixed rate expires, is often less competitive than other variable rate only loans. Your mortgage provider will hope to lure you in with a good initial fixed rate and then recoup the costs of this marketing exercise by hoping that you won't switch to another provider immediately after the fixed rate period ends.

On the other hand, a variable rate- sometimes called an adjustable rate- fluctuates in line with the Bank of England base rate. This could mean your monthly payment goes up or down.

Before choosing, evaluate if you prefer the stability of a fixed rate or the potential savings a variable rate might bring during low-interest rate periods. (Learn about mortgage types in the UK in this informative piece.)

Considering loan terms and mortgage points

Most first-time buyers opt for a 25-year term, but terms can range from 10 to 40 years.

A shorter term often means higher monthly payments, but you'll be free of debt quicker and pay less in interest.

Banks and building societies will want to be confident that you will repay your mortgage within the term. If you look to a longer term, you'll need to be younger so that you have enough working life to repay the mortgage.

In 2023 the average age of a first-time buyer was 34. Since the retirement age is 65, you shouldn't generally expect more than a 30-year term.

Mortgage points are another factor. Buying points reduces your interest rate, translating to lower monthly payments. However, there's an upfront cost, so evaluate if the initial outlay will save money over the term of your loan.

Comparing mortgage lenders: why shopping around pays off

Not all mortgage lenders offer the same interest rates or loan terms. By comparing a few, you stand a chance of securing a more favourable deal. You might be surprised how much monthly mortgage payment amounts can vary between lenders.

While it's possible to embark on this comparison solo, using a professional can reduce risk, save time and potentially money. Their expertise allows them to pinpoint reputable mortgage companies that align with your needs. They also may know about deals that are not publicised elsewhere.

Many mortgage brokers make their money from the bank or building society and not from you. So, you may be able to find one that is free to use.

The other advantage of a broker is that they often run through the application process with you and follow up with the lender regularly.

Pre-approval letter: why it's more than just a formality

Securing a mortgage pre-approval letter shows sellers you're a serious buyer, backed by a lender ready to fund your home purchase. Sellers love them, particularly if there is a lot of demand for their property.

In competitive housing markets, this letter could elevate your offer above others.

But beyond the tactical advantage, this letter gives clarity on how much you can afford, guiding your house hunt and preventing potential heartbreak from setting sights on properties outside your financial reach.

Finding your dream home

According to one recent report, 96% of homebuyers now use the Internet to look for homes. Turning to digital avenues, from real estate listings to virtual tours, has become a norm.

Yet, while the Internet offers abundant choices, a personalised touch may be the difference between finding a house and finding the perfect home.

Selecting a good real estate agent

Estate agents are the cornerstone of any home purchase process, and you will have to register with an estate agent for better property hunt solutions.

An experienced estate agent not only has access to listings but also possesses knowledge about neighbourhoods, market conditions, and negotiation strategies.

But don't walk into a shop expecting them to represent you in front of the sellers of the houses you've seen in the window. An agent generally works for a seller, unless you commission them to work for you as a buyer.

This can be a smart move. They'll know a lot more about the local market than you, have contacts in other agencies who might disclose properties to them before they come on the market publicly, and be able to negotiate with agents on points that the seller's agent might have to concede on.

In other words, by using a good agent, you might save more than the fee they charge. Find out more detail about how to choose a good estate agent.

When seeking one, check their credentials, client reviews, and how well they understand your needs.

Personal referrals can also be an excellent way to identify a suitable agent.There are certain legal obligations of an estate agent towards you. It would help to keep those in mind.

You can find registered real estate agents through the National Association of Estate Agents

House hunting essentials: open houses, virtual tours, and more

Weekends become synonymous with open houses for many potential homebuyers.

These events provide firsthand insight into a home's size, layout, and condition.

Before visiting, keep in mind the questions to ask when viewing a house and a checklist of your non-negotiable home features. Be it a spacious garden, a specific number of bedrooms, or proximity to work.

While virtual tours provide a 360-degree view of the property, attending open houses allows for direct interaction and immediate queries.

Moreover, some properties might only hold private viewings, which an estate agent can arrange.

A neighbourhood is much more than just a location

Your potential new address dictates more than just post; it impacts your daily life.

When choosing a neighbourhood, consider local amenities, schools (if relevant), safety, and future development plans.

Spending a day in the area, chatting with locals, and assessing transport links will paint a clearer picture of daily life there.

The UK Police website provides information on crime rates, ensuring peace of mind in your chosen area.

Making a confident offer

Once you've found your dream home, the next step is ensuring it becomes yours without overstretching your budget. Making an offer on a house and negotiating is an art.

Bidding in a competitive market

The average home purchase in the UK sees offers that are 96% of the asking price, as per Zoopla's findings.

Buying a house often involves negotiation, even more so in a seller's market.

Establish your maximum offer before discussions, taking into account the home's purchase price and any potential repairs or updates it might need.

Equipped with recent sale prices of similar properties in the area, and the length of time the home has been on the market can help determine your initial offer.

If you're confronted with a bidding war, stay calm. Overbidding can lead to regrets, especially if it means stretching your finances thinly once you've moved in.

Surveys: what to expect and why they matter

Once an offer is accepted, a Home Buyer survey becomes a necessity.

This thorough check evaluates the property's condition, highlighting potential issues from dampness to structural concerns.

A home inspection survey, although an additional cost, can save significant sums down the line by flagging up issues early. Should the inspection unveil problems, renegotiations are possible.

You could request the seller to fix the issues or adjust the purchase price to accommodate repair costs. While you might consider a personal assessment, professional inspectors have a keen eye for details that may otherwise be overlooked.

Securing your purchase

Securing a house goes beyond the initial offer. You'll need to navigate the formalities of conveyancing to ensure the home becomes legally yours.

The importance of title insurance

Title insurance safeguards against potential discrepancies in property ownership records.

This ensures that the property you're buying doesn't have outstanding liens, undisclosed heirs, or legal judgments against it. Without this protection, you might find someone else claiming ownership after the sale.

While you can do this research yourself, conveyancing professionals are adept at uncovering hidden issues. Using their services might save you from future disputes.

The closing costs you will pay

Closing costs encompass various fees when purchasing a home. This includes legal fees, land transfer taxes, and valuation fees.

Sometimes, these can amount to 3-4% of the property's price. Ensure you've budgeted for these extra expenses in addition to your down payment.

Finalising your mortgage and monthly payments

With your offer accepted and all inspections complete, it's time to finalise your mortgage. This involves signing the loan paperwork and setting up your monthly payment schedule.

Make sure you understand the interest rate and its potential fluctuations, especially if you've chosen a variable-rate mortgage.

Familiarise yourself with any early repayment charges in case you decide to pay off the mortgage sooner than expected.

Also, be aware that failing to meet monthly payment commitments can risk your house. Always communicate with your mortgage lender if you foresee payment difficulties.

For more on mortgages, consider checking the UK government's guide on property and mortgages. This provides a comprehensive overview tailored to the UK property market.

Tips for settling into your new home

Embracing homeownership responsibilities

Owning a property extends beyond the purchase.

As a new homeowner, you'll find yourself faced with a range of tasks that weren't present while renting.

From garden maintenance to boiler checks, keeping up with these responsibilities ensures the longevity of your investment and your comfort in your new space.

It's easy to overlook ongoing costs. However, remembering to budget for ongoing expenses like council tax, utilities, and maintenance can prevent financial surprises.

Many home buyers use tools like a mortgage calculator regularly to keep track of their expenditures.

Maintaining and caring for your home

Routine checks can prevent large bills later on.

This means checking roofs for leaks, ensuring your insulation is up to standard, and cleaning gutters regularly.

Moreover, as seasons change, homes require varying care- for instance, bleeding radiators before winter and ensuring your home is well-ventilated during the summer.

FAQs

Do I need a buyer's agent?

Yes, there are many advantages of hiring a buying agent. The seller's agent, often the listing agent, primarily represents the home seller's interests.

Their primary goal is to ensure the property sells for the highest possible price. On the other hand, a buyer's agent represents the individual purchasing the property.

They aim to secure the property for the lowest possible price and ensure the buying process runs smoothly.

It is unusual in the UK for buyers to hire an agent to represent them (unlike in the US), but it is advisable.

How does the local housing market affect me?

The local housing market directly impacts both property prices and availability.

In a market favouring sellers, you might find fewer houses available and higher prices due to increased demand.

Conversely, in a buyer's market, there's likely more choice and room for negotiation on price.

Keeping an eye on local real estate trends can give you a strategic advantage when buying a house.

Any estate agent, no matter whether they represent you, should be able to give you some idea about the state of the local market. The key is to ask a variety of questions, not just 'are houses expensive here'.

Why does my credit score matter so much?

Your credit score is a snapshot of your financial reliability.

Mortgage lenders use this score to gauge the risk of lending to you. A higher credit score may open doors to better interest rates and more favourable loan terms, which in turn can lead to significant savings over the life of a home loan.

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