I remember being a first time home buyer. It was quite some time ago (I am intentionally not saying exactly how long ago it was!!) and the internet wasn’t the wealth of accurate, reliable information that it is now. Back then, the only main ways of finding out how to buy a house were to buy a book (or borrow one from the library), ask your parents/relatives/friends about it or rely on estate agents and financial advisors for guidance. Of course, financial education in schools did not exist then either so often first time buyers were very much in the dark as to how the whole process worked.
Even with all the information that is at our fingertips nowadays, buying your first home is a significant milestone that can still feel very overwhelming. Allowing yourself time to do some initial research and preparation before taking the leap with your first home purchase will enable you to be better informed, thus making the home buying process smoother and more enjoyable overall.
I’ve put together what I hope is a useful three part guide for first time home buyers based on my own experiences, which I hope will help you navigate the property purchasing process calmly and safely in the knowledge of what happens when.
Today we are starting this series by focusing on the crucial aspect of money.
Understanding Your Budget: An Essential First Step for the First Time Home Buyer
Before you start scrolling through property listings and getting ahead of yourself, it’s crucial to first of all get a clear picture of what you can afford. As a first time home buyer, you’ll need to consider:
- Your deposit: The larger your deposit, the better mortgage deals you’re likely to access.
- Mortgage options: Most first time home buyers will need a mortgage. Your borrowing capacity typically depends on your income, monthly outgoings and credit score.
- Additional costs: Don’t forget about stamp duty (or Land And Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales), conveyancing fees, surveys, moving expenses and buildings and contents insurance.
Below is a rough guide of the costs incurred when buying a home – these will of course vary depending on myriad things such as location, property cost and more, so keep in mind that the amounts below are not set in stone and should be used for guidance only. Some costs may be slightly lower for first time home buyers.
This information was obtained from Zoopla – do take a look at their useful article here as it goes into some detail about each of the costs.
| Type of cost | Estimated cost |
|---|---|
| Conveyancer/solicitor’s fees | £2,000 |
| Mortgage arrangement fees* | £1,000 to £2,000+ |
| Mortgage booking fee* | £100 to £200 |
| Valuation fee* | £150 to £800 |
| Property survey | £400 to £1,500 |
| Removals | £150 to £2,000+ |
| Stamp duty (paid via your conveyancer) | 0% to 12% of home value (Gov.uk calculator here) |
*These items are typically added to the mortgage so don’t necessarily need to be paid up front unless you choose to do so.
Government Schemes for First Time Home Buyers
The UK government offers several schemes to help first time home buyers get on the property ladder. These include:
- Shared Ownership: This scheme allows you to buy a share of a property (between 25% and 75%) and pay rent on the remaining share.
- Help to Buy: Equity Loan: Available in England, this scheme provides a loan of up to 20% (40% in London) of the cost of a new-build home.
- Lifetime ISA: This savings account for first time home buyers offers a government bonus of 25% on your savings, up to £1,000 per year.
It is usually taking advantage of these where possible, but of course do take the time to research them first to make sure they suit your needs.
Mortgage Affordability For The First Time Home Buyer
As touched upon a little earlier in this post, the amount a bank is prepared to lend you will be based on several things, with the key considerations typically being the deposit amount along with your income and monthly outgoings.
If you are planning ahead and not looking to buy immediately, it is certainly worth getting your finances in order in the meantime. Cut down on all unnecessary spending as during the mortgage application process your bank statements and lifestyle will be scrutinised in order to build a picture of your mortgage affordability.
In an ideal situation you should have around three months of minimal ‘unnecessary’ expenditure to put yourself in the best position to be approved for the maximum mortgage amount that can be lent to you. So if you regularly spend a lot on takeaways, nights out, coffees and clothes (to name but a few!), try to be as frugal as you can for three months or so as it’ll be of immense benefit to you in the long run.
This is especially pertinent if you are buying on your own as you will only have a single income to be considered for the mortgage, whereas couples or people buying together will be able to combine their incomes, thus enabling them to borrow more between them. I know, it’s frightfully unfair, but that’s the system and we have to do our best to work within it.
When determining how much you can borrow for a mortgage, lenders typically consider a maximum of four to five times your annual income. However, this can vary depending on other factors such as your employment security, monthly outgoings and spending habits, which is why I’ve already waxed lyrical about getting your finances in order well ahead of time.
Using an online mortgage calculator
Before actually applying for a mortgage it’s always a good idea to use an online mortgage calculator to help you understand what your monthly repayments might be. I find this one really easy to use – you just enter the property price and deposit amount and it immediately calculates your repayments using a typical interest rate (5.29% at the time of writing this post) and a repayment term (currently autofilled at 25 years). Both of these can be easily altered to fit your own circumstances.
Underneath the calculator, useful charts and graphs are displayed to help explain how the interest and repayments work. Further down the page are myriad useful articles related to mortgages and house buying, so it’s a very useful one-stop shop for information for a first time home buyer.
Useful Pointers for First Time Home Buyers
- Save aggressively for your deposit: The bigger your deposit, the better mortgage deals you’ll likely be offered. Take advantage of high interest savings accounts and government schemes such as the lifetime ISA (or LISA) mentioned earlier in this post.
- Check your credit score: A good credit score can help you secure better mortgage rates. You will need to allow time to improve it if it’s lower than it needs to be.
- Consider all costs: Remember to factor in stamp duty, legal fees and moving costs.
- Have an emergency fund: Have some extra money set aside just in case any extras costs arise.
- Be flexible: Your first home might not tick all your boxes but it’s your crucial first step on the property ladder, which can help you move on to a bigger and/or better property further down the line.
- Think long term: Consider how the property might suit your needs in the future, and how it could be extended/improved to provide extra space and add value.
Budget planning is a crucial first step for any first time home buyer. Understanding your financial situation, exploring government schemes and getting a clear picture of mortgage affordability are all essential elements in preparing for this significant life milestone. By taking the time to research and prepare, you can approach the home buying process with confidence and clarity.
As the financial groundwork has been laid in this article, the next instalment will delve into the practical aspects of purchasing your first home. In “The Home Buying Process: A Step-by-Step Guide,” I will run through each stage of the journey, from house hunting to completion of your first property purchase. You’ll learn about getting a mortgage in principal and making an offer on a property, as well as the legal aspects of a property purchase. Stayed tuned for a comprehensive roadmap that will demystify the entire process and help you transition smoothly from being a first time home buyer to a proud homeowner.
I think we’re soon going to reach the point where it’s completely impossible for first time buyers to get on the property ladder as prices are so high especially in London and the south east. My parents bought their first house for £3k 😂 I know salaries were lower then etc but they haven’t increased proportionately so there’s a real imbalance that’s causing a huge disadvantage nowadays. Think I’ll have to move up north if I ever want to own my own home 😕
I never know whether to trust those mortgage calculators on the banks websites but the one you recommended here is independent I think plus I like how you can adjust everything manually. Really useful info here, nice one 👍
Clicked through from Pinterest and I’m so glad I did! I’ve been umming and ahhing about buying my first home for ages now and feel the time is finally right as I have saved up a good deposit. Your post was so helpful in setting out these initial stages as I was previously feeling very overwhelmed by the whole house buying process. I’ve bookmarked this page and will be referring back to it regularly and I’ll also keep an eye out for your follow up posts. I’ll also be getting my bank account in order – need to cut back on all the asos orders!!
I am going to pass this blog post on to my daughter as she is saving up for a deposit for a flat. We didn’t know about the ISA scheme so will look into that some more too. I found the mortgage calculator very helpful and I know she will too so she can see the impact having a bigger deposit will have on her overall repayment not just the monthly amounts.
Long time follower of your fashion content and I love how you diversified into different themes now too. Especially with educational posts like this, they help so many people, not least of all me!! You taught me alot about fashion and bras, now you are teaching me about finances, what can you teach me next lol xx
They need to teach this stuff in school, it would be so much more applicable to real life than some off the crap our kids get taught! You could get a whole maths lesson out of the mortgage calculator alone, what a great resource!
We didn’t know about it either Tom so your not the only one. Unsurprisingly the government keeps it quiet as it’s something that would actually benefit people!!
Honestly it makes such a difference to read this stuff in plain English. I have been trying to explain to my son that he needs to sort his money situation before he’ll ever be taken seriously for a mortgage but he just laughs at me. I will be sending him this link and the calculator link to as that is the icing on the cake. If he takes it seriously he might finally be a homeowner before he reaches retirement ha ha
I haven’t been able to get my head around buying a house but this post has helped me so much, I cannot thank you enough. Really looking forward to the other 2 posts too.
It’s high time this was part of the national curriculum. It is shameful that kids leave school having no idea about money, mortgages or debt to name but three. The whole system needs an overhaul, strip it back to the very basics and build from there. But we all know it won’t happen, I’m no conspiracy theorist but even I realise the working class being in debt is one of the many ways we support the affluent lives of the fat cats at the top. We are nothing but worker ants!