FIRST TIME BUYER MYTHBUSTERS
Posted on Thursday, July 7, 2022
With the large sums of money involved and language all of its own, is it any wonder buying a home can feel overwhelming, especially for first-time buyers? But, buying a home for the first time need not be daunting if you’re armed with the right information.
With the large sums of money involved and language all of its own, is it any wonder buying a home can feel overwhelming, especially for first-time buyers?
But, buying a home for the first time need not be daunting if you’re armed with the right information.
From deposits to completion, our first time buyer mythbusters can help demystify the process.
Myth 1: You need a big deposit
You need save for a house deposit to start, but it doesn’t have to be big. Aim for between 5% and 20% of the purchase price. With the average UK house price just above £250,000, that could be as low as £12,500.
But it’s true the bigger your deposit, the wider the choice of mortgages you will have. A mortgage advisor can talk you through your available options.
Myth 2: Mortgage lenders just need to know your income
Lenders will ‘stress test’ you will be able to make payments if circumstances change. So you will need to show evidence of the outgoings you have as well as your income. Typically you need:
- Proof of income – usually the last three months pay slips or 2/3 years accounts if self-employed
- The last three months bank statements (to prove outgoings)
- Evidence of your deposit
- Proof of bonuses/commissions
- Your P60 tax form or SA302 tax return form (if you’re self-employed)
Work out how much you have saved up and what mortgage payments you can afford each month before you start your search.
Myth 3: You just need a deposit and mortgage to buy a home
Apart from your mortgage and deposit, there can be a lot of upfront costs, and you need to plan for them. Sit down and make a list of expenses and fees such as:
- Mortgage arrangement and valuation costs
- Stamp duty tax(Land and Buildings Transaction Tax in Scotland or Land Transaction Tax in Wales)
- Survey costs
- Solicitors fees
- Removal costs
- Buildings insurance
Myth 4: Everybody has to pay stamp duty
Buyers pay Stamp Duty Land Tax on property costing more than £125,000, whether freehold or leasehold properties or if you’re buying outright or with a mortgage.
But there is good news for first-time buyers. You pay no Stamp Duty on the first £300,000 for properties worth up to £500,000. Scotland and Wales have their own systems and levels for first-time buyers, so check as they can differ slightly.
Myth 5: You need to get a mortgage from where you bank
First-time buyers are sometimes convinced they should take a mortgage out from their bank. While you can, you’re not obliged to. But with so many options and lenders to choose from, knowing how a mortgage works can be tricky.
You will want to think about what interest rate you are paying, of course. But should you choose a fixed or variable rate, and how long can you the rate is set for?
The term of the mortgage (how many years you take it for) will also affect how much you pay overall. Generally, a longer term, say 30 years, means you pay less each month but pay more in total. A shorter loan term is far cheaper overall if you can afford higher monthly payments.
Myth 6: You need a perfect credit rating to get a mortgage
You don’t need a perfect credit rating to get a mortgage. Even with a few issues, it may still be possible to qualify for a mortgage.
That said, check your credit rating to see there are no unexpected surprises! If there are, try to clear them up as much as possible before applying for a mortgage.
Myth 7: You have to take full responsibility for the mortgage
If you’re struggling to get a mortgage on your own, look at alternatives. Guarantor mortgages, where a parent or close relative agree to guarantee your loan, are one solution. It’s a legally binding arrangement, so they need to be able to afford your mortgage if you don’t pay.
You could buy with your partner or a group of friends, giving you a better deposit and more choice. But remember you could end up responsible for the whole mortgage if someone defaults. And make sure you clearly set out what steps to take if people fall out.
Being pre-approved for a mortgage will make you a much more attractive proposition for a potential seller. Rush or ignore this stage, and you may regret it down the line!
Myth 8: Freehold or leasehold makes no difference
If you’re looking to buy a house, it’s probably freehold, meaning you own the property and land it sits on.
If you’re buying a flat, you’ll be buying leasehold, or buying a share of the freehold. Check the service charge and ground rent, as you’ll have to pay both if you buy the property.
Make sure you know the difference between freehold and leasehold!
Myth 9: All solicitors are the same
Finding the right solicitor or conveyancer is vital, as they handle all the legal work (conveyancing) on the property.
They will carry out local searches to check issues that may affect the property. They will pass the cost of these searches on to you as well.
Qualified solicitors can practise in any area of the law, some choose to be property specialists. A conveyancer deals just with property. Make sure their fees and duties are clearly stated in writing before they do anything!
As a first-time buyer, you want to be sure everything is legally sound. It’s worth talking to an expert solicitor and having them explain the conveyancing process thoroughly. Get a conveyancing quote below.
Myth 10: Your lender has done a survey for you
A surveyor inspects the property to check for problems that could affect its value. There are different surveys, so it’s important to know which is best and how much it’ll cost you.
Your lender arranges a valuation survey to approve the property is worth what you’re offering. This will be before they agree a mortgage. They need to be comfortable with what you’re buying as well as your ability to pay.
However, it is not extensive and won’t highlight any work the building might need. You may be charged for this, depending on the type of mortgage you select.
Commission a property survey yourself, to help identify any problems – it’s going to be your home. It can also help you renegotiate the price.
Myth 11: You can’t change your offer
You made your first offer based on the information you had from the agent. Now the survey is back, you can renegotiate your offer if your survey has uncovered problems that will be expensive to fix.
Your lender may also value the property at a lower price, meaning you can’t afford your original offer. Again, you’ll need to renegotiate to save the deal.
Myth 12: It’s a done-deal once your offer is accepted
Once your offer has been accepted, the real work begins, not least, most of the conveyancing work!
Your lender can now send you a binding mortgage offer, but you have seven-days cooling off to decide if it’s right for you. Once you’re sure, let them know (in less than seven days if you want).
But problems can occur if:
- You can’t obtain a mortgage
- The property is withdrawn from the market
- Another buyer gazumps you
This stage can be stressful and take weeks to progress.
Don’t panic! Keep the lines of communication open between solicitors, lenders and the seller to try and keep the deal on track.
Myth 13: Once you’ve exchanged contracts the deal is done
If there are no other delays, you’ll receive the contract to sign. Check all the details are correct with your solicitor, and all your queries are answered.
Once signed, you and the seller are committed to the sale. There can be financial penalties if one of you doesn’t complete.
On exchange, you’ll need buildings insurance in place to cover the property – it’s your responsibility now. But you still can’t move in until you transfer the full asking price and complete the contract!
Myth 14: You just wait between exchange and completion
As a guideline there are around two weeks between exchange and completion, but this is agreed case by case by both parties via solicitors.
Don’t think there’s nothing to do at this point. While your solicitor draws down the mortgage and sorts other costs, such as stamp duty, keep in close contact with them and take action if needed.
Use this time to confirm with the removal company, contact utility companies and transfer council tax, internet and other services. Don’t just sit around – there’s plenty to do!
On completion day, your solicitor transfers the final funds to the seller’s solicitor and completes the change of ownership with the Land Registry. You need to sit tight and wait to hear from them.
Once done, they will let the estate agent know to release the keys to you. Congratulations – you’ve just bought your first home!
Myth 15: You can find everything you need to know about the property online
An essential piece of help for first time buyers? Never underestimate the importance of viewing a house! Go more than once if you can, at different times of the day.
Why not take it one step further than that? Remember – the surrounding area will play a huge role in whether you enjoy living there or not.
Give yourself another layer of support and information. Property reports help you form a rounded opinion on the suitability of a specific property you may be considering. From crime rates to local schools, everything you need to know is in one place.