IT may feel like now isn’t the right time to get on the property ladder but actually Brexit uncertainty and poor house price predictions puts first-time buyers in a strong position.
There may be less choice on the market but buyers – particularly those without a chain – should use property market woes to their advantage as it leaves room to haggle with homeowners who are desperate to sell up.
Alamy It’s a great time to be a first-time buyer with falling house prices on the horizon
But if you are hoping to get on the property ladder this year then there are a few things you should think about before taking the plunge.
From working out the true costs of moving to stamp duty rules, we’ve put together a guide to everything you need to know about buying your first home.
How much deposit do I need?
The basic rule is: the bigger your deposit the better the rate you’ll get and the smaller your monthly repayments will be, but not everyone can wait that long.
A decade ago, borrowers were able to take advantage of lots offers that meant they didn’t need to stump up any money before getting their mortgage.
Nowadays, you’ll need a deposit that’s at least five per cent of the property value before you can take out a mortgage.
That means you’ll have to borrow the rest from a bank or building society – the chunk of cash you borrow compared to the deposit is called the loan to value (LTV).
So if you put down five per cent, you’ll take out a mortgage for 95 per cent LTV, or 90 per cent LTV if you’ve got a 10 per cent deposit.
A few 0 per cent mortgages have slipped onto the market over the passed year, which make it look like you don’t need a deposit at all.
Getty – Contributor Most buyers find getting the deposit together is the biggest hurdle to homeownership
This is where the buyer borrows 100 per cent of the mortgage without having to stump any of your own funds upfront, but most of them rely on you getting some sort of financial assistance from your family.
Last year, the Post Office launched two new mortgage deals which lets buyers secure the 10 per cent deposit against mum and dad’s home – as long as they’re already mortgage free.
With Lloyd’s Lend A Hand mortgage, parents who are willing to stump up the cash for a deposit can earn 2.5 per cent interest on their investment.
What schemes are there to help me buy a home?
There are a whole host of schemes out there that will help you get on the property ladder, from boosting your savings to splitting the cost of buying with a housing association.
Help to Buy Isa
These are tax-free savings accounts that for every £200 you put in, the Government will add an extra £50 towards buying your first home.
The maximum you can earn from the top-up is £3,000, which will see your £12,000 savings boosted to £15,000.
These Isas can be used to buy homes worth up to £250,000 outside of London, rising to £450,000 in the capital, and you’re not restricted to a new build either.
You only have until the end of 2019 to open an account though, before the Government scheme comes to an end.
Help to Buy equity loan
The Government will lend you up to 20 per cent of the home’s value – or 40 per cent in London – which will help you purchase a property with a smaller mortgage.
Before you get the loan, you’ll need to make sure you have a deposit that’s worth five per cent of the total property value.
This is particularly useful to first-time buyers who can’t get a big enough mortgage based on their salary, despite having enough for a deposit.
The loan is on top of a normal mortgage and can only be used to buy a new build property.
It’s interest-free for the first five years, and then after that you’ll be charged 1.75 per cent interest, which will increase by inflation rate plus one per cent.
In other words, it’s a lot and you’re be better off paying back the loan before the interest-free period ends.
Do I need a survey and how much do they cost?A SURVEY gives a detailed inspection into the condition of a property, highlighting any major repair work that’s needed.They’re not compulsory but can help you decide whether or not you’re paying the right amount for your home.
Here’s our guide to the different types of surveys there are and how much they cost:
Valuation survey, £150 to £1,500 – This is carried out by the lender to make sure that you’re paying the right amount for the property.
Condition report, £300 or more – This gives a traffic light report to indicate the conditions of various states of the property – green for okay, orange for cause for concern. The report provides you with a summary of defects and possible risks but won’t provide any advice or valuations.
HomeBuyers report, £450 or more – On top of everything you get in the condition report, you’ll also get a valuation and an insurance reinstatement value – which is an estimate of how much you’ll receive if the building were to burn down.
Home Condition survey, £400 to £900 – These are carried out by the Residential Property Surveyors Association (RPSA) rather than the Royal Institution of Chartered Surveyors (RICS) and includes information on broadband speeds, a damp assessment and boundary issues to consider. The price depends on the valuation of the property.
Building survey, £500 or more – These are extensive reports where the surveyor will go into places such as the attic, check behind walls and look between floors and above ceilings. It will also provide advice on repairs, estimated costs and timings, and what will happen if you don’t carry out the repairs. Prices depend on the size of the property.
This is another Government scheme that will give anyone aged between 18 and 39 the chance to save tax-free and get a free bonus of up to £32,000 to use towards their first home, or retirement.
You can save up to £4,000 a year into the Lifetime Isa (LISA), either as a lump sum or by putting in cash when you can.
The Government will then add a 25 per cent bonus on top, effectively giving you free money.
It means that if you save £1,000 a year, you’ll have £1,250 after 12 months, and if you save the full £4,000 a year you’ll have £5,000.
Savers can continue to put money into the account until they’re 50 but there are a few catches. You can only use a LISA for a property if you have NEVER owned a property before.
That means if you’re a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before.
The money never comes to you, but will be paid directly to a solicitor. Also if you want to buy a home worth more than £450,000 with your LISA, 25 per cent of what you withdraw is taken off.
This is when you co-own a property with a housing association, which will charge you rent on its part of the property.
Many mainstream banks and building societies offer shared-ownership mortgages which aren’t limited to first-time buyers but they are reserved for specific properties.
Alamy There are plenty of schemes that have been launched to help you get on the property ladder
You can buy anything from 25 per cent to 75 percent of the property, and you can increase the amount you own over time – this is called “staircasing”.
Unlike private renting, you won’t have a landlord who can ask you to move out at any time, and your rent rate is likely to be less than market value.
The downside is that each year your housing association reviews your rent, which may rise, and if you go to sell the property the housing association has 21 days to find a buyer first.”First dibs” in London
London Mayor Sadiqu Khan is launching a scheme in the capital that will give Brits “first dibs” on new homes before foreign buyers snap them up.
This is because 13.2 per cent of new-build homes are sold abroad, rising to 36 per cent in the most expensive parts of the capital.
A number of major housing associations have promised the mayor that they will restrict sales of all their new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative
The Government is working a Starter Home initiative which will see 200,000 new-build homes in England be sold to first time buyers with a 20 per cent discount, by 2020.
This means you’ll only need to raise a mortgage of 80 per cent on the true sale value of the home.
You must be between 23 and 40 years old and never own a home before.
The first wave of Starter Homes started being built in 2017 in 30 local authority areas across England. To receive updates on the scheme you can register your interest here.
Do I need to pay stamp duty?
Thanks to a tax relief announced in the 2017 Budget, first time buyers don’t have to pay stamp duty on properties valued up to £300,000.
To qualify, you can’t have ever owned property in the UK or abroad and if you’re buying with someone else, both of you need to be first-time buyers.
If you’re buying a property for more than £300,000 you’ll have to pay five per cent stamp duty on the remaining amount.
Budget Day 2017: Chancellor of the Exchequer Philip Hammond announces that he will abolish stamp duty for all first time home buyers up to £300,000
So it you’re buying a house for £500,000 you’ll have to pay tax on £200,000 which works out at £10,000.
If you’re not sure how to figure out how much stamp duty you will pay on a property Moneysavingexpert has a stamp duty calculator that does the maths for you.
Here is our guide on how to calculate stamp duty and how stamp duty relief for first time buyers has affected housing market.
Even though thousands of homeowners have benefited from the scheme, some estate agents claim that it has not been enough to boost the housing market.
How do I get a mortgage and how long does it take?
A mortgage is a loan used to buy a house, so you’ll need to apply for one from a bank or another lender.
You’ll need to apply for a mortgage once you’ve found the house you want to buy. That way you will know how much you need to borrow.
What type of mortgage suits you?THERE are tonnes of different mortgages rates out there but you need to make sure that it’s the best one for you. Here are some of the ones available:Fixed rate – The interest you pay is locked for two, three, five or 10 years. It’s good if you sign up when the interest rates are low, but if interest rates drop, you’re stuck paying the higher rate.
Variable rate – Standard Variable Rate (SVR) means that your rates will go up and down with the market trends.
Tracker mortgage – The rates change in line with the Bank of England’s base rate. So if it goes up, so does your mortgage rate.
95 per cent – This is the rate for people who can only afford to put down a five per cent. But with such a small deposit you’re at risk of falling into negative equity if house prices drop. If they drop six per cent then your house is worth less than your mortgage.
Flexible – You can choose to pay more than your regular payment if you can afford it. Then if you’ve overpaid, you can take a payment holiday if you find yourself in difficult circumstances. But in return for the flexibility you’ll be hit with higher rates.
Cashback – These marketing ploys aren’t always as good as they’re cracked up to be. The idea is that the lender gives you money back when you take out a mortgage with them. But take a closer look at the interest rates and any additional fees as you’re likley to find better rates elsewhere.
When you apply, you’ll need to have saved enough for a deposit which is usually a minimum of five per cent of the property value.
Often when you apply for a mortgage you’ll need three months worth of bank statements and a good credit score in order to pass the affordability checks.
You may also need to provide documents like utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
Shop around for the right deal by checking offers for first-time buyerson Money.co.uk or on the Money Advice Service.
Most people get advice from a mortgage broker, which is a qualified middleman who has a duty of care to recommend a suitable mortgage for you but their services often come with a fee of around £500.
Agreeing a mortgage “in principle” allows you to get an idea of how much the bank is likely to lend to you and how much interest you’ll pay.
They usually last between 30 and 90 days and put you in a position to make an offer when you find the property you like.
What is freehold, leasehold and commonhold?
The difference between owning a freehold or a leasehold home could leave you renting like a tenant in your own home.
It can also affect the type of mortgage you will be able to get to it’s important to get as many details about a lease as possible before buying a home.
Most houses are sold as freeholds as it is the most straight forward way of owning a home and means that you own the house outright.As a freeholder you own the land the property is built on and you’re entitled to live in a property indefinitely.
This even includes the air space above the house going up around 500 feet as well as the ground underneath the house.
Maintaining the property is entirely your responsibility so you will have to pay for any and all repairs.
Owning a leasehold on a property means that you have the right to live in the property for a set period of time, typically for 125 years in the UK.
This means that essentially, you’re a tenant in your own home because you don’t own the land that the home stands on.
Depending on the terms of the leasehold, you may have to ask the permission from the freeholder before making changes like adding an extension or even owning a pet.
A leasehold agreement makes sense when living in a block of flats so that everyone living in the property also shares ownership of areas of the building like the stairwell or hallways.
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It also means that any upkeep of a shared area including the exterior walls and the roof is the responsibility of the freeholder, so you won’t have to pay for any repairs in those areas.
But you’ll need to pay ground rent on any leasehold property, which can be anything between £1 a year to hundreds of pounds in annual fees.
These are often reviewed every year and the freeholder reserves the right to raise the fees.
Mortgage providers will not lend on properties with these spiralling ground rent clauses, leaving leaseholders trapped and unable to sell their home.
Newlyweds Nathan and Tasha Stewart were unable to sell their home because of a ground rent clause that will cost them £4,800 a year.
What if I want to buy a leasehold, what should I look out for?ANDREW Johnson, money expert at Money Advice Service has some tips on what to consider before buying a leasehold.
Check how many years are left on the lease? You may struggle to get a mortgage on a leasehold property which has less than 70 years to run. A short lease will be a lot more expensive to extend.
Ask about the cost of extending your lease now if this might be an issue in the future. You don’t want anything that could impact your properties saleability in the future.
Ask how much the ground rent is? This may be a relatively small amount now but beware escalating ground rents which have seen substantial figures payable at the end of the term of the lease. This could negatively impact your ability to sell your property in the future.
Ask about service charges and other related costs? This generally covers repairs or maintenance to the property including buildings insurance. This can be several hundred or several thousands pounds, so consider how you will budget for these costs and the impact of any future increases.
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