BUYERS’ GUIDE
Buying your first property can be a daunting experience. It’s a big decision, so it’s important to get it right. We take you through all the steps involved
The ftb process
F inance
TIPS
moneysavingexpert.com, then apply directly to your chosen lender.
Unless you have enough money to buy a property outright you’ll
APPLICATION You will need at least three months of bank statements, payslips or tax returns, photo ID such as a passport or driving licence and details of any loans. Lenders will look at your outgoings to assess how much you can afford to pay on your mortgage each month. The bigger deposit you have and the better your credit score, the better mortgage rate you’ll be offered. BUDGET Work out how much you can afford to repay each month, taking into account your normal living expenses and the bills, insurance and council tax on your new home. Don’t forget there is likely to be a service/ estate management charge on a new home, plus ground rent for a leasehold property, so find out how much they will be. CREDIT SCORE Get a credit report from Experian or Equifax, and make sure there are no default accounts, CCJs (county court judgements) or missed payments. If you are making lots of enquiries to find the best deal, make sure the lenders log your enquiry as a soft search rather than a hard search as too many applications leave “footprints” on your credit score and can affect your rating. To improve your score, make sure you’re on the electoral roll, and pay your bills and any loan repayments on time.
FIXED-RATE MORTGAGES Some mortgages are fixed rate. This means you’ll pay the same rate of interest for a defined period of time, and your payments won’t change. If interest rates go up, you’ll be protected from the increase, but you won’t benefit from any fall in interest rates. Normally, at the end of the fixed period your mortgage rate will revert to the lender’s standard variable rate (SVR) for the rest of the term.You can either pay this rate (which is often quite expensive) or remortgage to another lender. Remortgaging to another lender can sometimes mean you have to pay a fee or early redemption charge (ERC). VARIABLE-RATE MORTGAGES Variable-rate mortgages are either linked to the lender’s SVR or the Bank of England base rate, and the rate you pay can change. Lenders can change their SVR whenever they want, but they normally only change it when the Bank of England base rate changes. Tracker mortgages are also variable, but they have repayment rates that are directly linked to the base rate so will go up and down with it. With variable-rate mortgages you need to be sure you could afford higher repayments if rates rise. REPAYMENT OR INTEREST-ONLY Most mortgages available to first time buyers are on a repayment basis.With this type of mortgage, every monthly payment will pay off some interest and some capital (mainly interest in the early years). At the end of the
need a mortgage. A mortgage is a loan used to buy a property and is repayable over a number of years (usually 25-35 years). The loan is “secured” on the property, which means the mortgage lender could repossess your home if you fail to make repayments on time. For this reason, it’s vital only to buy a property you can realistically afford. Before you start, find out how much money you can borrow. A mortgage adviser will need details of your income, outgoings, savings and credit history – they will then be able to give you an “agreement in principle”, which will state, in theory, how much they will be able to lend you. An agreement in principle, however, doesn’t tie you, or the lender, to anything. Instead, it will just give you a rough idea of how much money you’ll be able to borrow. You’ll also need a deposit, normally around 10% of the property price.The bigger the deposit, the better the mortgage rate you’ll be offered. Each mortgage product will have a maximum loan-to-value or LTV.
MORTGAGE BROKERS VS LENDERS
You can apply for a mortgage via a mortgage broker (or financial adviser) or direct from a lender. A broker can look at the deals available and advise you which one would be best for your circumstances. Some mortgage products are only sold through brokers, not directly to customers. A broker will help you with the paperwork and deal with the lender on your behalf up until completion.You may have to pay them a fee or they may earn commission from the lender – find out how they are paid before committing to anything. Mortgage advisers in banks or building societies can only sell you products offered by that company, so it’s unlikely they will be able to offer you the very best deal for your circumstances. It’s important to shop around.You can compare mortgages online at sites such as moneysupermarket.com or
term, you’ll own your home outright. If you have a larger (25% or more)
deposit you may be offered an interest-only mortgage, where you only pay interest on the loan. The monthly repayments are lower but at the end of the term you’ll still owe the original mortgage sum.You’ll need to prove you have a plan in place (such as an investment) to pay off the capital.
DECIDE ON A LOCATION Be practical.
RESEARCH THE AREA Check out
SET A BUDGET Work out how much money you have for fees, deposit and the monthly mortgage you can afford.
CREDIT SCORE Make sure your credit rating is sound and there are no mistakes on your le, and pay off any debts you can.
SHOP AROUND Speak to a mortgage broker, but also look at lenders’ direct products and search the internet.
Think about the commuting time and whether you can afford to buy in the area.
crime statistics, transport links, regeneration and, if relevant, schools.
FINANCE
RESEARCH
98 First Time Buyer February/March 2025
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