First time buyers: what the experts think you need to know
Warning: THE MORTGAGED PROPERTY (WHICH MAY BE YOUR HOME) MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
It’s a difficult time to be a first time buyer. In the ’90s, a first time buyer couple on low-to-middle income saving 5% of their wages each month would have enough for an average-sized deposit in 3 years. Today, it would take that couple 24 years.
With the challenges first time buyers face these days, it’s vital that you have all the right information, and that you’re asking the right questions.
We’ve teamed up with two experts to answer the big questions: Jasbir Shocker, a mortgage consultant and assistant branch manager at Leeds Building Society, and Brian Murphy, Head of Lending at the Mortgage Advice Bureau. Here’s what they think you need to know.
Before you start thinking about applying for a mortgage…
Whether you’re speaking to a mortgage consultant or a broker, there are a few things you should prepare before you get started. The first step, says Brian, is to sort out your credit score.
“Banks and building societies are cautious when it comes to assessing potential borrowers for a mortgage”, says Brian, “and financial histories are always reviewed as part of the lending process.
"One of the most important things that many lenders will look for when you apply for a mortgage is your credit score, so it’s important you understand your credit rating and, if necessary, take steps to improve your score.
“You can request your credit rating report from companies like Experian, Equifax, CallCredit and Clearscore. All of these companies will be able to provide you with a thorough report of all your credit accounts, including outstanding loans and any missed or late payments over the last six years.
“Simple things, such as having a landline phone number and being registered on the Electoral Roll, can also improve your credit rating, as can clearing or making more than the minimum monthly payments on your credit card. It can take up to a year to make improvements to your credit score, so this is the first job to tackle long before you start thinking about applying for a mortgage.”
Getting the right documents
When you do go book your appointment, make sure you take all of the documentation you need. It’ll make the whole process a lot quicker and easier.
“One of the best things any first time buyer can do is come to their first appointment armed with all of the documentation required in order to progress their application. This may vary slightly depending on whether they are employed or self-employed, so check what’s required beforehand.
“You’ll typically need three months of recent bank statements, two utility bills to prove your address, your passport or birth certificate, and a bank account or savings statement to evidence your deposit amount. If the deposit is being given to you by a third party, you’ll need a letter to prove it.
“Then, if you’re employed, you’ll usually also need three months of recent payslips and your last P60. If you’re self-employed, you’ll need three years of audited accounts, signed off by a qualified accountant, and three years of your SA032 (the document issued by HMRC to prove how much tax you’ve paid.”
Understand your lender
Jasbir highlights the importance of understanding your lender’s lending criteria.
“Get to grips with their lending criteria before you go ahead and try to get a mortgage with them. Dull as it may be, it really is worth reading every bit of it in detail. That way, you can be sure the property you’re buying fits with the lender’s criteria, and your house purchase is less likely to encounter problems.”
The common mistakes first time buyers make
By definition, most first time buyers aren’t property-purchasing experts, so they may make mistakes. Most first time buyers make the same mistakes as each other.
Use your head
Brian thinks that the most common mistake first time buyers make is following their heart, not their head.
“Having spent months, if not years, saving for a deposit for their first home, first time buyers sometimes have a tendency to make an emotional decision based on their gut feeling for a property and its location.
“While this is understandable, a property is likely to be the biggest investment most people will ever make, so it is important to evaluate what’s important for you in both the short and long term to make sure you make a smart purchase that will work for you financially as well as fitting your lifestyle.
“Ask yourself: are you prepared to live in the property you’re considering buying for more than five years? If the answer’s no, then this probably isn’t the best purchase for you. It may be worth looking outside of your ideal location, even by just a couple of miles, to see if you can get more property for your money, enabling you to stay put for a little longer. Consider whether you're prepared to do work on the property. If you can buy a house that’s in need of a little TLC, then there may be an opportunity not only to add value to your home over time, but also to tailor it to suit your needs and taste.”
Work out all the costs
And it’s not just the house you have to pay for. One of the biggest mistakes first time buyers make, says Jasbir, is not factoring in all the costs of buying your first home.
“First time buyers need to have a budget in mind for all costs,” says Jasbir. “One of the mistakes we often see made by first time buyers is that they haven’t completed a thorough budget planner to understand all the costs of buying their first home.
“These costs include survey costs, solicitor’s fees, removal costs, building insurance, mortgage arrangements fees and stamp duty – it’s not just the cost of buying the house that you have to think about.”
Keep asking questions
It’s a complicated procedure, and not an easy thing to do. Which is why Jasbir thinks one of the most important things for first time buyers to do is keep asking questions until they have complete clarity.
“[First time buyers] should speak to a mortgage consultant to fully understand the process of buying and owning their first property. Before you start looking at individual mortgage products, you should sit down and do some hard thinking. Understand what you’re getting into, and make sure you know what you can afford.”
Changes in the first time buyer market
There have been some major changes in the first time buyer landscape in recent years, including the launch of new government schemes to help first time buyers get onto the housing ladder.
“With government schemes and the increasing availability of high-LTV mortgages, we’re likely to see more and more opportunities for first time buyers," says Jasbir.
“In May 2017, the Council of Mortgages Lenders (CML), said the number of first time buyers taking out mortgages had overtaken the number of people moving house for the first time since 1996. First time buyers seem to be buoying the market: with relatively few house-movers in the market, existing homeowners are finding it more difficult to sell.
“We can also expect more lenders to accept gifted deposits from parents, and an increasing emphasis on offering unique products to support first time buyer government schemes."
 Fixing our broken housing market: the housing whitepaper, 2017: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590464/Fixing_our_broken_housing_market_-_print_ready_version.pdf
This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal and/or financial advice if you have any questions or queries.