For many people, buying their first home remains tantalisingly out of reach because they can’t raise the deposit that lenders require.
The good news for these people is that the lending criteria are finally beginning to ease. An increasing number of lenders now offer 95% loan-to-value mortgages, where the buyer only needs to put down a deposit of 5% of the value of the property. But to get the best deals, you’ll still need a sizeable deposit – 25% of the purchase price, or even more.
Follow these 8 steps and you could be well on your way to buying your first home.
- Plan for your deposit
Getting a large deposit together is going to be hard work, but being able to put down a sizeable cash sum on the property has definite advantages. For one thing, better mortgage deals will be available to you the larger your deposit is. Go and see a financial adviser, who can talk you through the size of deposit you’d need, and will tailor their advice to your personal circumstances.
- Consider the additional costs
Don’t forget that you’ll also need cash to meet the additional costs of buying a home. These include stamp duty, which is payable at rates beginning at 2% on all property purchases priced above £125,000 (which means most houses these days, unfortunately), and the mortgage arrangement fees that will be charged by your lender. There will also be legal fees to pay your solicitor, plus charges for a survey of the property and Land Registry fees for registering your ownership of it. Plus you might need money to furnish your new home.
- Investigate the market
First-time buyers have access to all the same mortgage products as other borrowers and some lenders also offer them special deals from time to time. It’s worth looking out for these. In addition, both the mortgage industry and the Government have worked hard to come up with initiatives and innovations designed to help first-time buyers get on the first rung of the property ladder. Again, this is something a financial advisor will be able to talk you through.
- Talk to your family
Several mortgage lenders offer products aimed at families, where parents or grandparents want to help their children out with a home purchase. These include guarantor mortgages, where a family member agrees they will make the repayments if the borrower can’t; dependent-relative mortgages, similar to a guarantor mortgage, but where a family member is expected to pay the mortgage for a dependent who lives in the house, such as an elderly grandparent or a child who is a full-time student; and joint mortgages, which are for children and parents buying together. Family offset mortgages aim to use parents’ savings to help reduce children’s mortgage costs.
- Think about shared ownership and shared equity schemes
These two are similar ideas. With shared ownership schemes, which are typically offered by housing associations, you borrow enough to buy a share of the property – say 75%. Then you pay rent on the remaining share. One criticism of such types of ownership is that there can be unexpected increases in rent and other charges that may leave some home-owners feeling trapped. With shared equity schemes, you buy the whole property, but you take out a loan to fund the deposit as part of the agreement. What you owe rises in line with any rise in the property’s value.
- Look into Government schemes
The Government runs two separate schemes to help people that are struggling to buy a home. The Help-to-Buy scheme and New Buy are available to buyers with a deposit of between 5% and 20% of a property’s value. They work by either offering you an interest-free equity loan to buy a new-build property or by the government part-guaranteeing a mortgage loan to make it less risky for a lender to offer you a mortgage. However, it should be noted that remortgage options on the Help-to-Buy scheme are often very limited, so again some home-owners may feel trapped.