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What first-time home buyers need to know

Key Points

  • Before looking for a home, work out what size mortgage you can afford.
  • Budget for extra costs, such as stamp duty and solicitor’s fees.
  • Schemes such as Help to Buy can be useful if you’re struggling to save for a deposit.
  • You don’t pay stamp duty on properties that cost £300,000 or less.

What is a first-time home buyer?

You’re a first-time buyer if:

You’re not a first-time buyer if:

  • you’ve never owned a home before, in the UK or another country
  • you’ve never owned a home before, anywhere, and you’re buying the property to rent out to tenants (however, in this case you would not qualify for stamp duty relief)
  • you’re buying a property with someone who already owns—or once owned—a home
  • someone who already owns a home is buying the property for you and registering it in their name (for example, your parents)
  • you inherited a property in the past, even if you never lived there and no longer own it

That said, not all mortgage lenders use the same rules, and so you might qualify for a first-time buyer’s offer even if you expect to be turned down.

How do I become a first-time home buyer?

Each stage of the typical buying process is set out below.

Step 1: Get your finances in order

While viewing properties is the exciting part, it shouldn’t come first. Instead, make sure you have everything in place financially, so the purchase can go as smoothly as possible.

Deposit

You’ll need to have saved at least 10% of the cost of the home to put down as a deposit (unless you’ve agreed a different figure, such as with a Help to Buy deal).

Mortgage

Most first-time buyers need a mortgage to buy their home. Although there are several types of mortgage, you’ll likely choose between:

Repayment mortgage

Interest-only mortgage

  • You pay back what you borrowed—plus interest—over an agreed term.
  • Once you’ve paid off the loan, you own your home outright.
  • You pay just the interest every month, for the agreed term.
  • At the end of the agreed term, you must repay what you borrowed, in full. You can use funds from savings, investments, pensions, shares or proceeds from selling the property.
  • You should only consider an interest-only mortgage if you’re able to make the repayment at the end of the term.

Find out how much a mortgage lender will allow you to borrow for your purchase. Always shop around for the best possible rates.

Often, a lender can give you an agreement in principle (AIP). This is written confirmation of the amount they’re prepared to lend you, once they’ve carried out their checks.

Having an AIP means once you find the home you want to buy, you’ll be ready to make an offer. And your offer will be more enticing to the seller, who may have a number of offers to weigh up and prefer to choose a buyer who can prove they have the funds in place.

Financial documents

Having all your paperwork in order will help keep the process moving along. Your mortgage lender will ask for:

  • your home address for the last three years
  • payslips from the previous three months and your last P60 form, or accounts for the last three years (if self-employed)
  • bank statements from the last three months
  • full details of any loans, credit cards or other financial commitments you have

Step 2: Find a home

With your finances straight, you can now seek a home. It’s important to make sure that the property:

1 …is within your budget

So you can negotiate the purchase from a strong position, do the following research:

  • Investigate what prices other similar properties in the area have been selling for
  • Look into the property’s history, including:
    • how frequently it’s been up for sale—a high number of recent sales could mean there are problems you need to explore further
    • how long the house has been on the market—if it’s a long time, the seller might accept a lower price

Your building surveyor’s findings will also influence price. If the house needs significant repairs, you should look to have these reflected in the final cost.

As well as the purchase price, you’ll also need to budget for costs such as:

2 …meets all your needs

If you have children, think about where schools and other amenities are located. The internet is useful for finding school Ofsted reports and information on an area’s transport links, crime rates and so on.

A mortgage lender’s main concern in lending you money is whether your home would be easy to re‑sell, so ask yourself whether the property would be in demand if put on the market.

Step 3: Make your offer

You’ve found your perfect home, so make an offer! You can do this verbally through the estate agent that’s handling the sale. It will liaise with the seller.

If your offer is accepted

If your offer is turned down

  • You buy the property ‘subject to contract’. The sale only becomes legally binding when you and the seller have signed and exchanged contracts.
  • You’ll need to negotiate with the seller until you find a price you both agree on.

There’s more information about making an offer here.

Step 4: Apply for your mortgage

You’ve agreed a mortgage in principle—now’s the time to submit a formal application to your lender.

Step 5: Hire a conveyancing solicitor

Buying a house involves complex legal issues that need to be handled properly, which is why appointing a conveyancing solicitor is always recommended.

The conveyancing process—and what you’ll need to do throughout—is set out below. The conveyancing solicitor’s role is explained further here.

Weeks 1–2

  • Return all of the solicitor’s initial paperwork, including proof of identity and any funds. If you are being gifted money towards the deposit, let the solicitor know as they will need more information from you in regards to this.
  • Arrange a survey on the property. Your lender or estate agent can help you choose a suitable surveyor.

Weeks 2–6 (approx.)

  • Receive your mortgage offer and surveyor’s report.
    • Providing you’ve given the lender your solicitor’s details, the lender will issue the solicitor a mortgage offer with the relevant legal pack contained within it.
    • You should also send a copy of the surveyor’s report to your solicitor for them to check.
  • Your solicitor checks the contract pack and title deeds and makes any necessary enquiries with the seller’s solicitor.
  • Enquire about the cost of buildings insurance, as there may be potential risks (such as flooding) that increase your premiums. This will need to be in place from exchange of contracts.
  • Buy a life insurance or endowment policy to protect your mortgage. You may also want to arrange home contents insurance for when you move in.
  • Your solicitor receives the results from the searches and checks they are satisfactory. If the searches reveal any issues, your solicitor will deal with this and send you a copy of the searches along with an explanatory report.

Weeks 6–12 (approx.)

  • Receive the property report from your solicitor, which will include their comments on the purchase.
  • Arrange with your solicitor a date to sign the contract (or have it sent to you to sign and return). Always check the property before signing just to make sure you’re happy and that nothing has changed since your viewing.
  • Your solicitor should be able to agree a completion date with the seller’s solicitor. They will also ask for the mortgage lender to send them the mortgage advance one working day before completion.
  • Pay your solicitor the deposit. Also have ready any funds you’re contributing yourself (i.e. not from a mortgage) so you can send these to your solicitor before completion.

Completion

  • On the day of completion, your solicitor will send the funds for the purchase to the seller’s solicitor.
  • Once the seller’s solicitor has received the funds, you will then be able to collect the keys for your new home. Your solicitor will call you to confirm when you can do this—it’s usually around lunchtime.

Is there any government help for first-time buyers?

Yes, through the Help to Buy scheme. The government created this scheme to help first-time buyers who are struggling to find a deposit of at least 10%. It allows buyers to purchase a property with a deposit of just 5%.

Help through the scheme is only available to:

  • first-time buyers
  • existing homeowners looking to buy a new-build property (in England—the Welsh Government has a different but similar scheme)

It can’t be used to buy second homes, buy-to-let properties or homes above a certain price limit, nor can you enter into a part-exchange deal on your old home.

The scheme can help in the following ways:

Equity loan

This option is only available when buying a new-build home worth no more than £600,000. You borrow up to 20% of the purchase price from the local government agent, assuming you have a 5% deposit and a mortgage for the remaining 75%. The loan is interest-free for the first five years.

Click here for more information about equity loans.

Shared ownership

You buy a percentage of your home from the landlord—usually the council or a local housing association—and then rent the remaining share from them at a reduced rate. The share you buy is typically between 25% and 75%, and this must be paid via a repayment mortgage or personal savings.

In the future, you then have the option to buy further shares in your home from the landlord. Some schemes only allow you to buy up to a certain percentage (such as 80%), so you should check the particular scheme meets your requirements before entering into it.

Click here for more information about shared ownership.

Help to Buy ISA

If you’re saving to buy your first home, you can boost your savings by putting them into a Help to Buy ISA. With one of these accounts, the government gives you a 25% bonus. So, for every £200 you save, you receive a bonus of £50. The maximum bonus you can receive is £3,000.

Click here for more information about Help to Buy ISAs.

Lifetime ISA

With a Lifetime ISA, you can pay in up to £4,000 every year, until you reach the age of 50. Like the Help to Buy ISA, the government gives you a 25% bonus, but up to a maximum of £1,000 per year.

Once you turn 50, you won’t be able to pay any more money into your ISA (or earn the bonus). Instead, your account remains open and your savings earn interest or investment returns.

Click here for more information about Lifetime ISAs.

Can a first-time buyer purchase a buy-to-let property?

Yes, and some lenders are encouraging this by making their buy-to-let mortgages available to first-time buyers. However, as first-time buyers are seen as a higher risk, the conditions for a mortgage are more strict. You also need to consider the following.

  • In most cases, you’ll need a deposit of at least 25%.
  • As a buy-to-let landlord, you pay stamp duty at the standard rate, plus an extra 3% (if you own more than one property).
  • You can’t take advantage of the Help to Buy scheme, as this is for people who intend to live in the property they buy.
  • You must be able to cover the mortgage payments during the periods in which you don’t have a tenant.
  • You can’t get a buy-to-let mortgage and then live in the house yourself. Lenders usually have requirements about who you can let the property out to and on what type of tenancy agreement.

Click here to read more about buy-to-let mortgages.

Do first-time buyers pay stamp duty?

Not for properties priced at £300,000 or less.

If your home costs between £300,000 and £500,000, you’ll pay stamp duty land tax (SDLT) of 5% of the amount of the purchase price above £300,000. So, if the property costs £400,000, you’d pay £5,000 in SDLT.

Properties worth more than £500,000 incur SDLT at the normal rates. Those rates are set out here.

Can I buy a home with no deposit?

Unfortunately, no. Finding a deposit is still one of the biggest drawbacks for first-time buyers, which is why schemes such as Help to Buy were introduced.

Some first-time buyers use deposits gifted to them by family or friends. However, doing this means following a strict process, and some mortgage lenders don’t accept gifted deposits at all.

Do first-time buyers pay solicitors’ fees?

Yes. Click here for an instant estimate from Graysons, or contact us now to discuss your purchase.

Related content

10 steps to buying a house

8 steps to buying a new-build home

Shared ownership

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You can read more about the merger here. Graysons will be pleased to help with your enquiry. Please visit our web pages or contact us directly on 0114 358 9009

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