What first-time home buyers need to know

What is a first-time home buyer?

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:

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:

• solicitors’ fees—click here for a competitive quote from Graysons
• searches
• stamp duty (if this applies)
• buildings and contents insurance
• removals
• furniture (if the property is unfurnished)
• surveys/valuation

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.

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 government’s affordable home ownership schemes. These schemes include:

First Homes Scheme

First-time buyers in England may be able to get a discount of between 30% and 50% on the market value of a house, providing it is their only or main residence. The property can be:

• • A new home built by a developer
  • A home that someone has owned before and is bought through an estate agent.

Homes that are available under this scheme will advertised for sale by either a house builder or estate agent and will say that they are part of the First Homes Scheme. These homes are valued by an independent surveyor to ensure that the discount is based on actual market value.

A new build home cannot cost more than £250,000 (or more than £420,000 if the property is in London) after the discount has been applied. This maximum price can be lowered by a local council.

To be eligible for the scheme, you must be:

• • a first-time buyer – if more than one person is buying the property, all must be first-time buyers
  • 18 years of age or older
  • earning £80,000 or less a year before tax (£90,000 a year if the property is in London).
  • For joint buyers, the joint income must be less than £80,000 (£90,000 for properties in London) a year before tax. Income is based on income from the previous year
  • able to get a mortgage for at least half the price of the property

Joint buyers must all apply for the scheme, even if not all buyers are getting a mortgage.

Some councils set local eligibility criteria for the first three months that a property is for sale and may prioritise discounts being offered to specific groups of people, including:

• • key workers (defined by the council)
  • people who already live in the area
  • people on lower incomes

All applicants must meet the local income criteria, but only one, if buying jointly, must meet other local criteria imposed by the council.

There are also local exemptions for the armed forces and their families, whereby the following people do not have to be a key worker, but have to meet all other eligibility criteria:

• • members of the armed forces
  • former spouses or civil partners, divorced or separated from a member of the armed forces
  • widows or widowers of a deceased member of the armed forces (if their death was caused wholly or partly by their service)
  • veterans who left the armed forces in the last 5 years

You can usually only sell a home bought using the scheme to someone else who is eligible for the scheme and you must give them the same percentage discount that you originally obtained – based on the current selling price.

First Home Scheme. Get further details about how the First Homes Scheme works.

Lifetime ISA

You can use a Lifetime ISA to buy your first home.

With a Lifetime ISA, you can pay in up to £4,000 every year, until you reach the age of 50.

The government gives you a 25% bonus, up to a maximum of £1,000 per year.

Anyone aged 18 to 39 can open a Lifetime ISA.

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.

You can only withdraw money from a Lifetime ISA if you are:

• • buying your first home
  • aged 60 or over
  • terminally ill, with less than 12 months to live

If you withdraw money for any other reason, you will pay a withdrawal charge of 25%.

Lifetime ISA Click here for more information about Lifetime ISAs.

Shared ownership

This scheme is aimed mainly at first-time buyers, although it is available to other people.

You buy a percentage of your home from the landlord—usually a council or a local housing association—and then rent the remaining share from them at a reduced rate – usually around 2.75% of the value of the property per year. The share you buy is typically between 10% and 75%, and this must be paid for via a repayment mortgage or personal savings.

You will pay a deposit of between 5% and 10% of the share that you buy.

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.

Shared Ownership Click here for more information about shared ownership.

Help to Build equity loan

The government may offer you a Help to Build equity loan if you are:

• • buying land and building a new home on it
  • building an ‘airspace development’ flat (new homes built in unused space above an existing building)
  • converting a commercial property into a residential property
  • building a ‘custom shell home’ (where you are responsible for the design and layout inside, but the structure is built by a professional)
  • building a new home after demolishing an existing property

A Help to Build equity loan cannot be used to upgrade your existing home and can only be used to build one home. It cannot be a second home, and an existing home must be sold within 12 months of the date that the new home is built.

You can apply for a Help to Build equity loan of between 5% and 20% of the estimated land and building costs for your new home (up to 40% in London). The estimated costs must not be more than:

• • £600,000 for buying the land and building costs, with the building costs being no more than £400,000
  • £400,000 if you are building on land that you already own

Estimated costs cannot include VAT or money that is to be set aside in case of budget overspend.

In order to start a build project and get an equity loan, you must have a mortgage offer from a lender, although the mortgage does not need to be approved at the time of application for the loan. The mortgage must be a self-build mortgage and must be from a lender registered with Help to Build.

Fees are payable to manage the loan and interest is payable, monthly, five years after the date of the equity mortgage.

Help to Build You can get further information about Help to Build equity loans here.

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 £425,000 or less.

If your home costs between £425,000 and £625,000, you’ll pay stamp duty land tax (SDLT) of 5% of the amount of the purchase price above £425,000 if the total cost of the home is £625,000 or less. For properties above £625,000, SDLT is paid at standard rate on the whole price.

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