Getting onto the housing ladder for the first time can often involve a complex process. It’s easy to be daunted by the sheer number of technical terms and concepts involved – and that’s before we even consider the practical problem of saving enough money for a deposit.
What is a first-time buyer?
It’s worth ensuring that you actually qualify as a first-time buyer. It can actually be highly consequential, since first-time buyers are exempt from stamp duty up to £300,000. Similarly, if you’re considering a help-to-buy or lifetime ISA, it’s worth first figuring out whether you’re buying property for the first time. Crucially, you only count as a first-time buyer if you haven’t owned even a small share of a property before.
Saving for a deposit: how much do you need?
The bigger the deposit you can put down at the outset, the better your chances of securing a mortgage. You might consider 5% of the total being borrowed as a bare minimum, but many lenders will insist that you offer 10% or more.
So, if you want to buy a £200,000 house, you’ll need to save £20,000. This amounts to around £333 per month over five years.
What type of property are you looking to buy
Properties come in many different shapes and sizes. You might look at a new-build property, period one, or something in between. Different standards for construction have been applied in different eras. You might find that older properties are more spacious, with higher ceilings – but that they’re more difficult to heat. On the other hand, new-builds won’t feature period features but will be more energy efficient.
You might also look into a flat, which would be just a small part of a larger property. Flats tend to be leasehold purchases, which means that you won’t own the land the property is built on. The opposite of this is freehold, where ownership covers both the building and the land.
A mortgage is a loan secured against the property you’re going to be buying with the money. In short, the lender will pay for your house, and they will own it for the duration of the term. Over time, you’ll slowly buy them out of their share of the property.
One thing worth paying attention to is the loan-to-value ratio, which puts the value of the property against the amount being borrowed. So, if you’re putting down 10% in your deposit and having the bank cover the remaining 90%, you’ll have an LTV rating of 90%.
What help is out there for first-time buyers
Saving up for a deposit isn’t easy. Fortunately, there are plenty of ways for first-time buyers to help themselves. The aforementioned lifetime and help-to-buy ISAs can be helpful. These involve the government contributing to your savings, based on the amount you’re putting away every year. Then there’s shared ownership, which is basically a 50:50 split between buying and renting. Other schemes, like the help to buy equity loan, are no longer available.