Buying your first home can appear a very stressful and daunting process at first. Using our experience and knowledge, Cailean will aim to help you feel more relaxed and confident about what you are entering into.
Typically, the minimum deposit required is 5% of the lower of purchase price/valuation. If the purchase price is higher than the valuation, then the difference would be required as a deposit. For example:
- If the valuation and purchase price were both £100,000, you would require a deposit of £5,000;
- If the valuation was £100,000 and the purchase price was £102,000, you would require a deposit of £7,000 (£100,000 x5% + £2,000);
- If the valuation was £100,000 and the purchase price was £98,000, you would require a deposit of £4,900.
The larger your deposit, the better interest rate you are likely to get because the lender is less exposed should you default on your mortgage payments. The deposit can come from various sources such as your own savings or as a non-repayable gift from a family member. Different lenders have different approaches to source of deposits, which is something we take into consideration when looking for the most suitable lender for you.
When assessing the affordability of your mortgage, we need to take into consideration other factors that can affect your ability to pay, e.g. existing credit commitments (loans, Hire Purchase, credit/store cards), child maintenance payments and typical living expenditure.
Incomes that are considered suitable for mortgage purposes are basic salary, self-employed net profit, guaranteed and regular overtime, bonus payments, child maintenance, tax credits and other benefits payments. Lenders have different lending criteria and view acceptable forms of income differently, so we would source the lender that best matches your circumstances and requirements.
As a First Time Buyer, you may be unsure of the other costs associated with purchasing and running your new home. Summarised below are some examples of what you’ll need to pay:
- Mortgage arrangement and valuation fees - some of these can be added to the loan, if required, but it would mean you would be paying interest on the initial amount borrowed if you do this. Some lenders will have deals suited to the First Time Buyer market and offer incentives such as a free valuation and no arrangement fees.
- Stamp Duty Land Tax (or Land and Buildings Transaction Tax in Scotland). You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over £125,000 in England, Wales and Northern Ireland. Land and Buildings Transaction Tax (LBTT) is a tax applied to residential and commercial land and buildings transactions (including commercial purchases and commercial leases) over £145,000 where a chargeable interest is acquired. It was introduced in Scotland on 1 April 2015, replacing Stamp Duty Land Tax.
- Solicitor’s fees - these vary depending on purchase price, but typically would be a minimum of £750.
- Survey cost - in Scotland, the lender will request copy of the Home Report transcript at no cost. In England, costs vary depending on the purchase price.
- Removal costs – these vary as you may have friends and family to help you, meaning little or no cost, or you may need to hire a removals firm.
- Initial furnishing and decorating costs – these depend on your own budget and what the property requires.
- Buildings and contents insurance – these will vary depending on both the property value and location. They can be a combined policy or separate policies.
- Protection – there are various types of cover such as a life cover/combined life and critical illness cover, which can be set up with the aim of repaying your outstanding mortgage should you die or contract a critical illness (for the critical illness plan) during the term of your mortgage. Alternatively, an income protection plan could cover your mortgage payments or other essential expenditure should you be unable to work due to illness. The cost of cover would depend on the type, amount and term, as well as your age, smoker and health status. If you want to find out the cost of cover, please let us know and we can provide you with an illustration.
The buying process
After our discussions, we aim to have all the information required to:
- calculate the maximum you could borrow;
- calculate the deposit required;
- assess your credit history;
- source the most suitable lender.
At this point, it’s good practice to apply for an agreement in principle from the most suitable lender. The lender will assess your affordability and carry out credit checks at this point, which allows them to say whether they can lend to you.
If you successfully secure an agreement in principle, that is the point to start looking at properties within your budget. If you look for properties before this point, you won’t know what your budget is or whether you can get a mortgage. You wouldn’t want to see your perfect home to find out you are unable to secure the mortgage you need on it.
Once you have found a property within your budget and the lender's lending criteria, you can instruct your solicitor to make an offer. If you don’t have a solicitor, don’t worry - we can find you one.
If you’re successful with your offer, we then resubmit your mortgage application to the lender as a full application. This is the point we send them the supporting documents for assessment, i.e. proof of deposit, payslips, bank statements, proof of ID and address. Once complete and approved, they will produce an offer of loan to allow you to proceed with the purchase.
You will be required to transfer your deposit funds to your solicitor prior to completion, so it’s best to have them readily available for easy access. On your completion date, the lender will release the mortgage funds and the solicitor will settle the financial details with the vendor's solicitor. Once this is all complete, you can move into your new home.
Hopefully, this has been helpful and resolves some of the urban myths that exist regarding mortgages. Finding the best mortgage for you can be difficult without the help of an experienced Independent Mortgage Adviser, so if you require advice, please feel free to contact us on 0131 510 7071.