First Time Buyer
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First Time Buyers
Kevin Spear explains the mortgage process for First Time Buyers.
Is the mortgage application process any different for First Time Buyers?
The application process is largely the same – but that said, it’s the first time that the applicants will have ventured down the path of purchasing a property so there’s lots to learn and consider. This is one of the biggest financial transactions that anyone can undertake. That’s why having a broker like us is so helpful.
A broker will help navigate that journey for people looking to buy their first home. We’ll make sense of the jargon and the process, as it can differ from lender to lender, and really make that journey simple. Our job as brokers is also to act on behalf of the lender and make sure that the applicant has everything they need to go forward – so things like proof of deposit, proof of earnings etc.
Often we will also liaise with the estate agent so that they understand that the mortgage is in place and the applicant is ready to put an offer in to the vendor. With First Time Buyers our role is quite involved – because we want to get you through that journey to owning your first property.
What is an Agreement in Principle?
This is probably the most important part of the process for the applicant. Once you want to put an offer in on a property, the first question the estate agent will ask is whether you have an Agreement in Principle. An Agreement in Principle is simply the lender saying yes, in theory we are prepared to lend X amount of money to these individuals.
Often an estate agent won’t actually put an offer forward to the vendor unless that Agreement in Principle is in place. Our job is to get people to that stage and help them beyond it. We will look at things like earnings, deposit and credit score to make sure we can present you to the right lender for that Agreement. The lender simply says yes, subject to evaluation we will lend you the money. They’ve checked your credit score and the mortgage literally then hangs on the property being acceptable – and most are as long as there’s not a structural problem.
The Agreement in Principle is very important. It’s the first step – and something a First Time Buyer will need before they start looking. If you’re looking at Rightmove and thinking of booking viewings, that’s the stage to be talking to a mortgage broker.
How much can a First Time Buyer borrow and what sort of deposit is needed?
Deposits are important. The bigger the deposit in proportion to the property purchase price, the better your rate will be. A good deposit makes the journey to apply for a mortgage easier. Credit scoring is a lighter touch and the documentation required by the lender is not as significant.
We look at deposits from 50% right down to 5%. If you’re at that 5% end, that represents more work for the lender. They will be more diligent about what they will and won’t accept and your credit file plays a bigger part in that story.
There are some options to consider with regards to deposits. A gifted deposit is as it sounds – it’s a sum of money gifted to the applicants, usually by a family member. Most lenders will require it to be from a blood relative – brother, sister, mum, dad, sometimes uncles and aunts.
The idea is that this is a no-strings-attached gift. They don’t want the money back or an interest in your property. They need to be prepared to sign a letter to the lender to say as such. The gifted deposit could be the whole deposit or a contribution towards it.
When should a First Time Buyer come to see a mortgage broker?
The best time to reach out to a mortgage broker is in that period where you move from Rightmove or online viewing into phoning up or clicking a button to make an appointment to view.
We often come across people who have put offers in on properties without getting that Agreement in Principle in place. Even if it only takes a few hours to get that Agreement ready, sometimes that can be the difference between getting the property and missing out. So definitely talk to us before you start viewing.
How do I know what my credit score is and how do I improve it?
Credit scores consist of a three digit number and people often think that you just need to get to 999 or 998 and that’s the end of the story. But a credit file actually shows a footprint of your conduct over quite a number of years, so it’s not just the number that we’re looking at.
We’ve seen very straightforward deals go through with quite a low credit score but good conduct – and vice versa. A broker’s job is to match your credit profile to the way a lender will view that credit file. Not all lenders, for example, will take notice of the score. Some are far more lenient on conduct or level of indebtedness than others. So if we’ve got clients with a slightly challenged credit score, we would ask to look at the details because that will dictate where we go for the lending. This is one area where our experience can be invaluable.
Some lenders actually have a computer-led algorithm where there’s not much room around the decision. Other lenders will actually have an individual underwriter look at the overall case, where a more human approach can be taken.
Typical issues tend to be around things like mobile phone companies where people have missed the end of contracts – we see quite a lot of this. People worry unnecessarily about that because many lenders will ignore credit issues with phone companies. If your credit file looks slightly complicated, we can navigate that for a client.
What help or schemes are available for First Time Buyers?
One of the most common questions we come across is whether you can get a guarantor for your mortgage. People think that because mum and dad have a property it can be offered as security. That’s not the case, but a good solution is something called Joint Borrower Sole Proprietor. It makes the mortgage like a joint account, with the applicant plus mum, dad, brother, sister etc., but the only person on the property deeds is the applicant.
A typical scenario is that mum and dad are going to boost the income on the application. They are party to the mortgage and the mortgage liability. If you weren’t earning quite enough to borrow what you need for a property, but one of your parents is able to jump onto the application with you, we add their income and use the total as the basis to work out the maximum loan. So that’s Joint Borrower Sole Proprietor.
What sort of fees are involved when buying a house?
It’s very important to be aware of the fees because they’re not insignificant. We’re recording this in Spring 2023 and we’ve just had some changes to stamp duty levels. Stamp duty tends to be the biggest cost for people buying properties, but there is a level below which stamp duty is not payable for First Time Buyers. This is more generous in London than elsewhere. But beyond that stamp duty is payable to the inland revenue on all purchases.
The other fees and charges that you’ll incur are from your conveyancing solicitor who will typically charge around £1,200 to do the legal work to process your mortgage and register it on behalf of the lender, with the Land Registry.
A lot of brokers charge brokerage fees. Mortgage Marketplace charges fees, and these are more favourable for First Time Buyers. Go to our website or talk to us to determine what those fees are for you.
The lender will also charge fees – including a valuation fee for someone to visit the property to check it over and make sure it’s appropriate mortgage security. If you have a fixed rate product or a discounted tracker product, often the lender will charge for that product.
We will talk with you about whether you will pay that fee upfront at mortgage completion or add that fee to the loan. There’s an option to do either. We tend to advise people to pay the fee rather than adding it to the loan because it will be part of the loan forever, accruing interest.
Can you help First Time Buyers with other services, such as mortgage protection?
A number of things go along with the mortgage. Typically a First Time Buyer will not have used a conveyancing solicitor before so we can provide details of relevant solicitors that can help. We will obtain a quotation where we’ve done due diligence and we understand the service levels and work volumes, so that we know they can actually do the work in reasonable time.
The conveyancing industry struggled a bit in terms of capacity during and since Covid, which can be a source of frustration for applicants. We don’t insist that you use our partner solicitors, but we’ll offer guidance.
We do look at protection products – typically life assurance and critical illness cover, plus income protection. These are additional financial products to support the mortgage recommendation, subject to people’s circumstances. Some are relevant, some are not and we would give advice in that area.
Other things we typically look at are buildings and contents insurance. If you are buying a property for the first time, you might not have come across the requirement for buildings insurance, which a lender will want. Equally, your contents can add up to quite an amount of money so it’s always a good idea to insure those things. We’re there to help with that too.
What else should First Time Buyers consider?
The typical First Time Buyer is sometimes a bit unsure as to how to approach the whole transaction – or even how to approach a mortgage broker. There’s a lot of jargon in our industry and this can be quite daunting.
We’re very used to helping First Time Buyers. There’s no such thing as a silly question – all your queries are relevant because this is a journey you’re taking for the very first time. We’ve got a lot of experience and I would encourage First Time Buyers to pick up the telephone at your earliest opportunity.
We’re happy to help. It’s really quite a simple journey once you get your head around some of the jargon. We’re also there to ‘put out fires’ – sometimes estate agents can get quite impatient as they get paid when the deal goes through. We can take some of the heat out of that scenario by making the communication clear.
If something doesn’t go quite so smoothly with the solicitor or mortgage company we keep you informed about timescales and reassure you that the deal is going to go ahead and everything’s fine.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Frequently Asked Questions
Call us today on 0800 170 7021 to discuss your borrowing potential and eligiability.
Typically, the mortgage process will take 2-6 weeks to reach approval.
A mortgage offer is usually valid for 6 months.
Please be aware, the process is currently taking longer due to Covid-19. Please see question ‘How has Covid-19 affected the mortgage market?’.
Whilst you are not required to take out a life cover, our job is to ensure your mortgage is affordable, no matter what. It may not be nice to talk about, but if something were to happen to you, you want to know your family and investment are safe.
We will advise on all the options available and provide a no obligation quote from our partner providers.