A guide to buying your first home

31/08/23

Purchasing your first home is an exciting time, but it can be overwhelming too, as you are faced with unfamiliar terms and processes. From searching for the right property to securing a mortgage, there's a lot to learn and consider. In this step-by-step guide, we'll walk you through the basics of buying your first home, how to navigate industry language and mortgage terminology, and make the process of buying your first home easier to understand.

Let’s start with the basics: What is a mortgage?

A mortgage is a type of loan specifically designed to help you buy a home. Instead of paying the full price upfront, you borrow money from a lender (usually a bank or building society) to cover the cost of the property. This borrowed amount is then repaid over a set period, usually between 25 to 30 years, through monthly instalments.

Setting your budget: how much can you afford?

Before delving into the home-buying process, it's crucial to determine how much you can afford. This involves evaluating your financial situation, considering your income, expenses, and any existing debts. A common guideline is the ‘4x rule’, where your mortgage amount is approximately four times your annual salary. However, lenders will also assess your affordability based on your credit history, employment status, monthly spending, and other financial commitments. We highly recommend speaking to an independent financial advisor, who will help you to determine your genuine affordability.
Getting the right mortgage: Types and rates

^{We do not receive any commission or financial reward for recommending any financial advisors from our panel and you are able to seek independent advice should you wish to do so.}

Mortgages come in various forms. Two primary types you'll come across are ‘fixed-rate’ and ‘variable-rate’ mortgages.

Fixed-rate mortgage: With this type, your interest rate remains constant for a set period; usually two-to-five years. This provides stability, as your monthly payments won't change, even if interest rates rise.

Variable-rate mortgage: Here, your interest rate can fluctuate according to changes in the Bank of England's base rate, or your lender's standard variable rate. While initial rates might be lower, there's a level of uncertainty regarding future payments.

What it means
Interest Rate - The percentage of your mortgage loan that you pay in addition to the loan amount. It's the cost of borrowing money.

Mortgage deposit: Saving for your dream home

A mortgage deposit is the upfront amount you contribute towards the property's purchase price. Generally, you'll need at least 5-10% of the property value as a deposit to secure a mortgage, although some lenders do offer the occasional 100% mortgage under special circumstances.

The bottom line is that saving up and putting down a larger deposit can lead to better mortgage deals with lower interest rates. And whilst you won’t need to pay stamp duty as a first-time buyer of homes up to £425,000, remember to factor in solicitor fees, and any fees for taking the mortgage out with your lender, when budgeting.
Get professional, independent advice

Navigating the mortgage market can be overwhelming, especially when you’re buying your first home. Mortgage brokers and financial advisors are professionals who can help you find the most suitable mortgage deal, based on your financial situation and preferences. They have access to a wide range of lenders and can guide you through the application process.

What it means
Mortgage Broker - A professional who helps you find the right mortgage by comparing options from various lenders. They provide expert advice and assist in the application process.

Agreement in principle (AIP): Understanding your eligibility

Before you start scouring Rightmove and booking viewings, it's advisable to obtain an Agreement in Principle (AIP) from a lender. This is a preliminary indication of how much you will be able to borrow, based on a basic assessment of your financial situation. While an AIP isn't a guarantee, it helps you understand your budget and shows sellers that you're a serious buyer, so if you view your dream home and want to proceed, you’re already on the journey.
House hunting: Finding your perfect home

You’ve got your budget and you know what you can comfortably afford, so now it’s time to start viewing homes. Create a list of your priorities, such as location, number of bedrooms, and amenities. Attend viewings with a critical eye and make sure you ask as many questions as you can. If you’re unsure or have more questions, book multiple viewings and take family members or friends with you to help you make this important decision.
Making an offer: The negotiation process

Once you've found the ideal property, it's time to make a formal offer. This is your time to negotiate, so be prepared for some back-and-forth before arriving at a price that you are happy with. Remember that your position as a first-time buyer and not having a buying chain may help your negotiation, as the sale has a better chance of proceeding in a quicker time frame.

What it means
Buying chain - A chain is where a group of home buyers and sellers are connected and each purchase and sale of properties depend upon the previous sale in the chain.

Mortgage application: From offer to approval

Once your offer is accepted, it's time to formally apply for your mortgage. This involves providing detailed financial information to the lender, who will assess your application and conduct a property valuation. If everything checks out, you'll receive a formal mortgage offer.

What it means
Property Valuation - an assessment of the property's value to ensure it aligns with the proposed mortgage amount.
Conveyancing: Legal aspects of buying the home

Conveyancing is the legal process of transferring property ownership from the homebuilder into your name. You'll need a solicitor or licensed conveyancer to handle this aspect. They'll conduct searches, handle paperwork, and ensure that the property's ownership is transferred smoothly.
Completion: Finalising the purchase

Completion is the exciting moment when all the paperwork is signed, and the property officially becomes yours. At this point, you'll transfer the funds (including your deposit) to the seller, and you'll receive the keys to your new home.

Congratulations! You're now on the property ladder and can call yourself a homeowner. It’s now time for the fun stuff where you can start planning how you’re going to decorate and furnish your new home.

Remember that buying a home is a significant financial commitment, so it's crucial to plan ahead and make informed decisions every step of the way. With the right preparation, a solid understanding of the process, and the support of professionals, your journey towards buying your first home can be a very rewarding process.