Your first bike, your first car, your first kiss; buying your first home has to be up there with some of the biggest ‘first’ events in your life! I certainly remember when i went through the process for the first time, and i remember to this day the mortgage adviser that helped us!! Having a place that you can call home, that is yours to nest in, not having a parent or a landlord watching over you; it’s an exciting time. It can also be quite a stressful time though, with many hoops to jump through and ducks to get in a row.
To ensure that you are well prepared for this life changing event there are certain things you can put in place and consider that will help buying your home go as smoothly as possible. In my experience here are the top 5 things to get in place so that the experience is a memorable one, in a good way, unlike my first kiss! 🙂
1) Save, save, save
It seems obvious to say, but the more you are able to save as a deposit, the better. The more you are able to put in at the start, the less you will pay in interest over the lifetime of your mortgage. Also, the higher the deposit you have, the more options you’ll have for more competitive interest rates. As a first time buyer you are likely to be at the younger end of the age spectrum, and other temptations may well divert your money; cars, eating out, holidays etc. It’s only natural, but if you’re serious about buying a property, you’ll need to seriously consider your spending and saving in order to achieve a healthy deposit. So what is a healthy deposit?
Until very recently, you needed at least 10% of the value of the property as a deposit. However, following on from the Spring budget delivered on 3rd of March 2021, the government has announced a 95% mortgage government backed scheme. The covid pandemic has hit a number of sectors hard and the government was quick to take measures to ensure the property market didn’t collapse. The introduction of 95% loan to value mortgages, backed by the government, is yet another measure designed to keep the housing market moving and allow it’s life blood, first time buyers, to flow. 90% loan to value mortgages of course remain readily available and until recently have been the only option for first time buyers.
So, work out what is achievable in terms of saving. Check how you spend your money each month and what your bank statement shows you – Is there anything you could cut down on?
2) Is your credit file looking healthy?
Check your credit history and the information that appears on your credit report. Your credit rating, also known as a credit score, is a number that reflects the likelihood of you paying back what you owe, including a mortgage. Basically, is it risky to lend you money? It is standard practice for lenders to run a check on your credit score before progressing with an application and depending on your score, a lender can make decisions about whether or not to lend. The healthier your credit score, the more successful your mortgage application is likely to be, although it is not the only factor in the decision making criteria.
You can access your rating by signing into a credit reference agency for free – such as Experian, Equifax or TransUnion. Each agency will have a slightly different scale, but generally, if you have a good score with one, the others will be similar. For example, with Equifax, a score between 0-279 is considered to be ‘very poor’ where as a score over 466 is considered to be ‘excellent’.
Activities that will negatively impact your credit score include missing payments or making them late, applying for significant amounts of credit in a short space of time, having multiple changes of address or even mistakes. Due to the increase in fraudulent activity, including identify theft, it is becoming more common place for improper financial activity to be noted on people’s credit rating. All the more reason to check it and get incorrect data removed! Negative marks will stay on your credit file for 6 years.
For more information on how to improve your credit rating, you can check out the Money Advice Service website.
3) Affordability & Budget
Again, this is pretty straight forward and obvious, but how much can you afford to spend each month? You’d be surprised by the number of people who really don’t properly consider this. A good rule of thumb is that you should allocate no more than 35% of your gross income to monthly mortgage payments. Quick maths, that leaves 65% for the rest; utility bills, council tax, fuel, food, clothes and some of life’s little luxuries maybe! Will you need to renovate or redecorate the new property, what about furnishings? Maybe those little luxuries will need to take a rain check for a few years?
Most lenders will ask for a break down of your monthly spend; rent, utility bills, loan repayments, savings and leisure activities etc. And they’ll want to see recent bank statements to back it up. Make sure that you have that 35% or more left for the necessary mortgage repayments. A number of lenders have simple and easy to use budget planners designed to help you visualise your spending quickly and easily.
4) Location, location, location
Do your research on where you want to live. What area is right for you? Is it affordable? Is there easy access to work, family, friends and being close to the things you enjoy doing. Affordability, particularly in the Reading and wider Berkshire area is becoming a problem, with many first time buyers who grew up in the area being forced to look further afield such as Basingstoke and Swindon to start their property journey. According to Rightmove, the average house price in Reading is currently £371k, compared to £321k in Basingstoke and £243k in Swindon.
Consider looking for more affordable property away from hot spots if you feel you can manage the distance from loved ones.
5) Find a good mortgage broker
As a mortgage broker and provider of wider financial services, naturally this would be on my list, but genuinely, having the help and support of someone who is experienced in the ways of the mortgage world can make all the difference to your journey. Our client feedback (pop out over on the right) demonstrates the value that we have been able to add to past clients. We keep an eye on the market, we speak with lenders on a regular basis and we understand the intricacies of the application process. A helpful and friendly voice to guide you through the process, we are here to answer any questions you may have (no matter how silly you think they are!) and reassure you throughout the process.