Buying a home is one of the biggest and most expensive investments most Britons will make in their lifetime, making it all the more important that they have a good understanding of complex finances involved. Home finance specialist and director of Anderson Harris, Adrian Anderson, has shared his top six tips for first-time home buyers.
The Nationwide Building Society reported at the end of March that the annual growth in house prices in the UK was 14.3%.
This represents an increase of more than Â£33,000, with the average house price hitting a record high of Â£265,312.
With that in mind, it’s no surprise that younger generations are increasingly dismissive and concerned about their prospects of owning a home in their lifetime.
However, it can always be done, but Mr Anderson suggested ‘they want to make sure they tick all the boxes’ in order to get a good mortgage and strengthen their position to buy their dream home.
The first of these boxes is understanding mortgage capacity.
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The world of work and income has changed dramatically, with a range of employment models and payments in play, with mortgage lenders generally having different criteria for each type.
Mr Anderson advised Britons to speak to “an independent mortgage broker before you start your search” as this could help them understand their mortgage capacity and general budget when browsing the market.
He noted that this step has become all the more important “as costs and interest rates rise” and as lenders update their affordability calculators to better reflect the current cost of living.
He said: ‘So having a current and clear view of your mortgage capacity will be important when you start viewing properties.’
Having a good credit score can go a long way in helping a person find the best possible mortgage, but a variety of factors affect this score, including:
- Have lived at several addresses in a short time
- Have no credit history
- Not be registered on the electoral lists
- Not having utility bills in their name.
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Britons who do not use debt products such as credit cards may find that they have a limited or no credit history, which is used by lenders as a benchmark to see how consistent they are with repayment debts they owe.
Mr Anderson recommended the services Experian or Equifax where Britons can check their credit ratings without impacting their rating.
Having a high credit score can be extremely helpful since most first-time home buyers have a small deposit, but a high credit score can help them get a high-value mortgage as a result.
Mr Anderson also warned Britons to remember that lenders look at their income but also at their expenses. People who have a lot of expenses and credit commitments may find that they have limited mortgage capacity.
That’s not to say Brits with credit cards or loans can’t get their ideal mortgage, but being up to date with payments on all commitments will put them in good stead.
For those buying a home with friends or siblings, Mr Anderson advised setting up an agreement with a solicitor first.
This agreement will record who contributes what and what percentage will be awarded to each party involved if the property is sold.
Mr Anderson said: âIt is very important to do this from the start to protect yourself later. It shouldn’t cost a lot of time or money to set up and it’s definitely an investment well spent.
Alongside this, Mr Anderson recommended Britons think about how long they are likely to use the property, as this could change the type of mortgage that would suit them best.
He shared, âLong-term fixed rates are currently very attractive and can help with budgeting. They also provide peace of mind against rising interest rates.
âThe downside is that they will include prepayment penalties. These will kick in if you choose to quickly move on by paying off the mortgage during the fixed rate period. When viewing a property, think carefully about the area it is in, your location and your plans.
He stressed, “Don’t commit to a long-term fixed rate if you think you’ll outgrow the property in several years.”
Even though buying a home can be an incredibly expensive undertaking, even with the lowest cost, Mr Anderson noted “it’s not worth saving up”.
He advised: âA wise investment is to hire a good lawyer. Also, don’t rely solely on the bank’s mortgage appraisal (survey) of the property. This doesn’t always give you a complete picture of the condition of the property and your potential liabilities in the future.
âOrder your own survey so you are fully aware of what you are buying. To find good business contacts, reach out to friends or others you know who may have purchased recently and ask for recommendations.
Finally, there is a range of government programs designed to help first-time buyers get on the property ladder.
These include savings products like the Lifetime ISA, financial support through co-ownership, and a loan to help ease the costs of new construction.