A first-time buyer is someone who has never owned a property before, including a home outside of the UK. If you've inherited a property, or owned a share of one, you will not be classed as a first-time buyer. Commercial landowners searching for their first home are still considered first-time buyers.
Over time, getting on the property ladder can be a great financial investment, but there are many factors to consider before taking this step.
- Freedom to make changes to your property: rental properties may come with restrictions, such as no smoking or no pets. Home ownership allows you to live your chosen lifestyle and make cosmetic changes such as interior decoration.
- A sense of security: home ownership provides a sense of security for your future. Your first home is yours to own, to develop, raise children, if you wish, or simply enjoy for as long as you want that property for.
- Long-term financial gains: while housing markets always fluctuate and historically, house prices have risen, over a long period of time the value of your house should increase. This will stand you in good stead for retirement, or buying a larger property in future as you will have an asset to sell when you are ready.
- Gaining equity: over time as you pay off more of your mortgage and the value of your home increases, so will your equity. Equity is the difference between the value of the home on the property market and the outstanding balance that you owe on the property.
- Saving money: while home ownership is a large investment initially, over a longer term you may notice your monthly mortgage payments may be less than your monthly rent.
- Understanding your credit score: this is the most important check a lender will make before offering you a mortgage. Check your score with a free checker such as Experian, which will highlight any red flags such as unpaid mobile phone bills.
- Eliminating credit problems: try to resolve problems such as overdrawn accounts or outstanding credit card bills. Keep your current account in credit for at least three months, and register your name on the electoral roll.
- Raising a cash deposit: higher deposits allow for more flexibility in mortgage payments and timescales. Many lenders will accept cash gifts from parents towards your deposit.
- Covering other expenses: your initial capital should also cover search and valuation fees, stamp duty and other legal expenses. Your mortgage adviser will advise you on these expenses.
- Meeting the criteria: you should have a proven employment record to meet the lender’s criteria. Keep at least three months’ worth of payslips, and be ready to present your bank statements.
- Finally, don't forget about the other costs associated with being a homeowner such as buildings and contents insurance, decoration and maintenance of your property and furnishing you new home.
The higher your deposit, the lower the Loan-to-Value ratio will be on your mortgage, which could give you access to better deals. As a minimum, your deposit should be 5% of the sale value, but try and raise as much as you can gain access to a wider range of mortgage products and potentially lower monthly repayments due to having a larger deposit.
Start saving and you'll soon see your funds increase. Make small swaps in your everyday spending and you could save thousands more pounds a year than you think you could. Check out our #SavingSwaps to find out how!
There are payment schemes available to help first-time buyers get on the property ladder. These two types of ISA are relevant for first time buyers.
Lifetime ISA
As mentioned above, a Lifetime ISA, or LISA, is a Government scheme that could help you gain 25% on top of your savings - maximum £1,000 bonus per year on £4,000 savings. Designed for buyers aged between 18 and 39, it could help you earn up to £32,000*.
Open your Lifetime ISA account
Help to Buy: ISA
A Help to Buy: ISA gives savers a 25% Government bonus on their savings once the balance hits £1,600 - up to a bonus of £3,000. This bonus is payable after the property purchase has completed so it can't be used towards your exchange deposit.
The Help to Buy: ISA scheme closes on 30 November 2019; however you can still claim the Government bonus and save in to a Help to Buy: ISA until 1 December 2030 if you already have or open an account before the closing date.
Find out more about the Help to Buy ISA account
Find out more about both the Help to Buy: ISA and the Lifetime ISA together on our comparison page.
When applying for your first mortgage, there are many steps to take, including tidying up your finances and arranging to see a mortgage adviser. To find out what you need to get started, download our first-time buyers guide to getting a mortgage.
Download the first-time buyer guide
Mortgage advisers, or mortgage brokers, do more than just match a lender and a buyer. They will research the right mortgage for you, and carry out the initial paperwork. They will also tell you how to keep your finances in order. Find out more about the benefits of using a broker.
Speak to an expert adviser at Nottingham Mortgage Services.
- Provide a comprehensive credit history: credit is not frowned upon, and many lenders will favour a paper trail of payments made on time.
- Be honest about your earnings: proof of a modest but regular income is far better received than sporadic large payments.
- Cut out unnecessary spending: some lenders may add leisure spending, such satellite TV subscription, into your long-term affordability.
- Improve your credit score: keep your accounts in positive values and pay off your debts.
- Stay in a “steady” state: dramatic lifestyle changes may look unfavourable to a lender.
- Offer a sizeable deposit: remember, gifts from parents are acceptable and you can gain bonus payments from Government-backed accounts.
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