Direct Line magazine

Top 5 tips for first-time buyers

Updated on: 12 March 2020

A couple stare at the homes listed in the window of an estate agent.

The average house price in UK cities in 2018 was just over £248,000, which is more than seven times the average earnings, according to figures from Lloyds Bank.

For many, this makes it tough to buy, but there are plenty of things first-time buyers can do to improve their chances of becoming homeowners.

Here are our top tips.

1. Top up your deposit for free

A deposit is often a stumbling block for first-time buyers. Even if you’re squirrelling away every spare penny, it can feel like your savings target is miles away. This is where the Lifetime ISA (LISA) can help, boosting savings by up to a maximum of £1000 each year.

As long as you’re aged between 18 and 39, you’ll be able to open a LISA and save up to £4,000 a year to buy a property, for retirement or both. Your contributions will be supplemented by a government bonus of 25%, up to the maximum of £1,000 a year. Funds held in a LISA can be used after 12 months to buy a first home valued up to £450,000.

The maximum available bonus is £33,000, but this is only possible if you open an account at 18 and save £4,000 each year until you’re 50.

If you already have a Help to Buy ISA (opening new accounts ended on 30 November, 2019), you can also open a LISA. However, you can only use the bonus from one of them towards buying a home.

2. Improve your credit score

When you apply for a mortgage, lenders will look at your credit history to see how you’ve managed any borrowing in the past. They’ll use this information to help decide whether or not to offer you a mortgage.

You can get hold of a copy of your credit report from a credit reference agency, such as Experian and ClearScore. Check to see if the information they hold on you is correct.

Before you apply you should look at ways you can improve your credit score.

  • Always make debt repayments on time.

  • Close credit card accounts you no longer use.

  • If you’ve never borrowed before, it’s a good idea to take out a credit card and pay off the balance in full each month.

  • Make sure you’re on the electoral register. You can sign up online at www.gov.uk/register-to-vote.

3. Look into government schemes

You may qualify for the government’s Help to Buy scheme which aims to assist first-time buyers. There are several parts to this scheme. The first, known as the ‘equity loan’ part, involves you putting in a 5% deposit, and the government loaning you 20% free of interest for the first five years.

If you live in London, you can get a loan for up to 40% of the property value. This part of the Help to Buy scheme is available until 2021, and is only available if you’re buying a new build property costing up to £600,000.

The second part of Help to Buy is shared ownership, giving you the chance to buy as little as 25% or as much as 75% of a home, paying rent on the part you don’t own. 

4. Consider buying with friends or family

If you can’t afford to purchase on your own, could you buy a home with a friend or relative? If you’re considering this, be sure you set out what will happen if one of you wants to sell at a later date.

You’ll also need to think about how you’ll divide the property between you, especially if one of you is paying a larger share of the deposit. If you’re buying jointly, then you can either own the property as joint tenants or as tenants in common.

If you’re tenants in common, the ownership of the property can be divided in any way you like, and your share can be passed on to a family member when you die. If, however, you’re joint tenants, your share of the property will pass to the other person in the event of your death.

5. Get help from mum and dad

Your parents may be able to help you get on the property ladder without having to hand over cash. Some lenders will take their savings into consideration when you make your mortgage application, but the money still stays in their name. As this gives the lender greater security, you’ll be able to get a better mortgage rate.

Speak to a fee-free independent mortgage broker for advice on this type of deal. They’ll be able to recommend the best mortgage for you and will also be able to help you with your application.

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