Top 5 tips for first-time buyers

Melanie Wright
Written by: Melanie Wright
Posted on: 15 January 2016

News that house prices have soared to record highs might be good news for homeowners, but it makes life even harder for first-time buyers struggling to get on the property ladder.

According to the latest Your Move Reeds Rains House Price Index, average house prices in England and Wales have increased by £16,446 over the past year to £290,640, a 6% increase on November last year.

Although steeper house prices make it tougher to buy, there are plenty of things first-time buyers can do to improve their chances of becoming a homeowner.

Here are our top tips…

1. Save save save

One of the biggest barriers to buying a property is saving up a deposit. You’ll need to put down at least 5% of the property’s value, but the bigger your deposit, the wider the choice of mortgage deals you’ll have access to, so save as much as you possibly can.

The good news is that December saw the launch of Help to Buy individual savings accounts (ISAs), a new savings account designed to help first-time buyers build a deposit. The government will top up any contributions you make by 25%. That means for every £100 you pay in, it will pay in another £25, up to a maximum of £3,000.

Even not being on the electoral register can affect your credit score, so make sure you are on it

2. Improve your credit score

When you apply for a mortgage, lenders will look at your credit history to see how you have managed any borrowing in the past. They will use this information to decide whether or not to offer you a mortgage, so it’s really important that you look at ways you can improve it first, including making sure you always make debt repayments on time, and shutting down credit card accounts you no longer use.

You can get hold of a copy of your credit report from one of the credit reference agencies Experian, Equifax or CallCredit. Check to see the information they hold on you is correct. 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, so you can prove to lenders that you’ve got a track record of successfully repaying debts.

Even not being on the electoral register can affect your credit score, so make sure you are on it. If you aren’t, 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 two different 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 are buying a new build property costing up to £600,000.

The second part of Help to Buy is known as the mortgage guarantee scheme. Again you can buy with a 5% deposit, but 20% of your mortgage is backed by the government, giving you access to better mortgage rates. You can buy a new build or an older property using this scheme, but again the property cannot cost more than £600,000.

Alternatively, you might qualify for a shared ownership scheme, whereby you buy a share of your home and pay rent on the remaining part to a housing association. Your household must earn £60,000 or less to qualify, or £71,000 a year or less if you’re living in the capital and buying a one or two bedroom property.

4. Consider buying with friends or family

If you simply can’t afford to buy on your own, could you club together with a friend or relative? If you are considering this, make sure you establish at the outset how things will work if one of you wants to sell at a later date.

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

If you are 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 are 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 can help you get on the property ladder without having to actually 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 will be able to recommend the best mortgage for you and will also be able to help you with your application.

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