Buying your first home is one of the cheeriest of occasions – but it can also be daunting and complicated. Here, we simplify the process.
Author:
Idil Woodall
Editor:
Sharon Bahravi
11 mins
November 10th, 2023
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It’s getting harder than ever for first-time buyers to get on the property ladder. The average house in the UK currently costs around nine times the average earnings – the last time the picture was this grim was in 1876, nearly 150 years ago.
We’ll start off by saying that there isn’t a magic formula that can make buying a house suddenly more affordable: you just need more money.
Understanding the process of buying a home, though, can help you figure out whether you can or want to stretch yourself to get on the ladder for the time being. It can also save you an awful lot of time and money when the right time comes.
The aim of this guide is just that – get you prepared and steeled.
Unless you have a suitcase full of cash, you are likely to borrow some money from a bank or building society to buy a home. Mortgages are a two-way street – you give your bank some, and your bank gives you some.
Can you afford to buy a home?
Whether you can afford to buy a home boils down to two main things:
Are you able to raise a big enough deposit?
Will your earnings, outgoings, and spending habits allow you to borrow enough?
When deciding how much money you will raise for a deposit, remember that there are many other expenses involved in buying a house that you have to budget for – most notably stamp duty, which can be substantial depending on the property, and hefty solicitor fees.
The greater your deposit, the cheaper your mortgage will be
The deposit is the lump sum you bring to the party.
The bigger your deposit is;
The smaller the amount you need to borrow from a bank,
The cheaper your monthly mortgage repayments,
The more of the property you own from the outset.
Your monthly repayments will depend on the type of mortgage you will go for – but it will most likely include the following;
Capital repayment: the fundamental sum you borrowed from your lender,
Interest: the money you pay your lender for borrowing from them. So if you borrowed £100,000 with an interest rate of 2%, you will pay £2,000 in interest.
What is LTV?
The amount of money you can borrow in a mortgage is measured in a “loan to value” rate, or LTV. This is a mix of deposit and loan. If you have £20,000 in cash, for example, and you want to buy a £200,000 house, you would have a 10% deposit and need to borrow the remaining £180,000.
This means you need to borrow 90% of LTV. However, many first-time buyers have a deposit of around 10%, and anything above 25% is considered a large deposit – thus, low risk for lenders.
This brings us to an unfortunate reality of getting onto the ladder: lenders usually levy tougher terms if you have a high LTV ratio (put forward a smaller deposit) – which could mean higher interest rates or fees. As a result, they prefer lending to people with low LTV, which would get the most attractive mortgage deals.
If you can push yourself to raise a bigger deposit, you should.
Many other costs of buying a house
As we said before, when working out whether you can afford to buy a home, you need to factor in many other (often unexpected) costs that crop out along the way. These include stamp duty, legal fees, survey costs, insurance, and removal vans.
Let’s have a look at them in detail;
Stamp duty: It is the tax you pay for buying any property that’s worth more than £250,000. The tax is based on the property's price and is staggered in thresholds. For instance, you pay 5% of the property’s price on homes worth between £250,001 and £925,000. The good news is that first-time buyers are exempt from paying stamp duty on any property worth under £425,000. For further reference, check out the official stamp duty calculator.
Legal fees: You need to hire a conveyancer or solicitor to help you buy a home (more on this further down). You can expect to pay something between £1,000 and £1,500.
Surveys: Before lending you any money to buy a house, your mortgage lender may want to make sure that the property exists and that it’s worth the price you are going to pay. It will therefore conduct a valuation survey, which will set you back a few hundred pounds.
2. Find out how much you can borrow
Before browsing Zoopla or ping any estate agents, it may make sense to have a rough idea of how much you can borrow to buy a home. The amount a mortgage provider will lend you depends on various things, most notably:
The size of your deposit, as we discussed above,
Your income,
Your outings,
And your credit score.
If it’s a joint mortgage, your lender will take their finances into account as well.
The rough rule of thumb is that you can borrow about four to four and a half times your pre-tax salary – although this varies depending on the lender. Some lenders may be willing to stretch to five times your salary as long as it’s affordable.
How your bank is judging you
Your earnings matter a lot, as it’s a crucial variable that determines how much you can borrow – or, to say, whether you stand a chance of buying. But that’s not the only thing that matters.
Your outgoings, or how much you spend every month, and what you spend money on, matter (almost) just as much. Mortgage lenders are typically worried about taking risks on borrowers, especially first-time homebuyers, so they feel (rightfully) compelled to carry out all sorts of judgements on your spending pattern.
This is just to gauge how safe a bet they can make that you’ll stick with your repayments each month in a responsible manner.
They do this by looking at your credit score and spending habits based on bank statements, debts, or any regular expensive commitments, such as a child, dog, or biweekly Elfbars.
Your student loans don’t count against you, per se. They only count in so far as repaying them means you have less disposable income to make the monthly repayments.
During your application, you’ll probably be asked to provide at least three months of bank statements and fill out a form detailing your spending habits – all of which can affect how much you can borrow. So ensure that you don’t exceed your overdraft limit or have any bounced payments within this period.
Be honest whilst filling out this application. Not only it’s fraudulent to lie, but this due diligence should also make you think hard about whether you can afford to buy a new home. A bank can only know so much about whether you can make your repayments. You, however, are the only person (or you and the persons you are applying with) that knows whether you can and should, be stretching yourself in the long haul.
Remember that beyond life changes, and outside events can also significantly affect our finances – pandemics, wars, less-than-ideal politicians, you name it. So before making a long-term financial commitment like a mortgage, it's wise to have some sort of cushion for unexpected events and/or rises in bills or interest rates.
3. Get a mortgage in principle
You raised your deposit and found out how much you can borrow. It’s time to take your numbers for a test ride.
An agreement in principle (AIP) is a certificate from a lender to say that, in principle, they would be happy to lend you a certain amount.
Applying for an AIP is different than applying for a mortgage. For an AIP, you’ll typically need to provide the following:
Your full name
Your date of birth
Three years of address history
Your income and expenditure.
Without the supporting documents, this information alone should be enough to obtain an AIP. But for your actual mortgage application, you will need to provide supporting documents.
You don’t have to have an AIP, but it sure does help your chances of getting a mortgage. While it’s no guarantee, it can at least reassure you about whether you can or how much you can borrow. This can also help your research as you browse through properties. Ensure you get an AIP before you approach an estate agent, as they often want to ensure you can get a mortgage before you offer.
Don’t apply for too many AIPs, and remember that it doesn’t guarantee anything
Most lenders will run a ‘hard’ credit check before offering you an agreement in principle. This, as opposed to a ‘soft’ check, will appear on your credit file. While one or two applications shouldn’t pose too much of a problem, having several applications in a short span of time can hurt your chances of borrowing and may raise a red flag to lenders.
And remember, getting an AIP is not a guarantee of anything. As you fill out an actual application, your mortgage lender will look into your earnings, spending, and credit history in more detail – they may very well refuse to lend you at this point.
4. Scout the area & register with real estate agents
Now, it’s (hopefully) the fun part: scrolling the likes of Zoopla and Rightmove till the end of days and exploring the areas you wish to make your new home.
Area scouting is especially important if you are considering something you haven’t lived in before. Discover the area to check out the commute, supermarket or corner shops, restaurants, chippy shops, and the overall atmosphere. It’s also worth visiting there for a night or two to get a feeling of what it’s like after the sun goes down.
You can consider the following whilst deciding on a postcode:
Transport – how close is the nearest train station? Is the motorway easily accessible?
Flood zones – Using this service, you can check whether it’s near a flood zone.
Crime levels – Check how safe the area is using the crime map on Police.uk.
Once you agree on an area(s), register with the local real estate agents to increase your chances of finding your next home. Often, estate agents contact prospective buyers before they list a property online.
Visit the properties in person
We can’t stress this enough, visit properties in person. Opting for video viewings is normal– you may be too busy or moving into a whole new city that you can’t visit yet due to other commitments. But if you can, check properties thoroughly, in person, before putting your name on the dotted line.
By checking the home in person, you will be in a much better position to gauge whether you’d like to dedicate your 25 mortgage-paying years to it. Even if you are considering moving again in the future, buying a house is a serious commitment – you wouldn’t want to spend too much time, energy, and funds on a place you’ll eventually get rid of either.
5. Make an offer
Making an offer is a tricky business. While it’s relatively common to offer below the asking price, you may need to offer the asking price or more if it’s a particularly hot market or there are other people interested.
You can determine how much a property would be worth by browsing similar homes on the likes of Zoopla or the Land Registry and how much they were sold for.
Once you decide how much you’d like to offer, contact your estate agent – just to be on the safe side, put it in writing by sending them an email. And finally, hope that the sellers will accept your offer.
Your offer may be accepted, but sellers may still pull out – and you may be gazumped
When a seller accepts an offer, it’s usually a ‘gentlemen’s agreement’. Meaning that it’s not set in stone, and they may simply tank the deal if a buyer with a higher bid swoops in. This is yet another harsh reality of homebuying and is called being ‘gazumped’.
In Scotland, an offer is legally binding, meaning there’s little to no chance of gazumping.
To lower your chances of being gazumped, do the following:
Do not lower your offer just before exchanging contracts unless you have a solid reason to do so; it’s just bad practice and may anger the seller.
Insist that real estate agents take the property listing down from their websites – they probably won’t do this unless you insist they do so. Be consistent, and follow up.
Some tips on making an offer on a house:
If you're not competing with other buyers, it may be worth considering making a slightly lower offer, perhaps around 5% below the asking price. If the initial offer is rejected, you can always come back with a second offer.
If you're renting and able to move quickly, inform the estate agent about this as it can be a useful negotiating point.
You can also mention that you're willing to be patient while the owner searches for a new house to buy. This flexibility could be an appealing advantage for the seller.
If there's significant interest from other potential buyers, it might be wise to make your first offer your best offer. This approach can encourage the owner to take the property off the market swiftly, potentially avoiding a prolonged negotiation process.
If the bidding process reaches the stage of "best and final offers," it typically indicates that at least one other buyer has made an offer. Consider your absolute maximum offer, but avoid paying more than you believe the property is worth.
Remember, these are general suggestions, and it's important to adapt your approach based on the specific circumstances and dynamics of the property transaction.
6. Apply for a mortgage
And now the most important, albeit not the cheeriest bit, starts (at least at the beginning) – applying for a mortgage sequel: for real this time.
A mortgage is likely to be the most important financial outlay for the next 25 to 30 years of your life. You need to be wise about it – and luckily for you, there are many options to choose from. Unluckily for you, it’s not always easy to choose.
A mortgage broker can help you navigate the market, but regardless, you’ll need to understand what you are applying for yourself.
How much you’ll pay for a mortgage from the get-go and in the upcoming months will depend on what type of mortgage you are going for. To rehash your memory, these are what mortgage repayments consist of:
Capital repayments (the actual loan),
Interest,
Arrangement fees (fees you pay to your lender to set up the mortgage)
The length of its term.
The term refers to the period you are given to repay your mortgage. The standard term is 25 years, although it’s not uncommon to see terms as long as 40 years now. Using a mortgage calculator, you can see how much your monthly repayments will cost with varying interest rates and amounts.
Balancing your monthly payments
Making the most out of your mortgage is a pure balancing act:
You can lower your monthly mortgage payments by opting for a longer term, which would accrue higher interest over time.
Similarly, a mortgage with a cheaper interest rate may only sometimes be the cheapest deal over the long haul. Mortgages with lower interest rates usually have higher arrangement fees, and vice versa. You need to determine whether you are better off with a lower arrangement fee and a slightly higher interest rate – banks are notorious for creating attractive offers with low-interest rates but ultra-high arrangement fees.
7. Hire a conveyancer or solicitor
Necessity: Required
Cost: £1,000 - £1,500
After sellers accept your offer, speak to a conveyancer or solicitor before you pop the bubbly.
Conveyancing is an obligatory legal process that takes place before you can officially buy the property. It includes carrying out searches around the house, drawing up and reviewing the contracts, dealing with the Land Registry and paying any stamp duty, if applicable.
You can either opt for a conveyancer who specialises in property but may not be a solicitor or an actual solicitor with experience in property law. Having a solicitor at your beck and call will save you time and frustration. A personal recommendation would be ideal, but you can also visit the Law Society’s list of conveyancers.
Remember that your solicitor or conveyancer doesn’t have to be local – if you buy in an expensive location like London, you’ll probably find a more affordable one elsewhere.
When should I hire a conveyancer?
Although getting legal help after your offer is accepted is common, finding a solicitor before you put in the offer will likely make you look more organised and committed. It can also save time when an offer is accepted, so you can proceed to exchange contracts quicker.
What are the associated costs?
The cost of conveyancing fees can vary, typically ranging from approximately £1,000 to £1,500. The specific amount depends on factors like the property's cost and location.
The overall cost will also depend on the complexity of the property transaction. For instance, if the property is a leasehold, additional legal work may be required, such as reviewing the lease agreement.
Solicitors may charge a fixed fee, or they may base their fee on a percentage of the property's value. It's essential to clarify the fee structure and confirm whether it is fixed. Some firms might charge additional fees if any unexpected issues arise during the process. It's advisable to obtain multiple quotes before selecting a conveyancer.
Fees for property searches can also vary. For example, the Land Registry charges fees on a sliding scale based on the property's value. You can utilise the Land Registry fees calculator to estimate the potential cost.
Remember to review and compare different conveyancing quotes to ensure you have a clear understanding of the fees and services offered by different solicitors or conveyancers.
8. Book a survey
Necessity: Optional
Cost: £300 - £1,000
Besides the property valuation survey your mortgage lender runs, you can also book an independent building survey. This is optional but highly recommended – if you put your (potentially) whole life’s savings into a floor and four walls, you need to ensure it won’t fall down on you.
Surveys help you assess the property's condition; structural problems, damps, rot, rats, leaky pipes, or anything that can and will be a nuisance for you soon.
It can also help you negotiate a lower price or ask the seller to fix any outstanding problems beforehand. Finally, put some time into researching what kind of survey you’d like to go for, and make sure that it’s worth it for the type of property you are going for. The Royal Institution of Chartered Surveyors is a great way to start.
Do I need a house survey?
When you're already investing a substantial amount of money in purchasing a house or apartment, you might question the need for a survey, considering it an unnecessary expense.
However, it's essential to be aware of any potential issues before finalising the property purchase. This allows you to make an informed decision regarding the appropriate price and, if required, plan for any future repair expenses.
In the event that significant problems are discovered through the survey, you can utilise this information as a negotiating tool with the seller. For instance, if the survey reveals that repairs costing £10,000 will be necessary, you could negotiate a £10,000 reduction in the property price or request that the seller completes the repairs before the exchange of contracts.
9. Get a home insurance
Necessity: Optional, but may be required
Cost: £300 per annum, on average
It is imperative that you do your home insurance, and you do it quickly. You are legally bound to the property you buy the moment after you exchange contracts – who is there to say it won’t burn down the day before you move in? Some mortgage lenders may even make this a condition of lending.
Your estate agent may suggest you an insurance provider – but you are likely to find better deals elsewhere. Much like mortgage brokers, don’t be bullied into opting for their partners, and do your own research.
10. Exchange contracts – and voila!
Almost there! All that’s left is for your and the seller’s legal representatives to swap signed contracts. The sale becomes legally binding at this point, and you’ll have to pay your deposit.
On the completion day, you can pick up your keys – don’t forget to take a picture of this massive milestone!
And there, you have it. You can now take a relaxing breath, pop that bubbly you’ve been saving, and head to IKEA (or maybe Home Bargains) to start decorating.
Frequently Asked Questions About Buying a Home
Do first-time buyers pay stamp duty?
The stamp duty is one of the major costs of buying a home – but luckily, first-time buyers in England and Northern Ireland purchasing properties worth less than £425,000 are exempt from paying it.
What is the best age to buy a house in the UK?
Legally speaking, you can get a mortgage at any age over 18 years old. The average age to buy a home in the UK ranges from 32 to 34 depending on the location. There’s really no rule of thumb here, the best age to buy a house is when you feel ready financially – it can be your 40s, 30s, or if you are lucky enough, your 20s.
Who qualifies as a first-time buyer UK?
To be qualified as a first-time buyer, you need to be buying your only or main residence (meaning that you will not be buying to rent out) and never owned a freehold or have a leasehold interest in a property in the UK or elsewhere.
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Idil is a writer with interests ranging from arts and politics to history and finance. She spent several years in publishing before becoming a full-time writer, and learning the inner workings of an industry she loved ignited her interest in economics. As an English graduate, she cultivated valuable research and storytelling abilities that she now applies to make complex matters accessible and understandable to many. When she’s not writing, she can be found climbing or watching a movie.
Idil is a writer with interests ranging from arts and politics to history and finance. She spent several years in publishing before becoming a full-time writer, and learning the inner workings of an industry she loved ignited her interest in economics. As an English graduate, she cultivated valuable research and storytelling abilities that she now applies to make complex matters accessible and understandable to many. When she’s not writing, she can be found climbing or watching a movie.
Sharon Bahravi has been a developmental and managing editor since 2010 and helps authors through various stages of their manuscripts and blogs. An entrepreneur, educator, speaker, and fitness trainer, she has written on a range of subjects and heads up the Language Analyst team for Pluralytics. Sharon loves horses, music, poetry, and coffee - not necessarily in that order.
Sharon Bahravi has been a developmental and managing editor since 2010 and helps authors through various stages of their manuscripts and blogs. An entrepreneur, educator, speaker, and fitness trainer, she has written on a range of subjects and heads up the Language Analyst team for Pluralytics. Sharon loves horses, music, poetry, and coffee - not necessarily in that order.