How can first-time buyers buy a home?
For many would-be first-time buyers, taking that step onto the property ladder remains tantalisingly out of reach because of the challenge of raising the hefty mortgage deposit lenders require.
The good news is that there is a vibrant market for buyers who have a small 5% deposit and want to take out a 95% loan-to-value mortgage; there are government schemes to help you get a leg up onto the property ladder; and many first-time buyers can now avoid the huge expense of paying stamp duty.
If you’re looking to buy your first home, this step-by-step guide can help you understand what you need to do to get into your dream property.
Step 1: Start by planning for a deposit
Getting a sufficiently large deposit together may be hard work, but being able to put a sizable cash sum down on the property has advantages.
There are more deals at lower interests available when you have a larger deposit. Our impartial advisers can talk you through the size of deposit you’d need, and will tailor their advice to your personal circumstances.
To find out more, read our guide to building a mortgage deposit.
Step 2: Identify the right savings vehicles
There are specific savings products designed to give you a helping hand to build up your mortgage deposit.
The best known is the Help to Buy Isa. You can save up £200 month (in addition to a £1,000 lump sum in your first year), and the government will give a 25% bonus when you come to complete your property purchase. You’ll earn decent interest on top of your savings.
The Help to Buy Isa is only open to new savers until 30 November 2019. The alternative is the lifetime Isa, another government-backed savings product. You can save more – £4,000 a year – and you’ll get a 25% bonus on top.
But there are fewer providers, and current interest rates are much lower.
Weigh up the pros and cons of both savings accounts in the Which? guide to Help to Buy Isas.
Step 3: Talk to your family
Several mortgage lenders offer products aimed at families, where parents or grandparents want to help their children out with a home purchase.
These include guarantor mortgages, where a family member agrees they will make the repayments if the borrower can’t, and joint mortgages, which are for children and parents buying together. Family offset mortgages aim to use parents’ savings to help reduce children’s mortgage costs.
Find out more in our guide to parents and first-time buyers.
With shared ownership schemes, typically offered by housing associations, you borrow enough to buy a proportion of the property – say 75%. You pay rent on the remaining proportion.
All you need is a 5% deposit. Find out more in our guide to shared ownership.
Step 5: Weigh up Help to Buy
The government also offers a scheme to help people struggling to buy a home. The Help to Buy equity loan scheme is available to buyers with a deposit of between 5% and 20% of a property’s value.
The government then offers you an interest-free loan to boost your deposit and secure a more competitive mortgage deal on a new-build property.
Find out more in our guide to Help to Buy mortgages.
Step 6: Consider the additional costs
Remember that you’ll also need cash to meet the additional costs of buying a home. As a first-time buyer, if the home you’re purchasing is worth more than £300,000, you’ll need to pay stamp duty.
Use our stamp duty calculator to work out your potential bill.
You’ll need to factor in mortgage arrangement fees charged by your lender, as well as legal fees to pay your solicitor, plus charges for a survey of the property and Land Registry fees for registering your ownership of it.
And don’t forget you may have to find money to furnish your new home.
Find out more in our guide to the costs of buying your first home.