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Seven step plan for first time buyers

30th July 2021

Buying a home is one of the biggest financial decision we make, so it's no wonder stepping onto the first rung of the property ladder can be daunting.

But it doesn't have to be. If you do your research and plan ahead, you can give yourself the money confidence to make the right decisions about the roof over your head and how to pay for it.

So whether you're currently renting your own place, sharing with friends or living at home with mum and dad, this plan will help you understand the steps needed to join Britain's estimated 17.5 million homeowners.

1 - Get mortgage ready

A mortgage is a major financial commitment, so lenders will want to make sure you can keep up with the payments.

A good credit history is important, so check your rating with a free service such as Equifax, Transunion or Experian, and take steps to address any problems before it is time to apply for a mortgage.

Lenders will also consider your employment status and history, so get all your paperwork such as payslips, tax returns and P60 forms together in plenty of time. If you are thinking of moving jobs, a recent change may impact your chances of getting a mortgage, so plan ahead.

2 - Boost your budget

The most common question for first time buyers is "how much can I borrow?". All lenders are different, but many will offer mortgages of up to 4.5 times your annual income.

However, the calculation is not that simple. They will also consider your other financial commitments, such as childcare costs, car finance and gym memberships, as well as any debt, so you may not be able to borrow as much as you initially thought. Consider where you can reduce your outgoings, but make sure any savings are manageable, and not just a short-term fix.

And check what income a lender will consider for mortgage purposes. If you are employed and paid regularly through PAYE, they will most likely base a mortgage offer on your current annual salary. However, if you are self-employed, you may need three years of accounts to prove your income.

3 - Max out your deposit

You will need a deposit of at least 5% of the cost of your new home, so start saving.

A Lifetime ISA can be a good option. If you are a first-time buyer aged between 18 and 39, you can save up to £4,000 in 2021/2022 tax year, and the government will top it up by 25% up to a maximum of £1,000 a year. The lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2021 to 2022 tax year.

While the number of 95% mortgage deals is rising, thanks partly to a government mortgage guarantee scheme, the bigger your deposit the better. The key phrase to look out for is Loan to Value - LTV for short. This is the percentage of the purchase price funded by your mortgage. If you have a lower LTV, you are more likely to be accepted for a mortgage and offered lower interest rates.

4 - Get a helping hand

You may benefit from Help to Buy, a government scheme which gives first time buyers in England loans of up to 20% of the purchase price of a new-build property, or 40% in London. The loan is interest free for the first five years and normally repaid over 25 years.

If you sell your home, you must repay the same percentage of the sale price as your loan, which may be more money than you borrowed if the property has gone up in value.

There are regional variations, but you can find out about the scheme in detail here.

5 - Get your perfect mortgage match

All mortgages are different, so compare the deals available to you carefully.

A fixed rate locks in interest rates for a set period and offers security that your payments won’t rise in that time but may have early repayment fees. And a mortgage with an attractive lower rate may have an expensive booking fee. There are a range of different mortgages to suit your circumstance. Find out more about TSB’s range of mortgages for first time buyers here.

6 - Know the cost of moving

You will need to save up more than your deposit to buy a home. Other costs include Stamp Duty, solicitor’s fees, and local authority searches.

Stamp Duty is a tax on buying a property in England and Northern Ireland - in Scotland there is a Land and Buildings Transaction Tax, and in Wales you will pay Land Transaction Tax.

Stamp Duty rates vary depending on the value of the property and are lower for first time buyers. From July 1 2021 first time buyers will pay no stamp duty on properties up to £300,000, then 5% on the next £200,000. For more information, click here.

You will also have to pay solicitor’s fees, typically £850 to £1,500, and local authority searches cost around £250. A property survey starts from around £250, and a full structural report will cost at least £600. You also must pay a Land Registry fee from £200 up to £500 to register your new property in your name. These figures can vary, but these estimates from the Money Advice Service are a good guide to help you plan.

The process of buying property also varies across the UK - for a comprehensive guide, click here.

And don’t forget furniture and appliances you may need to buy.

Avoid any nasty surprises by listing everything you will have to pay to move and making a budget.

7 - Pick up your keys

You’ve saved your deposit, researched the perfect mortgage deal, got all your paperwork in order and made a budget for your moving costs.

Buying a home can be stressful, but if you’ve followed the six steps above, you’ll be ready to pick up your keys, relax, and put your feet up in your new home.

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