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Our guide to your first mortgage

Your first mortgage

Buying your first home is often the biggest financial commitment you make and can also be the most difficult. From working out what you can afford and sizing up the different mortgage deals available, it’s important that you’re well informed when it comes to making decisions. Our First Time Mortgage Guide outlines what we think are the key aspects to the homebuying journey and includes tips on working out affordability as well as what to look for when viewing properties and what types of home survey are available.

1. Work out your finances

1. Work out your finances

Before you get to the stage of looking at potential properties, you should look at your personal finances. Specifically:

  • What savings do I have?
  • What debts am I paying off?
  • What is my credit rating like?

If you’re concerned about your current monthly outgoings, you should try to reduce these at least 6 months before making a mortgage application. It’s a good idea to check your credit report and make sure all the information shown is correct, before applying for a mortgage. This is particularly important when making sure you appear on the electoral roll for your current address and checking any records of loans and credit cards.

2. What can you afford?

2. What can you afford?

When you have a better idea of your financial situation, it’s a good idea to look at what price property you can afford – as well as the deposit (usually at least 5-10% of the purchase price as a minimum) there are legal costs and the price of a valuation and a survey, if necessary.

You should:

  • Check your monthly outgoings to get an idea of the kind of monthly mortgage repayments you will be able to afford.
  • Speak to your current bank or building society about indicative mortgage costs - they should be able to illustrate how much you might able to borrow and how much it might cost.
  • Try out mortgage cost calculators on mortgage lender websites or independent money advice sites. This is an easy way to help you work out what you can afford and how much you’d be able to borrow.

On top of the actual cost of the mortgage, you will need to factor in the cost of stamp duty if the purchase price exceeds £125,000. Check out the stamp duty calculator on the gov.uk website for more guidance on this.

Source: https://www.gov.uk/stamp-duty-land-tax/overview

3. Choosing a property

3. Choosing a property

When choosing where to live it’s worth making a list of what is important to you. You should consider:

  • How many bedrooms you may need,
  • What the parking situation is like (on or off-street)
  • Whether or not you would prefer a garden.
  • Is there a doctor and dentist nearby?
  • It’s key to look at local amenities such as schools, shops and leisure facilities.

When searching for properties you may find it easier to use property sites like Zoopla, Prime Location or Rightmove. You can also find property listings in your local newspaper and by visiting estate agents.

Viewing properties

When you begin viewing properties, make sure you take someone else with you – if buying on your own, this could be a friend or relative. It’s also a good idea to visit properties at different times of the day and at weekends and weekdays – this way you’ll get a good idea of the area and local community plus you’ll be able to find out what parking is like.

Don’t rush!

You’re viewing a property that might be your home for the next 10-20 years so it’s worth taking your time and checking that the structure is sound and whether there are any apparent issues with damp or the roof. Storage space is a key aspect which is often overlooked when properties are viewed for the first time. Make sure you’ll have enough space for your belongings and more practical items like cleaning materials and vacuum cleaner.

4. A quick guide to mortgages

4. A quick guide to mortgages

Mortgage deals

Mortgage comparison sites are usually a good place to start looking for a mortgage deals as you’ll be able to search and filter deals to make sure they meet your requirements. It’s good to know to know your Loan to Value before you start and how long you want the initial part of the mortgage (e.g. the first 5 years of your mortgage if you choose a 5 year mortgage deal) to last for.

Interest rates

A fixed rate is one which remains the same throughout your mortgage deal whereas a variable rate is one that can change over the term. Which one you choose can depend on whether you’d prefer the stability of knowing what your repayments will be for a set period of time, or whether you’d like to opt for a cheaper deal whilst rates are low. However, you should be aware that with a variable rate, your repayments can rise if the interest rate rises.

The application

There are 2 parts to the application: the lending decision and the full application.

The lending decision (usually referred to as a ‘Decision in Principle’ or ‘Approval in Principle’ (AIP)) shows that your lender is prepared to lend you the necessary amount to purchase the property. It involves providing information on your employment, income and outgoings plus providing the loan amount you need to borrow.

When the lending decision has been successfully obtained you can complete a full mortgage application. This is an extension of the lending decision application and usually means providing details of the property being purchased and selecting your chosen mortgage deal. You may also need to pay any applicable fees and provide details of your legal adviser (a solicitor or licenced conveyancer). You can find out more about this on our conveyancing page.

Surveys and valuations

  • A survey of any potential property is vital and ensures that there are no nasty surprises or additional costs after you move in.
  • A mortgage valuation is a required part of obtaining the mortgage from your lender and tells them what the property is worth.

Types of survey

Condition Report – this is the lightest survey and is most suitable for new builds or properties in a good condition. It doesn’t include a valuation. Cost: around £250

HomeBuyer Report – this is suitable for most properties and will highlight structural issues and anything which may not be apparent on viewing the property, like damp or issues with walls and roof. Cost: start at around £400

Home Condition Survey – this survey provides as much information as the Building Survey and uses a clear rating system to highlight issues and any potential problems. Cost: around £400-500.

Buildings Survey - this is the most comprehensive survey on offer and is particularly good to choose if the property is older or ibn a state of disrepair. The report provided is very extensive and provides details on repairs although a valuation is not included. Cost: can be upwards of £500-600.

Source: https://www.moneyadviceservice.org.uk/en/articles/a-guide-to-homebuyer-surveys-and-costs

5. From making an offer to moving in

5. From making an offer to moving in

After your offer has been accepted, here are the next stages on your homebuying journey:

Paying your deposit & fees

You’ll need to pay the deposit plus the legal costs and any fees direct to your solicitor. When the time is right, they will arrange to pay the purchase price to the solicitor of the person selling the property.

Mortgage offer

After your application has been processed, your mortgage provider will send you a mortgage offer. This document formally sets out the terms of your mortgage and provides a breakdown of all the costs involved.

Exchange of contracts

So you’ve signed and sent back the mortgage offer – next your legal representative will begin the exchange of contracts with the sellers solicitor. This is the legal process of setting out the terms of the purchase and means you are legally bound to the purchase.

Completion & moving in!

Completion is the date when the property is legally transferred to you and is usually (although not always) the same date as you move in. This is also when the balance of the purchase price is transferred to the sellers solicitor.

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