Essential tips to help first-time buyers get on the property ladder

Home » Essential tips to help first-time buyers get on the property ladder Published: 20th October 2023 This Article was Written by: Adrian Anderson   first time buyer , mortgage advice

Despite mortgage rate rises, the first-time buyers’ property market remains very active. Several factors are influencing this. In this article, we discuss them and also share tips to help first-time buyers take their first step on the property ladder.

Why the first-time buyer market is buoyant

In September 2023, a study by Hamptons reported a 12% rise in rent in the year to August. It reported that the typical monthly rent of a newly-let property was £1,304. This is perhaps not surprising given the significantly fewer properties available for rent.

With interest rates rising, first-time buyers haven’t been able to enjoy the low-rate mortgage products of previous years. However, house prices are also beginning to fall in many areas, so mortgage payments compared to rental payments are starting to look more attractive to some. First-time buyers looking to the long-term are seeing the value of taking a higher-rate mortgage (in comparison to previous years) on a cheaper property. Forecasters are predicting interest rates may start to fall at the end of 2024.

6 essential tips to help first-time buyers buy a property

1. Fully understand your mortgage capacity before you look for a property
Speak to an independent mortgage broker before you start your search, as it will help you establish your mortgage capacity and budget. This is very important at the moment with the turbulent interest rates.

People are often paid differently with different employment models. For example, self-employed, contract work, variable income etc. Lenders have different criteria for these. They are also updating their affordability calculations to reflect the higher cost of living.

Having a clear view of your mortgage capacity will therefore be important when you start viewing properties.

2. Improve your credit score
First-time buyers can fall at the first hurdle due to credit score. Factors behind this can include:

• Living at multiple addresses in a relatively short period of time.
• Not having any credit history (for example, they haven’t any credit cards).
• Not being on the electoral roll or have utility bills in their name.
• Taking on other debt, like a car lease, or have a significant balance on their credit card.

It’s worth checking a credit reference agency such as CheckMyFile, Equifax or Experian to understand any negative factors impacting your score.

First-time buyers will most likely have a small deposit and will be applying for a high loan-to-value mortgage. As a result, most banks require a higher credit score for a high-LTV mortgage. Be aware that lenders will look at your outgoings as well as your income. If you have too many outgoings or credit commitments, this may limit your mortgage capacity. It is crucial that the lenders can see that you have kept up-to-date with payments.

3. Impress estate agents
You need to present yourself as a strong applicant to estate agents. They will likely request a mortgage ‘agreement in principle’ for first-time buyers. This is something a mortgage broker can obtain from a lender. Also, don’t forget that the estate agent is representing the seller, not you (the buyer).

4. Drawing on family support
If appropriate, speak to family members about a potential gifted deposit to help you achieve the purchase price you seek or access a cheaper mortgage rate. Under current inheritance tax (IHT) rules, gifted deposits only attract IHT if the person gifting it dies within 7 years. However, this is a complex area so your family member should get tax advice from a tax specialist.

If you are buying with friends or siblings, it may be appropriate to have an agreement drawn up by your solicitor. This can log who contributed what sums of money and what percentage will be allocated to each when you sell. Doing this at the outset could be important in order to protect yourself later.

5. Think long-term
When considering a mortgage and a property, it helps to think carefully about how long you may own the property or live in it.

The buying and selling costs can be expensive and house prices can go up and down in value, hence you should be considering purchasing a property for the long term. Think carefully about the area you are purchasing in and type of property you are purchasing.

Also think about the saleability of the property. This will be your home and a major asset for you. If you see yourself moving at some point in the future, be realistic about the property’s desirability to others. What might you need to do to improve this, and how can you budget for this further down the line?

Consult your mortgage broker for advice, because it is important you don’t get tied to a mortgage that is not suitable.

6. Be wary of cheap professional services in the buying process
Buying your first home can be expensive, however it doesn’t pay to cut corners. A sensible investment is to instruct a good solicitor. You may not be able to rely on the bank mortgage valuation of the property. This doesn’t always give you a complete picture of the property’s condition and your potential liabilities in the future. It can be sensible to instruct your own survey so you are fully aware of what you are buying. To find good professional contacts, reach out to your broker, friends or other people you know who may have purchased recently and ask for recommendations.

There are still some Government schemes to help first-time buyers onto the ladder depending on your eligibility. These include loans to help with the cost of a new-build home, financial support towards a home through shared ownership, and a Lifetime ISA to save for a first home. Visit www.gov.uk/affordable-home-ownership-schemes for more information.

Summary

Buying your first property is both an exhilarating and nerve-racking event. It’s a great life moment that you’ll never forget. As with anything you do for the first time, being as informed as possible along the way is important. The more you know, the fewer hurdles you will stumble at.

Talking to an experienced and independent mortgage broker will give you that objective view. It will also help you make decisions that will support you in the purchase and in the longer-term.

To talk to one of our first-time buyer specialists call 020 7495 6633 or email enquiries@andersonharris.co.uk.