Taking that all important first step on the property ladder can be a daunting experience. But being prepared can mean it’s less stressful, helping you to make the right decision.
If you’re an aspiring homeowner planning to take the plunge in 2019, you’re not alone. Figures show that the number of first-time buyers is increasing. However, there are still challenges for those taking on a mortgage for the first time, from getting a deposit secured to navigating the application process.
Even in London, where house prices are considered out of reach for many, the number of first-time buyer mortgages is on the rise. During the third quarter of 2018, 11,700 first-time buyers in the capital were approved for a mortgage, according to figures from UK Finance. The £3.55 billion of new lending represents a 6% increase when compared to the same period last year, while the number of buyers has increased by 2.6%.
Commenting on the data, Jackie Bennett, Director of Mortgages at UK Finance, said: “London’s mortgage market remained resilient in the third quarter of this year, despite an uncertain economic environment.
“The number of first-time buyers in the capital reached its highest level in three years, boosted by schemes such as Help to Buy. The recent extension of the scheme until 2023 will help even more people get a foot on the housing ladder in the years ahead.”
The growing number of first-time buyers in the capital is good news. But taking the plunge yourself can still be difficult. Here are our seven steps you should be taking to get into a position to buy a home in 2019:
1. Decide what you’re looking for
Before you start seriously looking at properties, you should have a good idea about what you want, taking a realistic view. The housing market is huge and narrowing it down can make it far easier to find what you’re looking for. From the area you want to live in, to whether you’d prefer a flat or house, setting out criteria is important.
Most homebuyers will need to compromise on some aspect when purchasing a new property. Thinking about what areas you’re willing to compromise on, and those that you’re absolutely not, can help when it comes to searching for your home. Would you be willing to sacrifice that spare bedroom for a shorter commute, for example?
Remember not to focus too much on the areas that you can change. You may not love the kitchen of a home you’re viewing but it’s something that can be changed in time.
2. Check your credit score
The sooner you take this step, the better. Your credit score is used by potential lenders to assess how likely you are to default on payments. A poor credit score could lead to you receiving offers with less favourable interest rates or even your application being rejected.
If your credit rating is considered poor, there are steps you can take to improve it. These include ensuring you’re registered on the electoral roll, reducing the amount you have on credit cards, and updating any mistakes that appear on your report.
Improving your credit score can take time, so it’s a good idea to take this step at least a few months before you apply. Once you’ve improved it, take steps to maintain it and limit any further applications for credit, as this could harm your mortgage application.
3. Keep an eye on your monthly outgoings
Mortgage lenders are required to take steps to ensure you can meet monthly repayments should they offer you a mortgage. This includes your ability to continue repaying should interest rates rise. As a result, they will take steps to understand your financial situation, including looking at three to six months of bank statements.
This can seem like a daunting part of the process; taking steps beforehand can give you peace of mind. Keeping an eye on your outgoings in the months leading up to a mortgage application can be prudent. Lenders will want to ensure you meet current financial obligations and don’t frequently rely on overdrafts or credit cards. Some spending will be instant red flags to lenders too, such as payday loans or gambling.
4. Understand what you’re likely to be offered
It’s important to understand how much money you’re likely to be able to borrow. Putting in offers for houses out of your price range could mean holding up the process and end up costing you money. Traditionally, the maximum you have been able to borrow is four times your annual salary, though this isn’t always the case.
Getting a mortgage in principle can help ensure you’re in the right price bracket when searching for a home. You can obtain one of these by speaking to lenders, some offer online services too. Make sure the lender or tool only performs a soft credit search, a hard credit search will be viewable on your credit report by other lenders and could harm your score. A mortgage in principle doesn’t guarantee you’ll receive an offer for the amount specified but it’s a good indication.
In addition to this, work out a budget and ensure that you’re able to meet repayments. It can be tempting to search for homes at the top end of your mortgage offer, make sure you’re able to commit to the repayments first.
5. Research the area you want to buy
How much do you know about the area you want to purchase a home in? It’s worth investing a bit of time looking at the housing market in the region. Understanding what the average house price is and what you can expect your money to buy can help you see if your goals are realistic.
The London property market is diverse, so you may find that other postcodes can offer more, in terms of value and amenities. An open-minded approach when looking at areas can help you secure your dream home.
6. Remember to factor in other costs (solicitor, surveys)
When you’re saving for a home, your focus is often on the deposit. It’s understandable; it can seem like a huge amount to save up. However, there are many other costs to factor in when you’re buying your first home too. If you’ve forgotten to include these in your calculations, it could mean you end up with a large, unexpected bill when you’re buying a home.
Costs can vary significantly depending on where you’re based and the home you’re buying, but you should ideally have at least an extra £1,500 stored away to cover these potential costs. Extra costs may include conveyancing, surveys and valuation fees. On top of this, you’ll also need to consider the cost of physically moving, such as hiring a removal van if necessary, and money you may want to spend on your new home.
7. Speak to a mortgage adviser
A mortgage adviser can help you with many of the challenges above and ensure your path to homeownership is as smooth as possible. An adviser, for example, can help identify which lenders are best matched to you, increasing the chances of being approved for a competitive mortgage deal.
If you’ve made it your New Year’s resolution to purchase a home in 2019, we’re here to help you. From identifying the best lender for your needs to providing guidance throughout the application process, please contact us to understand how we’ll work with you as you take your first step on the property ladder.