Purchasing a home is an exciting milestone in life but is accompanied by many financial issues which, for the first-time buyer, can be confusing and complicated. Before stepping onto the housing ladder, consider these tips for financing your first property to help make the process as smooth and stress-free as possible.
Raising your Deposit
The 100% mortgages which suited first-time buyers are pretty much a relic of the past, with some lenders requiring deposits between 10% and 25%. Mortgages which offer the traditional 95% loan still exist but terms may not be as favourable compared to a mortgage where the buyer can afford to input a higher deposit. Therefore, biding your time and saving as frantically as possible might earn you a more attractive and affordable deal in the longer term. For those buyers who can set aside three to five years to save before stepping onto the housing ladder, consider storing your savings in a tax-free ISA or, if you are less averse to risk, explore stocks and shares investments to give your cash a much-needed boost.
Set a Realistic Budget
Owning a home can be an expensive business, with mortgage payments only one part of the equation. With home ownership comes a raft of other expenses, from council tax to repairs and, while stretching to the summit of your budget may be tempting to achieve that dream property, bear in mind that interest rates may fluctuate over time. A mortgage payment which is affordable tomorrow might, in three years’ time, be a financial burden with only a negligible increase in interest rates.
Plan for the Unthinkable
Nobody likes to plan for hard times, but the truth is disability, critical illness or death can strike anyone at any age, often with little prior warning. In this situation your family’s ability to maintain the mortgage payments on your home might be seriously jeopardised; ensuring that they don’t lose the roof over their head is one of the most important steps you can take to support them. A life insurance policy will provide your nearest and dearest with a lump sum payment should you depart this world unexpectedly, while other insurance – critical illness cover and mortgage protection – will also help to ensure that your home isn’t a casualty of your early demise. When arranging a policy, take professional advice if you are unsure how much cover you require.
When exploring the mortgage options available, remember that many lenders offer preferential deals for first-time buyers, including supporting the ‘Help to Buy’ scheme where you will only have to input a 5% deposit while the Government will stump up 20% on an interest-free basis for the first 5 years. Bear in mind that many mortgage lenders charge hefty fees for arranging mortgages; enquire whether these can be added to your loan or if you need to pay up front. (Also, don’t forget legal fees, which are typically between £500 and £800.)
Making an Offer
Finally, making an offer on a property can be nerve-racking, so when deciding the price you are prepared to pay, find out what similar properties are selling for locally and ask the estate agent how long the house has been on the market. While every property has a value, pitching a price is an inexact science; you don’t want to lose out through being too conservative any more than paying over the odds through your generosity!