First-time Buyer Guide: Introduction
It’s no secret that getting a foot on the property ladder can be challenging. Between navigating the property market, saving for a deposit and securing a mortgage, the reality of home ownership can feel far away for many. However, owning a home is a great way to build a source of wealth – and remains the top financial goal in the UK. 🏠 Here’s what you need to know to kick-off step 1 of the home-buying journey – saving for your deposit.
Build a financial safety net first
Before you dive into the world of home ownership, it’s wise to have a solid financial safety net. Imagine you’re at a fancy party with a champagne fountain (oh, we can dream!), you should always fill up the first glass before moving onto the next. Think of that first glass as your ‘emergency fund’. 💰This could be around 3 months’ worth of expenses, and will help if you need access to cash quickly thanks to any unexpected surprises. It’s also worth paying down expensive debts, so you’re confident you can afford your mortgage repayments. Finally, contributing to your workplace or personal pension helps ensure you’re not dependent on your home as your only source of wealth.
How much do I need to save as a deposit?
You’ll need to put down a deposit of at least 5% of the property value, but some lenders will ask for 10-20%. You’ll borrow the remaining amount as a mortgage – learn more about mortgages in Step 2 – Calculate how much you can borrow.
Generally, the bigger deposit you can save, the better. Not only will you need to borrow less, but you’ll also be able to access a wider range of mortgage deals, including those with lower interest rates. 📉
What are the other upfront costs to budget for?
Along with the deposit, you’ll need to budget for the additional costs of buying a home. Knowing these costs upfront will ensure they are worked into your budget with no hidden surprises! 👀
- Stamp duty – A tax you pay when buying property or land in England or Northern Ireland. Scotland and Wales have equivalent taxes with different rates. Stamp duty is charged in bands, or ‘thresholds’, based on the value of the property and the band(s) it falls into. The government introduced a stamp duty holiday during the pandemic, which meant that there was no stamp duty to pay on any property purchases up to £500,000. As a first-time buyer, you’ll still be eligible for stamp duty relief once the holiday ends in July, on property purchases up to £300,000. You can learn more and calculate how much you’ll pay in our stamp duty blog.
- Mortgage fees – Your lender may charge you additional fees for arranging your mortgage. It’s worth calculating the upfront and long-term costs of these fees – a mortgage adviser can help with this. Depending on the product, this can range from nothing (sometimes called a fee-free mortgage) to £2,000.
- Solicitor fees – Your solicitor will either charge a fixed fee or a percentage fee based on the value of your property. They will also bill you for ‘disbursements’ – payments they make to third parties, which you need to pay them back for. Examples include local authority searches, transferring funds and Land Registry fees. Fees can vary around £800-£1,500, so be sure to get a quote in advance.
- Survey fees – If you choose to have a home survey on your new property, you’ll pay for this upfront. The cost will vary, depending on the type of property you’re buying and the level of detail required – learn more in Step 7 – Consider a home survey. Expect to pay between £300 and £1,000.
- Moving costs – Costs will vary, depending on how many belongings you have and the distance you’re moving.
- Furniture and decorating – Costs will vary, depending on how much work you want or need to do to the property and how much furniture you have already.
See more details in our blog post – The cost of buying a home.
Government help for first-time buyers 💰
The idea of saving towards your first home can be daunting, but the good news is that you might be closer than you think! Various government schemes and products are available to help first-time buyers get on the property ladder sooner:
- Lifetime ISA (LISA) – Labelled a ‘no-brainer for first-time buyers’, this is a product designed by the government to help you to purchase your first home or save towards retirement. You can pay in up to £4,000 per tax year and receive a 25% government bonus on all savings! This means for every £4 you save, you get £1 for free. If you pay in the maximum £4,000, you’ll receive a £1,000 bonus – each year you save. To use the 25% government bonus towards your first home, your LISA needs to be open for at least one year from the date of your first deposit. Moneybox offers both a Cash Lifetime ISA and a Stocks & Shares Lifetime ISA. Learn more about the Lifetime ISA and how it could help you save for your deposit faster, then calculate a weekly savings plan for your deposit with our house deposit calculator. Eligibility criteria applies.
- Mortgage guarantee scheme – Announced in the 2021 Budget, the government has introduced a mortgage guarantee scheme, designed to help buyers with just a 5% deposit get a mortgage, borrowing the remaining 95% of the property value. The scheme is not restricted to first-time buyers or new-build properties, but the property must be worth £600,000 or less. It’s only available on repayment mortgages (not interest-only) and residential mortgages (not buy-to-let or second homes).
- Help to Buy scheme – Designed to help you buy a property with a 5% deposit and reduce the amount you need to borrow as a mortgage.
- Equity Loan – If you’re buying in England and Wales, you can borrow up to 20% of the property value as a government loan (40% in London) and put down a 5% deposit. In Scotland, you can borrow up to 15%. You can borrow the remaining amount (up to 75%) from a lender, as a mortgage. To qualify for the loan, the property you’re buying must meet certain criteria (it must be a new build, registered with the Help to Buy scheme, and the value must be under a certain amount, depending on the region you’re buying in). Penalties apply if the government loan isn’t fully repaid in the five-year period. Read more about the Help to Buy Equity Loan.
- Help to Buy ISA – The window for new applications has now closed, but the Help to Buy ISA is another savings product for first-time buyers. Like the Lifetime ISA, which remains open, it offers a 25% government bonus on savings. There are restrictions on the amount you can pay in monthly and during a tax year. Read more about the Help to Buy ISA.
- Shared Ownership – Shared Ownership allows you to buy a ‘share’ of a property. Rent is paid on the remaining share to the local housing association. You have the option to increase your share as and when you can afford to, to own more of your home over time. As with other schemes, criteria applies. Read more about Shared Ownership.
Other options to buy a home sooner
- Buy with someone – Joining forces with a friend, family member or partner can increase your borrowing capacity. 🤝 If this is a route you want to take, you will likely need a joint mortgage. It’s important to seek advice from an experienced mortgage adviser and a solicitor.
- Gifted deposit – According to research by Legal & General, 56% of first-time buyers under 35 buy a home with help from the ‘Bank of Mum and Dad’. If part or all of your deposit is made up of a cash gift, make sure you have proof of funds, such as a bank statement. You’ll also need to show a ‘gifted deposit letter’ proving that the gift-giver doesn’t want the money back and has no financial interest in the property.
🟠 Time for a check in!
- You understand that the value of your home can go up and down, like any investment
- You know how much you need to save for a deposit
- You understand the range of costs involved in buying a home
- You’re aware of the various government options to help you get on the property ladder
Moneybox Mortgage Advice is provided by Moneybox Mortgages Ltd.
Your home may be repossessed if you do not keep up repayments on your mortgage.
For the Lifetime ISA, you must be over 18 but under 40 to open an account. If you need to withdraw money for any reason other than your first home (up to £450,000) or retirement, you’ll pay a government withdrawal charge of 25% on the amount you withdraw. This means you’ll get back less than you’ve put in.