First Time Buyer

First Time Buyer

Buying your first home can be one of the biggest financial decisions you can make – and one of the most rewarding. Let us help you onto the property ladder and into your own home.

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You would be classed as a first time buyer if you (and the person you are buying your home with) have never owned a property before.

The term “first time buyer” is a little misleading – a better way to think of it is as “first time owner.” For example, if you have inherited a property and are now looking to buy, you would not be classed as a first time buyer.

This doesn’t apply to ownership of purely commercial property, like a shop, or hair salon with no living space attached. If you owned a property like this, you would still be classed as a first time buyer.

Generally speaking, you’ll need to put down at least 5% of the property’s value as a deposit. The more you can put down for the deposit, the less you’ll need to borrow, and this can sometimes mean you can get a better rate. Some lenders will accept a deposit that’s been gifted to you by your parents or other family members.

LTV means “Loan to Value” – the amount you are borrowing with your mortgage compared to the value of the house you are buying.

For example, let’s say the house you’re after costs £200,000. You have a deposit of £20,000 and want a mortgage for the remaining £180,000. Your LTV would be 90%. 

If you are a first time buyer, you won’t have to pay any Stamp Duty Land Tax (SDLT) on properties up to the value of £425,000.

If the value of your property is between £425,001 and £625,000, you will have to pay 5% SDLT on the amount over £425,000.

For example, if your property is worth £525,000, you would pay nothing on the first £425,000, and then 5% on the remaining £100,000, meaning that you would pay £5,000 in SDLT.

Your solicitor will normally handle the payment of stamp duty as part of their service – but remember, you’re ultimately responsible for making sure it’s paid.

There are lots of different costs that come with moving into a new home. Although the costs might vary, here are a few you should expect:

  • Solicitor’s fees.
  • Removal fees/van hire.
  • New furniture, appliances, carpets, curtains.
  • Phone and internet set up costs.
  • Mail redirection service costs.
  • New council tax, water rates and energy prices, depending on where you live and the size of your new home.

With a freehold, you own the property and the land it is built on, for as long as you want. The majority of properties in the UK are purchased as freeholds.

With leasehold, you own the property for a set period of time, but not the land that it is built on. The land is owned by the freeholder, which you lease from them for a set period – usually between 125 – 999 years.

Leaseholds are more common with flats and apartment buildings, where common areas like hallways, gardens, and courtyards are the responsibility of the landlord. You will generally have to pay a service charge for the landlord to maintain these areas.

You used to have to pay an annual ground rent for leasehold properties, but the Leasehold Reform Act came into force on 30 June 2022, ending ground rent for most leases arranged after that date.

There’s no rule to say that you can’t have an interest only mortgage as a first time buyer – but while it’s possible, it’s also unlikely.

As the monthly payments for an interest only mortgage only cover the interest, and not the capital amount, in order to qualify for one, you need to prove to the lender that you are able to pay off the mortgage balance at the end of the term. This is called a “repayment vehicle.”

For most people, their repayment vehicle is a pension or investment that they can cash in to pay off the mortgage at the end of the term. As most first time buyers are generally younger, they won’t normally have such repayment vehicles available, so they won’t qualify.

Most mortgages for first time buyers are arranged on a capital repayment basis – which means that the monthly payments pay off both the interest and the capital amount of the mortgage. You don’t need a repayment vehicle to get this type of mortgage.

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Representative example: A mortgage of £187,500 payable over 25 years, initially on a fixed rate of 1.64% for 2 years and then a standard variable rate, currently 3.59%, for the remaining 23 years. This would require 24 monthly payments of £762.36 and then 276 monthly payments of £933.31 (this includes a broker fee of £995 to be paid upon completion). The overall cost for comparison is 3.3% APRC.