Are you a first time buyer with lots of questions? Here I am going to cover some common questions I receive from first time buyers. It can be scary buying your first property, you have been saving for years trying to get that elusive deposit saved and you are finally ready to start looking at properties but get bogged down with all the what if’s.
If you get to the end of this first time buyer guide and still have unanswered questions, please do feel free to get in touch and I will do my best to answer any questions and offer advice.
Definition of first time buyer
This question is messy. We need to break this down into two separate parts, as the definition of a first time buyer from the perspective of the government regarding stamp duty and from mortgage lenders can and do vary.
Definition of first time buyer – stamp duty
“A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence” This definition has been taken directly from the government website
Here we can see if you have ever owned a residential property or had interest in one (such as owning a % of a residential property for example) anywhere in the world then you are not classed as a first time buyer in respect to getting any stamp duty relief.
Definition of first time buyer – mortgage lenders
This is where it can get confusing. Lenders sometimes have a different definition of a first time buyer when it comes to their products they offer specifically for first time buyers. Such an example could be ‘The applicant has not owned a property in the last 7 years.
As an example, you sold a property you owned 8 years ago and moved into rented accommodation and have been renting for the last 8 years. You decide you want to buy a property again and lender A is offering a reduced rate for first time buyers on one of their products.
You meet Lender A’s criteria as a first time buyer because you have not owned a property in the last 7 years so can apply for the reduced rate with the lender.
However, in regard to your stamp duty you are not entitled to any first time buyer relief as you have previously owned a property therefore do not meet the government’s definition of a first time buyer.
What a mess! I hope this has cleared things up, if not reach out to me and I will clarify.
Do first time buyers pay stamp duty?
Possibly, you will be potentially entitled to some relief depending on the price of the property you are buying. If your purchase price is less than £625,000 you will benefit from some type of relief. Here is a link to a first time buyer stamp duty calculator simply type in your purchase price and it will tell you how much you will be required to pay
How much deposit for first time buyer?
Typically, you will need a 5% deposit to get access to a range of mortgage products however recently there have been a couple of products become available that will give you access to a mortgage with less than the typical 5% deposit.
Skipton track record mortgage – This is a 100% mortgage meaning you will not need a deposit at all. It has some pretty strict criteria and is only available to people who have been renting privately for at least 12 months. The maximum amount they will lend you is directly linked to the amount of rent you have been paying over the last 12 months, and then further affordability checks may then reduce that amount further. Here is a link to the Skipton track record mortgage FAQ
Yorkshire building society – The 5K deposit mortgage for first time buyers – With just £5,000 you may be able to get a mortgage up to £500,000 that is a 99% mortgage. Again, there is strict criteria for this product and most notable is it can not be used to purchase a flat or any new build houses. Here is a link for more information
Mortgage advisors can access both products and with the high chance of potentially heading into the world of negative equity I would strongly advise speaking to a mortgage advisor about these products and ensure you have a full understanding of the risks involved.
First time buyer joint mortgage
If both buyers are first time buyers as discussed above, then there are no issues. However, if one person buying is a first time buyer but the other person is not then this will have the same implications as explained above. The most likely outcome would be full stamp duty land tax would be applicable if one person is not classed as a first time buyer. Depending on the specific lenders criteria will determine whether you will be able to apply for a mortgage specifically aimed at first time buyers.
Again, a good mortgage advisor should be able to explain your options here.
First time buyer interest only
Interest only mortgages are available for first time buyers. Often people look at these options to keep payments lower, although it is worth mentioning that although your mortgage payments will be lower, the lender will want to see a plan on how you expect to repay the full mortgage at the end of the term, such as regular payments into an ISA. This regular payment will be included in your affordability so by going for an interest only mortgage will not lead to an increase in the amount you can borrow.
Can first time buyers rent their property?
Yes and No. If you are buying your first property with the intention of renting it out immediately then you would have to opt for a buy to let mortgage from the get-go. First time buyers can purchase a buy to let property, but products are limited and typically you will need a 25% deposit.
If you buy a property to live in and 1 year down the link you decide you now want to rent your property out, then you would have to ask your lender for permission to rent your property. This is known as consent to let. Not all lenders will allow you to, it is solely up to the lender if they refuse and you decide to rent your property out anyway then you are in breach of your mortgage terms and your lender may revoke your mortgage and require you to clear the full balance, so it really is not a good idea to rent your property out without the consent of your lender.
First time buyer council tax
This is often overlooked when looking at properties, and people are often shocked at how high council tax can be. It is easy to check council tax bands and the monthly amount you will be charged by heading to the local council’s website.
First time buyer costs
There are a few costs involved in purchasing your first property, here is a list:
- Deposit
- Legal fees (£1000 – £2500 on average)
- Surveyor fee (£250 – £3000 depending on property value and type of survey)
- Stamp duty (if purchase price over £425,000 for first time buyer)
- Valuation fee* (£150 – £1500 depending on property price)
- Mortgage fees** (product fee up to £2000, booking fee up to £250)
- Buildings insurance
- Mortgage advisor fee (up to £3000 – Not all advisors charge, I personally don’t charge!)
*This can sometimes be added to your mortgage, so you don’t have to pay it all upfront
** This can sometimes be added to your mortgage, so you don’t have to pay it all upfront and not all mortgages charge a product fee and/or booking fee.
Please note adding these to the mortgage will mean you pay it over the term of the mortgage and will be charged interest.
Benefits of first time buyer
Lenders often give preferable deals to first time buyers and often offer incentives to choose them, a mortgage advisor will be able to make you aware of these.
As you don’t need to sell a property in order to purchase you are a buyer who finishes one end of the chain, this is preferable for a seller in which case it gives you an edge over other who are in a chain and also making an offer, it also gives you a better opportunity to potentially negotiate a lower price than a property is listed for especially if the chain is complete on the other end and you will complete the chain.
First time buyer checklist
- Deposit
- All documents prepared and ready (a mortgage advisor will tell you what is required)
- Work out what you can afford.
- House hunt
- Get an offered accepted.
- Apply for a mortgage.
- Instruct solicitors.
- Commission a survey.
- Arrange a completion date.
- Exchange contracts
- Complete and move in!
As a first time buyer the whole process can be overwhelming, and you will have a lot of questions along the way. This is why I think as a first time buyer you should use a mortgage advisor to assist you through the process and get you the best possible deal on a mortgage.
There is a lot to take in and a lot to be done, so why not let a mortgage advisor help you. Look for recommendations from friends and family for advisors they have used in the past, decide what you want from an advisor beyond simply getting the best deal for you.
As a first time buyer you will want someone who is happy to support you throughout, ask a potential advisor how they can keep in contact and ask questions. I personally prefer WhatsApp, as an advisor you are often on the phone to lenders seeking information or confirming details etc so can quite often be unavailable due to being on hold with these lenders, so using WhatsApp is great you may be on hold but can still answer simple questions or simply acknowledge you have received the question much faster, emails do the same job but I find WhatsApp faster and more convenient for all.
As always if you have any questions please do get in touch.
