*AD – This post is part of a paid collaboration with The Nottingham.
If you read my 2020 plans blog post, you’ll know that this is the year that Jamie and I officially become homeowners (hopefully!). Becoming a homeowner is pretty big stuff and is undoubtedly going to be one of the most exciting, but also the most life-changing things we’ve done so far.
As first-time buyers, we have hundreds of questions. From the process we have to go through, how mortgages work to what schemes are available – it can be quite daunting. That’s why I’ve teamed up with The Nottingham, who are helping me answer some of your (and our) top questions. Let’s see what they say below…
1. What goes into the process of working out a mortgage?
The Nottingham say: “If you think you’ve found houses that are within your price range, it’s time to get an Agreement in Principle (AIP). This is where the lender who is prepared to loan you the money for the property says that, in principle, they’d be happy to do so based on all the information they look at, including how much you earn, your affordability (how likely you are to be able to pay the mortgage back) and the size of your deposit.
To get an Agreement in Principle, talk to a mortgage broker such as Nottingham Mortgage Services who will search over 60 lenders and thousands of mortgages in order to find the right deal for you. Or, if you have a lender in mind, you can ask them for their mortgage deals and whether they’d be happy to lend to you.
When you’re applying for your mortgage, be prepared to provide some information including your income (such as pay slips), your address history and credit commitments (such as a phone contract, if you have a car on finance or any credit cards). Make sure you’re on the electoral roll too. Once you have an AIP and you have your savings, you’re in a position to start making offers on properties and the ball starts rolling!”
Read The Nottingham’s Tips to Make the Mortgage Application Process Simpler.
2. What is a reasonable amount for a deposit?
The Nottingham say: “You’ve decided that you’d like to buy a house and know roughly where you want to live? It’s time to see how much you can borrow! Once you’ve looked at houses that you think you’d like to live in, see how much they are and then work out if you can afford to save the deposit with our guide below.
The amount of deposit that you will need depends on the price of the property that you are looking to buy. 10% is a common goal for many people as this opens up the market of mortgages that you could be offered – but some lenders can work with 5% or less. Usually the larger the deposit the better as this opens up the market for more mortgage deals.
Save towards a 10% deposit on the property and then add solicitor’s fees, searches, furniture, moving fees and the other things you’ll have to pay for which can be as much as £5,000. Try to put aside as much as you can – it’s best to have too much budgeted than not enough.
Read more in The Nottingham’s guide to the costs that occur when buying a house.
As a first time buyer*, you can access up to an extra £1,000 per tax year towards your deposit if you are saving in a Lifetime ISA as a Government bonus as we explain below.
The Nottingham adds; “The Lifetime ISA is a newer savings product for first time buyers that was introduced in 2017 which also offers a Government bonus of 25% but has certain limitations for use.
- The Lifetime ISA can be used for a first home purchase or for retirement savings
- You can only open one between age 18-39
- You can open one with £10 with The Nottingham in branch or online
- Maximum £4,000 savings per tax year with maximum 25% Government bonus of up to £1,000 per tax year
- Any withdrawals within the first 12 months of your first payment into a Lifetime ISA will incur a 25% Government withdrawal charge which mean you could get back less than you paid in. After that, you can withdraw money to buy your first home, however if you make any other withdrawals before the age of 60 the Government withdrawal charge will usually apply
If you already have a Help to Buy: ISA: you won’t be able to use both bonuses from the Lifetime ISA and Help to Buy: ISA. However if you wanted to take out and use both account for buying your first home; you could use the savings you’ve put away in your Help to Buy ISA alongside the combined savings and bonus from your Lifetime ISA.
If you only want to use on for your first home but are wondering about which is best for you, we’ve compared both accounts in our helpful guide. This explains the differences, similarities and limitations of both.
3. How can I save enough for a deposit?
The Nottingham say: “Once you’ve worked out what size of deposit you’ll need then you can start looking for houses and seeing how much they cost. This can depend on the area of the country that you want to live in, the type and size of property that you’re looking to buy and on whether you’re saving to buy with another person. If you are looking to share the deposit, this can bring down the amount you’re saving by half.
See how much you can save each month…
– Carefully look at what you absolutely have to spend each month and whether you can cut this down.
– Can you move home if you’re already renting and save a big chunk of this each month?
- Can you cut down on bills and utilities by changing provider?
- Are you spending on things that you don’t need; such as multiple TV streaming services, expensive gym memberships, too much shopping or eating out?
If you’re an 18-39 first time buyer, boost your deposit savings by up to £1,000 per tax year by saving with a Lifetime ISA as we mentioned above. If you’re looking to buy with another person and they’re also eligible, you could double up!.
4. How much can I expect to spend on things like solicitor fees, mortgage brokers and stamp duty?
The Nottingham say: “As we’ve previously mentioned, it’s recommended to have as much as £5,000 put aside for solicitor fees, contents and buildings insurance, searches, removal fees, any furniture and any mortgage broker costs if you are using one. Plus, if you over-save for this you could have some change left over for decorating.
If you are a first time buyer then you won’t have to pay Stamp Duty Land Tax on a property purchase of up to £300,000. Read more about Stamp Duty Land Tax here.”
5. What is the benefit of a Help to Buy: ISA and the Help to Buy scheme?
The Nottingham say: “These are two separate Government incentives that have been previously created to help first time buyers get onto the property ladder.
The Help to Buy: ISA is a savings account that, like the Lifetime ISA, offers a 25% Government bonus on top of savings. This account was withdrawn for new applications by the Government on 30th November 2019. If you already have an account you can save into it until 30th November 2029 and claim your bonus as long as it is used by 30th November 2030. The Lifetime ISA which was detailed in question 2 is still available for new applications.
The Help to Buy Government schemes include Shared Ownership, which means that you can buy a share of a home (between 25% and 75%) and pay rent on the remaining share. Alternatively, the Help to Buy: Equity Loan is available for brand new homes and is where the Government will lend you up to 20% of the cost of the new build home; you will save a 5% cash deposit and apply for a 75% mortgage for the rest of the property. Find out more about these two schemes at helptobuy.gov.uk if you aren’t able to save and buy your own home outright. You do not need to have a Help to Buy: Equity Loan to buy a new build house.”
So, there’s a LOT to think about when it comes to buying your first home. Thankfully Jamie and I have got the support of our parents and friends for any burning questions that we have, but if not, organisations like The Nottingham have plenty of resources to help you along the way.
All that’s left for Jamie and I now is to go house hunting… wish us luck!
Lucy x
The maximum you can save each tax year is £4,000. The Government will pay a 25% bonus of up to £1,000 each tax year. You can withdraw money from a Lifetime ISA to buy your first home, or at age 60. Other withdrawals will usually mean a 25% Government charge, so you could get back less
than you put in. Full terms and conditions are available at thenottingham.com. Nottingham Building Society, Nottingham House, 3 Fulforth Street, Nottingham NG1 3DL. Remember, your home may be repossessed if you do not keep up repayments on your mortgage.
Whole of market mortgage advice is provided by Nottingham Mortgage Services Ltd (NMS); an appointed representative of Quilter Mortgage Planning Ltd, which is authorised and regulated by the Financial Conduct Authority; registered No. 440718. NMS is a wholly owned subsidiary of Nottingham Building Society and registered in England and Wales, No.03089887; Nottingham House, 3 Fulforth Street, Nottingham NG1 3DL.
*A first-time buyer is someone who has never owned a property before, including a home outside of the UK. If you’ve inherited a property, or owned a share of one, you will not be classed as a first-time buyer.
