With properties short on the ground[1], it can be tempting to cut corners or try to speed up the process to make sure you get your hands on your dream home. For first-time buyers, this time is fraught with pitfalls as the pressure is on to make rushed decisions. Read on to find out more about the mistakes to avoid as a first-time buyer.
Savings
One mistake many first-time buyers make is not ensuring they have enough savings. The cost of buying a house is not exclusive to the deposit alone. Although your deposit will make up a vast percentage of your bill, it is always wise to consider other costs when calculating your finances. A valuation, legal fees, survey, insurance and removal costs will quickly mount up, as outlined below[2].
Deposit: 5% to 20% of your purchase price. On a £250,000 purchase, a 5% deposit will be £12,500 and a 20% deposit will amount to £50,000.
Valuation fee: £150 – £1,500, depending on the value of the property
Survey: £250 (basic survey) to £600 or more (structural survey)
Legal fees: £850 – £1,500, plus £250 – £300 for local land searches
Electronic transfer fee: £40 – £50
Removal costs: from van hire cost (if you do it yourself) to £600 for a removal firm
Mortgage fees: up to £2400
Mortgage Agreement in Principle
A Mortgage Agreement in Principle (AIP) is also called a Decision in Principle (DIP) or a mortgage promise. It’s a document from your lender stating how much they are willing to lend you, based on the information you have provided. As the name suggests, it is an agreement in principle and therefore the lender has no obligation to fulfil it if your circumstances change, you provided incomplete or false information, or you leave it a long time between the receipt of your AIP and mortgage application[3].
Not securing a mortgage Agreement in Principle from your lender could mean you are looking at properties outside of your budget, or result in a seller not taking you seriously and selling to another buyer. The market is incredibly competitive and this certificate demonstrates that you are in a position to buy, and are a good candidate for a mortgage.
Rushing to put in an offer
It can be tempting to rush to put in an offer on a property, particularly if you have fallen in love with it. However, do your research before you do so. How much are other houses selling for in the area? Is there any work to be done and some wriggle room for negotiation? Has the house you are considering been extended or undergone other improvements? Many factors should be considered before placing an offer.
Not asking questions
Buying a house is probably the biggest financial commitment you will ever make. Putting an offer in on a property you know nothing about is an unwise move and can cause problems down the line. Don’t feel awkward asking why the owners are moving, or requesting details about the area. You will be able to find some information online, such as crime rates on Neighbourhood Watch[4], and house sale prices on Zoopla[5].
Wrong mortgage broker
Ask for mortgage broker recommendations from trusted friends and family. The wrong broker is unlikely to put in the effort required to find the right deal for you, leaving you saddled with an unsuitable mortgage for years. The Mortgage Consultancy specialises in pairing people with a suitable mortgage, and our advisors have specialist knowledge of first-time buyer products, including Help to Buy.
The wrong type of mortgage
With several types of mortgage available, choosing which one is right for you can be a minefield. An impartial mortgage broker will be able to find the most suitable deal for you, which will usually be one of the following:
Fixed-rate: A fixed-rate mortgage has a fixed interest sum that doesn’t change throughout its lifetime. This is usually fixed for two, three, or five years.
Tracker: The interest part of this loan is based on the bank of England’s Base Rate, with payments fluctuating along with it.
Standard Variable Rate: Interest rates are determined by your mortgage lender.
There are also specialist products available that can help first-time buyers get a leg-up on the property ladder, including 95% loan-to-value mortgages, which allow buyers to purchase a property with just a 5% deposit, borrowing the remaining 95% from the lender; and Help to Buy[6], which is a Government equity loan of between 5% and 20% of the property purchase price (40% in London).
If you need further help or guidance navigating the property buying process, we have many resources on our website, including an overview of the different types of mortgage and insurance policies.
[1] “… the stock of homes available on the market is also still low, which is applying continued upward pressure on house prices.” https://www.forbes.com/uk/advisor/personal-finance/2022/05/06/house-prices-updates/
[2] https://www.moneyhelper.org.uk/en/homes/buying-a-home/estimate-your-overall-buying-and-moving-costs
[3] https://www.equifax.co.uk/resources/mortgage/what-is-a-mortgage-in-principle.html
[4] https://www.ourwatch.org.uk/crime-prevention/crime-prevention/crime-map
[5] https://www.zoopla.co.uk/house-prices/
[6] https://www.gov.uk/help-to-buy-equity-loan