Four things first time buyers need to know

First time buyers in the UK aren’t asking enough questions about the home buying process, with one quarter* believing that they need more than 20% deposit to be considered for a mortgage.

Last month, we surveyed first time buyers about their experiences with the housing market and the results show that many buyers don’t understand the financial elements – including deposits.

Almost half of those surveyed revealed that they didn’t feel that they had a big enough deposit to be accepted for a mortgage, despite 52% of those having been saving for five years or more. In fact, only 19% believed they could afford to buy a home with a 5% deposit, which is the amount required to buy through the Help to Buy scheme.

In addition to the misconceptions surrounding deposits, buyers also identified mortgage interest rates (38%), stamp duty (30%), Help to Buy (50%) and homebuyer surveys (28%) as areas of confusion.

Buying a home is one of the biggest financial commitments a person can made, so it’s important that first time buyers are confident in the information that they have before committing to a purchase.

Remember, there’s no such thing as a stupid question so ensure you ask as many questions as you need to fully understand the process. To help, we’ve also pulled together some handy hints  around the concerns raised by our survey.

What is Help to Buy?

First time buyers are eligible to apply for a Help to Buy equity loan as long as they are in a position to afford a conventional mortgage and can provide a minimum 5% deposit.

Buyers would also receive a 20% government loan (interest free for five years), so they would only need to secure a 75% mortgage. The scheme can only be used on new-build homes, priced up to £600,000, and more information on Help to Buy can be found on the Help to Buy website.

How does stamp duty work?

Stamp duty varies depending on the purchase price of a home. No tax is paid up to the value of £125,000 and 2% between £125,0001 and £250,000.

For example, if you pay £189,500 for your home, then you would pay no tax on the first £125,000 then 2% on the remaining value – a stamp duty total of £1,290. Money Saving Expert’s handy calculator will help you to calculate the stamp duty on prospective properties.

What are homebuyer surveys?

Homebuyer surveys vary depending on the property that you are buying, so research is key here. Generally, they access the property that you’re buying to check for anything that could cause problems or are in need of immediate repair. Speak to your mortgage advisor for their recommendations and read up on the types of surveys that are available to you. Don’t skip this step, it could save you money down the line.

How are mortgage interest rates calculated? 

The mortgage interest rate depends on a number of assessments lenders make based on your personal circumstances – such as your loan to value ratio (LTV) and your credit score. The LTV is the size of your deposit versus the amount you want to borrow, so the bigger your deposit the lower the interest rate.

Remember, interest rates can also be fixed for a number of years and can be switched to a new provider after the fixed term, if a better deal comes available.

*Survey of 860 first time buyers by Countryside, February 2017