What are the most common first-time buyer mistakes and how do you avoid them?
Buying a house is a huge deal. More than likely, it will be the biggest purchase in your lifetime. Sweeping you up in a rollercoaster of emotions from elated and excited, to anxious, stressed and ultimately, a little overwhelmed.
It’s impossible to know all the complexities first-time around, the process is a lengthy one and tricky to navigate alone. Picking through the layers of legal jargon, paperwork and professional terms is hard enough.
It’s easy to see why many first-time buyers make the same common mistakes.
This guide aims to simplify the process, taking you through some of the key stages and common mistakes that come up time and again, so you can avoid making them.
Here are seven common mistakes first-time homebuyers should avoid...
- Not having enough of a deposit
- Not considering ALL the Costs
- Misunderstanding what you can afford to borrow
- Not performing a DIP before you search
- Not seeking advice
- Don’t forget the other costs
- Failing to do your research and identify your needs
1. Not having enough of a deposit
Back in 1960, the average first-time buyer was 23 years old, paying a £595 deposit on their first home – the equivalent of around £12,738 today.
Last year, The Independent reported most first-time buyers are 30 years or older before they get on the property ladder, having to pay a deposit of around £20,622.
A lot has changed!
There are a few things to bear in mind....
Firstly, a deposit of at least 5% of the property price is required. If possible, it’s worth saving more than this, as bigger deposits unlock better deals and more attractive interest rates.
Using all of your savings for the deposit could be the biggest mistake of all. Often people go all in with a large down payment.
On the face of it, this makes sense, as you won’t have to pay as much back.
However, it’s worth considering a little extra on the mortgage and holding some savings back for rainy days. Particularly in the beginning as you get used to the increased outgoings that go hand in hand with owning a property.
Remember, as a homeowner you never know what might crop up – broken boilers, leaky roofs, blocked drains etc. It’s down to you to have these fixed.
If you’re struggling to save by yourself, there are alternatives which may help.
Help to Buy - you save a 5% deposit and the government loans you 20% of the property price meaning you only need a 75% mortgage.
Shared Ownership - you buy a 25%-75% share in a property and pay rent on the rest.
Help from parents – if your family can’t afford to provide a cash gift towards your deposit but still want to help, some lenders will take parents incomes or assets into account. In these mortgages the parent becomes the guarantor of the loan or their income is included in the assessment when a lender decides how much you can borrow, or part of the loan is secured on the parents’ property.
2. Not considering ALL the Costs
You may have an idea about the costs of the monthly mortgage repayments, but there’s a lot more to it than that.
Have you considered the other monthly outgoings?
- Property Insurance
- Life Assurance
- Council Tax
- Property Maintenance and Repairs
These are just some of the costs first-time homebuyers often overlook.
Also, it’s worth remembering, utility bills and insurances are liable to increase over time and this should be factored in.
Spend time upfront working out the potential outgoings, to ensure you can comfortably cover all the costs before committing.
3. Misunderstanding what you can afford to borrow
Don’t overstretch! You may be able to afford a more expensive house, with larger monthly repayments, but consider how this will impact your quality of living.
Finding out how much you can afford to borrow is a crucial step. When you apply for a mortgage the lender assesses affordability by looking at a number of factors.
These will include:
- Size of deposit
- Salary and any other income
- Outgoings (loans, credit cards and debts)
- Household bills
- General living costs
- Credit score.
If you’re buying a property with someone else, the lender will also take their finances into consideration.
Mortgage providers will have a maximum loan-to-value – LTV – they’re prepared to offer you. This is the maximum mortgage loan you can take out as a percentage of the property value.
4. Not performing a DIP before you search
It’s much more fun to start searching for a new home straight away, but it won’t help you in the long run.
Buying a house is a huge investment and the biggest purchase you’ll ever make. It’s better to base this around a sound financial decision, equipped with all the facts.
Start by getting an ‘Agreement in Principle’ (AIP), also known as a ‘Mortgage Promise’ or Decision in Principle (DIP), from a lender before you begin viewing any properties.
Read more about how to get a Mortgage agreement in principle.
In theory, this demonstrates you can afford to buy a property and potentially puts you in a stronger position, highlighting you as a more attractive buyer.
Most lenders will carry out a hard credit check for this - which then appears on your credit score.
A few lenders will run soft checks which won’t affect this. It’s a good idea to bear this in mind and check with each lender you contact before applying.
Your offer should last between 30 and 90 days. But keep in mind that it’s only an estimate and not a guaranteed mortgage offer.
5. Not seeking advice
You’re new to the property market and the house buying game and going it alone is not advisable.
Mortgage deals are a minefield with various fees, term lengths and rates to get your head around.
Along the way a number of professionals will have a role to play in your journey and it’s important to have people you can trust to guide and help steer you through the sale.
A good broker will be able to offer independent advice, recommending a deal that’s right for you laying out everything in black and white.
Shop about, ask family and friends for referrals and make sure you trust the professionals before instructing them in your sale.
6. Don’t forget the other costs
There’s more to consider than the cost of the property when purchasing your first home. Often the additional fees involved are overlooked, which could potentially leave you short.
It’s a good idea to plan and budget for each stage to prepare for what’s to come.
This list covers the standard fees involved...
Over half of the mortgages available come with arrangement fees and other charges to just set up the loan. Typically, these can range from around £500 to £2,000.
This may have you searching for a fee-free deal and there are plenty out there. In July 2018 Moneyfacts reported 40% of the mortgage market was offering these with 2,007 deals to choose from.
Be warned, these deals need investigating to work out what you would save, if anything, in the long run.
You may find yourself paying for the lack of fee through a higher interest rate.
Once your offer is accepted by the owner, your lender will carry out a valuation to check the property is worth roughly what you're planning to pay for it.
This looks solely at the property's worth – it doesn't cover structural issues and won't highlight problems with the property.
The lender will usually arrange this, but you may be expected to cover the cost, which varies between £200 and £600.
To protect yourself from buying a house with defects, you should always have an independent property survey done, too.
The most common type of survey is the Rics HomeBuyer's Report, which examines the general condition of the property, and a building survey (also known as a structural survey), which provides a more in-depth analysis on the condition of the property and its structure.
If you're confident the building is in a good condition you could choose the basic Rics Home Condition Report, which is ideal for modern homes in good condition.
Conveyancing & Legal Fees
You'll need to hire a property solicitor or licensed conveyancer to handle the legal aspects of buying a property, known as conveyancing.
A legal adviser will either charge you a flat fee or a percentage of the value of the property. Expect to pay between £500 and £1,500 depending on the type of property, its location and how complex the transaction is.
You'll have to pay for money transfers between mortgage lenders, conveyancers, buyers and sellers, and for standard searches.
This is a government department that keeps records of all registered properties in England and Wales.
It charges a fee for registering a property with a new owner. This fee will also vary depending on the property price, but you can expect to pay between £90 and £140.
Stamp duty is a tax on land and property transactions over £125,000. First-time buyers purchasing properties costing up to £300,000 don't need to pay any stamp duty, and those buying a property priced between £300,000 and £500,000 get a discount.
Find out more details on the Government website.
These will vary depending on how much furniture etc. you have, how far you're moving and whether you opt for extras such as professional packing.
Of course, you could reduce the cost by hiring a van and calling in a few favours with friends and family.
7. Failing to do your research and identify your needs
Before you register with estate agents or start your search online, decide what your priorities are and what’s important in your new home.
- Does the house need to be close to your job?
- Do you need a garden? How many bedrooms are required?
- Do you need a garage or parking spaces?
- Do you want a project or something that’s already finished?
It’s easier to make a good decision if you’ve highlighted your needs and are clear about what you’re looking for.
Do your homework!
Even if you’ve lived in the area you intend to buy in, you’ve not looked at it from an investment point before.
Research what other local properties have sold for using sites like Zoopla or On the Market. If it’s a new area check out the town, visit at different times of the day.
Look out for signs of improvement and check with the local council for planning permission in the area to see what’s in development.
Don’t fall for the ‘best house’ on the ‘worst street’ - location is key to a property holding its value. And don’t discount an area before you’ve done the research. You could be investing in the next hot spot and stand to make a tidy profit.
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