First Time Buyers Guide - Owning Your First Home

If you have been saving up a deposit for your house then you might be wondering how much you actually need to buy your first home. Well along with the deposit there are also a number of other fees that you need to plan for and make sure that you can afford before you go about making an offer on a property. All of these things can be confusing which is why we have put together first-time buyers guide to help you make sense of it all.

Take a look at our guide to owning your first home.

How Much Do I Need for a Deposit?

In order to buy your first home, you will need to put down a deposit on your property of between 5%-25% of the purchase price. The large difference in the size of the deposit denotes the difference you will be paying on a monthly basis for your mortgage repayments. You will secure much better rates for repayments if you have at least 10% to put down for a deposit. The average UK home currently costs around £227,869 so a 10% deposit on a property of this value means you will need to save around £23,000. However, if you aren’t able to save this amount then you can opt for a 5% mortgage, but you should note your monthly payments will be higher. Likewise, the more you can save before moving will bring down your monthly payments so it's worth it if you can.

What About Help to Buy Schemes?

If you are struggling to save for a deposit or houses in your area are particularly expensive, then there are other options you can look at including Help to Buy Schemes. These government initiatives were created in order to help first-time buyers get on the property ladder. There are a number of different schemes that offer different benefits that we have discussed below;

1. Help to Buy ISA

This is one of the most popular options for first-time buyers and is a scheme where the government will boost your savings by 25% for free. So for every £200 you save, the government will add a bonus of £50 to your savings. The maximum bonus you can receive is £3000 but this is still a lot of money for free. What’s even better is if you are saving with a partner, you can both open a Help to Buy ISA and receive the maximum bonus. However, you can only receive this bonus on buying a house and you must sign up before the 30^th November 2019.

2. Shared Ownership

If you still can’t save for a deposit through the Help to Buy ISA, then you might want to consider the Shared Ownership Scheme offered by the government. This offers you the chance to buy a share of your home, between 25% and 75% of the total value, so you don’t have to save as much for a deposit. However, you will then need to pay rent on the remaining share of the home and save to buy the remaining share at a later date. If you need to move out before you have enough deposit then this can be a good option. You can qualify for this scheme if you meet the following criteria;

• You and your partner earn a combined total of £80,000 a year or less outside London or £90,000 or less in London
• You are a first-time buyer or used to own a home and now can’t afford to buy a new one or an existing shared owner looking to move

3. Equity Loan

If you do have some deposit saved but need a larger deposit to afford the monthly payments on your mortgage, then you might want to consider the equity loan scheme from the government. If you have at least a 5% deposit, then the government will lend you up to 20% of the cost of your new home to bring your mortgage repayments down. You won’t be charged interest on this loan for the first five years but you will need to make repayments on this. It can be a great way to own more of your home and bring the mortgage repayments to an affordable level.

How Should I Choose a Mortgage?

The first thing that you should consider when looking for the right mortgage is how much the monthly repayments are going to be on your home and whether you can afford it. It is important that you plan for all of your expenses on top of this so that you don’t fall behind with your mortgage repayments. We will cover all of these expenses and the affordability in our next section. When choosing a mortgage you should know there are two main types of mortgage you can take out which include a fixed rate mortgage and a variable tracker mortgage. We explain the difference between the two;

1. Fixed Rate Mortgage

This kind of mortgage is fixed for a period, usually 2, 3 or 5 years, and it means your mortgage repayments will remain at a fixed cost throughout that time, regardless of what happens to external interest rates. This is a good option for first-time buyers as you will know exactly how much you are paying for the first period of your mortgage and plan your spending easily.

2. Variable Tracker Mortgage

A tracker mortgage will typically offer you the best rate on your mortgage when external interest rates are low, which means you will be paying less every month. However, a tracker mortgage will follow an external interest rate, usually the Bank of England base rate, which could potentially rise in times of recession or economic hardship. In some ways, you are risking the lower cost of your mortgage in the hope that interest rates do not rise. There is no cap on this either so you could end up paying more in the long term.

With a good deposit of at least 10% of the purchase price, you should be able to get low monthly payments on your mortgage at an average of around £761 for most first time buyers. It is important that you shop around though and get quotes from various banks and building societies. A good tool that’s easy to use is the comparison tool from Money Saving Expert.

How Do I Know If I Can Afford the Mortgage?

Even after all this planning and saving, you might still be wondering whether you will be able to afford the repayments on the mortgage once you have moved out. If you’ve never had a mortgage before then it can be quite confusing knowing exactly how much everything will cost and what you will have to pay out for. We have put together a list of all the major expenses that you should factor in and how much on average these will cost you each month.

This is of course just an estimate but there are more than likely to be other things that you will need to pay out for, such as a mobile phone contract, streaming subscriptions and also things like car insurance if you drive to work. You can, of course, cut your spending and you might not spend as much on food or commuting either, but it is important to budget for more than you think to make sure you can actually afford to move out.

Conclusion

Moving house is one of the biggest financial commitments that you will make in your life so it is important that you consider everything before moving out. It can be difficult for first-time buyers to get on the property ladder but there are a number of schemes to help you achieve your goals even if you don’t have a large deposit. If you have considered all of these aspects about your move then you should be ready to start viewing houses.