In this guide, we answer the three key questions first time buyers may have in one easy place.
What schemes are on offer for first time buyers?
Making your way onto the property ladder isn’t always easy, especially in the current economic climate. With inflation figures and the cost-of-living both still high, saving for a large enough deposit is difficult.
However, there are several schemes on the market designed to help first time buyers reach their home buying goals.
You can use the shared ownership scheme to purchase both new-build homes and existing properties. Anyone using shared ownership can purchase between 25% and 75% of their home’s value. You will need to pay for the remaining share of the property by paying a monthly rent to a housing association.
Throughout the time you live at the property, you can purchase further shares of the house. This will increase the amount you own and decrease the rent. People might refer to this as staircasing.
Usually, you can buy 10% or more of shares at a time from your landlord. Some newer leases will allow you to buy 5% or more, some older leases increase to 25% or more. Check your contract to see how much you can purchase each time. It’s worth noting that every time you purchase a share, there’s likely to be an additional administration fee.
To qualify for shared ownership, your household income must be £80,000 or less outside London and £90,000 or less in London.
100% mortgages haven’t been offered by lenders since the financial crash of 2008. However, in May 2023, Skipton Building Society trailblazed change by bringing them back onto the market.
Recognising that, especially in the current climate, saving for a deposit is becoming harder than ever for first time buyers, Skipton re-introduced the 100% mortgage in a bid to support first time buyers onto the property ladder.
With a 100% mortgage, buyers aren’t required to have a deposit, nor do they need to have a guarantor. However, there is strict lending criteria:
- You must be 21 or over
- You must be a first time buyer
- You need to have been renting for at least 12 consecutive months out of the past 18 and have evidence that all rent has been paid on time. You can prove this via bank statements or confirmation from your landlord or letting agent
- You can’t have missed any repayments that you have, as these will show up on your credit report
- You can’t buy a new-build flat
You’ve got the finance, now what?
You’ve worked hard to pull together the necessary funds to purchase a home. Now you need to do everything you can to boost your chances of being accepted by a lender.
Check your credit score
A positive credit score is crucial when it comes to buying a house. Without it, you may be rejected for a mortgage.
Ahead of applying, make sure you check your credit record. Give yourself enough time to correct it if necessary. Preferably, check your rating with the three credit referencing agencies, Experian, Equifax, and Check My File.
It’s important to note that having no credit score could be just as detrimental to your application as having a poor credit score. Without proof that you’re able to manage your money well, your lender may question if you can pay back a mortgage.
If you find yourself in this situation, make sure you’re doing everything necessary to build up your credit score. This includes ensuring you’re on the electoral register, paying bills on time and opening a credit card. Of course, use your credit card wisely, paying off statements on time and in full.
Check your bank statements
Before applying for your mortgage, make sure you’ve not missed any payments and you’re not exceeding your overdraft limit. If you find yourself with either of these, you’re likely to have your application declined.
You’re allowed to be inside your overdraft limit but be aware, your lender could see this is a debt. Because of this, you might not be able to borrow as much.
Avoid payday loans and gambling
If you’ve taken out a payday loan in the last three years, you may be rejected for a mortgage. They may also decline your application if they can see regular outgoing payments to online gambling sites.
Financial expenditure of this type raises a red flag to lenders. They may think that you’re not managing money responsibly and are at risk of defaulting on your payments.
What documentation do I need?
You’ve saved the deposit and you’ve made sure you’ve done everything you can to boost your chances of being accepted. Now it’s time to get that mortgage application ready.
You’re going to need quite a lot of documentation to give to both your mortgage adviser and your lender. Without it, you might not be able to progress with the application.
- Photo ID, such as a passport or driving license
- Address ID, such as a utility bill dated within the last three months
- If you are employed
- Latest month’s payslips
- Latest P60
- Latest month’s bank statements showing your income crediting your account
- If you are on a contract
- Copy of your contract and evidence of income
- If you are self-employed
- Latest two year’s signed accounts, tax assessment forms (SA302), or HMRC online self-assessment tax calculations
- Latest three month’s bank statements showing your income crediting your account
- If you have other income you intend to use for your application
- Child Benefit: Most recent HMRC letter
- Working and Child Tax Credits: Most recent HMRC tax credit notice award
- Disability Living Allowance: Latest award letter from the Department of Work and Pensions
- Maintenance: A copy of your court order, private agreement, or Child Maintenance Services agreement. For a private agreement, a minimum of three month’s bank statements will be required to evidence receipt
- Pensions: For state pensions, your Department of Work and Pensions letter. For private pensions, your most recent pension statement and payslip
Bank Statement Guidance
Lenders accept paper and online bank statements. However, if you use online statements, make sure the HTTP address is clear.
Also, make sure the following are visible:
- Your name and address, account number and sort code
- Full bank statement (all entries into and out of the account).
Gifted Deposit Guidance
Is a member of your family gifting you finance to help with a deposit? Make sure you’ve got a gifted deposit letter. You’ll also need to ask the person gifting you the money for their photo ID and address ID. Lenders will need this information as part of money laundering requirements.
Additionally, the lender will want written confirmation from your family member confirming the gift is not repayable and no interest will be charged.
Evidence of Deposit
For most purchase applications, the mortgage lender will require evidence of your deposit. The mortgage lender will require sight of your savings and will request proof of the build-up of funds if applicable. If you’ve sent your deposit to your bank account as a lump sum, the lender will look to trace back the origin of the funds.
There’s a lot to think about when buying a house and while exciting, we know it can be an overwhelming time. If you need first time buyer mortgage help, we’ll be with you every step of the way. Our team of expert mortgage brokers will give you the advice needed to make your first home purchase as smooth and straightforward as possible.