First-time buyers accounted for a record £53.6bn of mortgage loans last year, according to the Council of Mortgage Lenders.
With spring just around the corner, many first-time buyers are tentatively stepping into the market and lenders are continuing to make their first-time buyer mortgage deals as attractive as possible. Barclays are launching a fixed-rate mortgage that lets first-time buyers recover some or all of the stamp duty on their home and other lenders such as Nationwide continue to offer 95% loan-to-value products with incentives such as a free valuation and £500 cashback towards legal fees.
With house prices inching up further, and the Your Move index putting the average in England and Wales at above £300,000, it is essential that first-time buyers put themselves in the very best position possible before applying for a mortgage.
If you are a first-time buyer, here are our top tips on how to maximise your chances of getting on the property ladder.
Check your credit record
Check your credit record in advance of applying for a mortgage to give yourself time to take any necessary steps needed to correct it. Preferably check your record with the three credit referencing agencies, which are Experian, Equifax and Call Credit. Most agencies offer a free month’s trial enabling you to check your record without subscribing.
No credit record can be as detrimental as a poor credit record
Most high-street lenders use a computerised credit scoring system to assess whether an individual applying for a mortgage is credit-worthy. Having no evidence of your ability to manage credit can be as detrimental as having a poor credit score. The lender simply doesn’t know if you will be able to manage a mortgage. To build your file, take out a credit card which is paid in full every month. This may be for small incidentals such as food or fuel. It is imperative you pay this credit card every month (preferably in full to mitigate interest) and demonstrate to the lender you are responsible with financial commitments.
Ensure you are on the Electoral Roll
Many first-time buyers have moved frequently as a result of university or career changes, and they often forget to register on the electoral roll. Being registered on the electoral roll carries many points towards your credit score so ensure this is updated before a mortgage application.
Check your bank statements
When applying for a mortgage, most lenders will ask to see your bank statements, usually the latest three months. Before applying for your mortgage, make sure your bank statements are conducted as well as possible with no missed payments and not exceeding any agreed overdraft limit. Being over your agreed limit or missing direct debits is likely to result in your mortgage being declined. Being inside of your agreed overdraft limit is acceptable, but do bear in mind the lender may treat your overdraft as a credit commitment, reducing the amount you may be able to borrow.
Maximise your deposit
The larger your deposit, the better your mortgage interest rate is likely to be and the more likely your application is to be accepted. As a first-time buyer consider the Help to Buy ISA and the Lifetime ISA coming in April to maximise your saving potential.
Consider the Schemes available
Although a larger deposit is preferred by lenders, it isn’t always possible to save one, especially with many first-time buyers already committed to renting. The government has pledged to support first-time buyers and the housing market with many schemes available to help those with a smaller deposit. Do your research, or ask a mortgage to ensure you are aware of what is available and what you can afford before starting your property search.
Budget, and don’t forget the fees
Once you know the amount you can borrow, decide what you can comfortably afford to pay each month. This will help to set the term (how long you borrow money) of your mortgage over a time frame suitable to you. The shorter the term, the better, as long as it remains affordable as less interest will be paid over the course of the mortgage.
Remember, when buying a property there will be additional fees incurred such as stamp duty and legal fees and ensure these are budgeted for in addition to your deposit if possible.