Buying your very first home is a huge milestone, but it also tends to be incredibly stressful and often time-consuming too. One of the largest sources of stress is obviously the financial strain that buying a house can put on you.

Therefore, preparation is key; you need to learn more about your monetary obligations and what is expected of you when it comes to purchasing your first property. Read on for the most important considerations that you need to make.

Do You Have the Deposit?

Saving enough money for the deposit is arguably one of the biggest obstacles that face first-time home buyers today. House prices are constantly on the rise, and the market remains extremely competitive. Most mortgage providers have a number of caveats in their offers—the biggest of which being the size of the deposit.

By and large, you need to have between five and ten per cent of the house price to offer as a deposit before you can be accepted for a mortgage. Take stock of the housing market around you and work out the average price of the kind of house that you are looking for to work out whether or not you can afford the deposit.

buy to let government scheme

Government Schemes

While getting on the property ladder can be really difficult for first-time homebuyers, there are a number of government schemes that you can and should take advantage of. For example, first-time buyers can often avoid or earn a discount on stamp duty depending on the value of the home that they are going to buy but more on that later.

There are also mortgage guarantee schemes, shared ownership options and help to buy equity loans. The requirements of these schemes can change, so you should check your eligibility for them if you want to apply. In addition to this, there are also lifetime ISAs which are designed to help first-time buyers save enough for a deposit. You can add up to £4,000 a year into these ISAs, and the government will give you an additional 25% on top of whatever you have managed to contribute.

Again, these ISAs have caveats; the government will only give you up to £1,000 a tax year. Your contributions to this ISA count towards the amount that you can add to your ISAs in a tax year, so if you have multiple ISAs, you need to consider this. Finally, you can only take this money out to use for your retirement or to purchase a home, or you are subject to early withdrawal charges.

The Health of Your Finances

In order to secure a mortgage, you need to be financially viable. This means you need to think about how much you earn versus how much you spend. A lot of providers also ask for bank statements to check that you will be able to meet the payments. However, joke references like the £20 your friend owed you and bank transferred to you with the reference ‘drugs x’ is not as funny as it may seem. Silly little jokes like this can impact your likelihood of being approved.

What is your credit score like? People with a poor credit scores often struggle to find mortgage providers. The same can be said for those with a county court judgement against them or those who have previously had to file for bankruptcy. This isn’t to say that you should be discouraged because it is not impossible, especially with providers like MoneyNest, who do strive to help people who maybe don’t have the best financial backgrounds. This is definitely something that you need to consider.

help to buy for family

Mortgage Rates

In 2021 we did see a fall in mortgage rates; however, thanks to inflation, it seems like the rates will continue to climb back up this year. While mortgage rates will affect property buyers, it is nothing to fret too deeply over. There are ways around this. Most of the time, lenders will start by increasing the interest rate on loan-to-value deals.

This means the people who are borrowing, say 60% for their mortgage. After this, they then may increase the rates on low deposit deals, but these tend to be more expensive as a general rule anyway. In 2021 mortgage rates hit some of their lowest levels in the past decade, which means that they will likely take some time to climb back up, so you are likely to still be better off borrowing this year than most other people within the last decade or so.

The Hidden Costs

A lot of first-time buyers tend to think about the money needed for the deposit, and that’s it. However, buying a home has many more costs than simply the purchase price. There are a number of other costs, some hidden and some not so much. They are things like removal man, taxes and the legality of buying a house that all costs money too. Arguably, the highest additional cost to buying a house is the stamp duty. However, the good news for a lot of first-time homebuyers is that they don’t need to pay that tax.

Inhabitants of England and Northern Ireland can buy their first home for up to £300,000 without having to pay the tax, and those buying a house between £300,000 and £500,000 can receive a discount on it. There are lower thresholds in Scotland and Wales that allow for this, too, so be sure to do your research. First-buyers also have to pay out for solicitors and legal fees, surveying and removals. In short, you need to factor this into the amount of money that you are putting to the side for your new home.

new home to start family

The Local Market

You need to have a good idea of what is happening in your local market or the market that you want to move to should you be looking to move away. In 2021, the stamp duty holiday caused house prices to skyrocket while mortgage rates dropped. This obviously had a profound effect on first-time home buyers, and it was quite demoralizing for a lot of people. Unfortunately, it is very unlikely that the house prices will fall this year, but the increase is slowing down, which means prices are likely to hold steady.

There are a lot of factors that can affect house prices, including the area and the features of the house at large. Use the internet or local estate agents to conduct your research and give you a better idea of what you can expect from the house prices in your area. You could also use the Land Registry’s price paid tool to look up the recent house sales on specific streets within your town. This can again give you an idea of what to expect and allow you to track trends.

The Bottom Line

In the end, it comes down to whether or not 2022 is going to be an opportune time for first-time homebuyers to get on the property ladder. In truth, this is incredibly difficult to answer because the property market is difficult to predict. That being said, by all accounts, the housing market should remain robust this year. Rising house prices will start to stall, and mortgage rates remain steady. It might be a little more difficult, but there are still plenty of options out there.

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