The mistakes first-time buyers should avoid
1) Having unrealistic expectations
It’s easy to get carried away when looking for your first home. There’s so much to look forward to, and the list of ‘must-haves’ can quickly grow into a long list. But it’s important to have realistic expectations and remember that the housing market can be very competitive. You may need to make some compromises to get your first foot on the ladder. The average home now costs more than five-and-a-half times the average salary, while the average deposit is now over £20,000 – a huge sum of money to cough up all at once.
Taking a few simple steps from the start can make life a lot easier when you begin house hunting. Start by working out exactly what you can afford. Buying a home involves many more upfront costs than just the deposit. Mortgage fees, taxes, solicitor and surveyor costs can all stack up. Talking to a mortgage broker as early as possible can also help but some will charge for their services.
2) Checking your credit score much too late
There’s no two ways about it, buying a home is probably going to be the biggest financial commitment of your life. As a result, the mortgage lender will want to see that you can be trusted to manage your money responsibly. They do this by looking at your credit score, which you could think of as a report card showing how you’ve borrowed money and paid it back in the past. There are a number of organisations that will tell you what your credit score is for free, and if it isn’t up to scratch, there are simple steps you can take to get it back in the creditworthy zone.
The most important thing is to check early, even a couple of years before you’re likely to buy. This will give you plenty of time to improve your score should you need to. Some tips include paying phone and household bills on time, and making sure to pay off any credit card debt at the end of each month.
3) Not reading the small print on saving products
The government wants to help aspiring homeowners make it onto the property ladder, and has introduced a number of excellent ways to make saving for a deposit more attractive. But however you choose to save, think first about how you’ll need to access the money, what sort of house you’ll be buying, and read the small print to make sure you’ll be able to use the money as you hope to.
The Help-to-Buy ISA for example will boost your savings by 25%, so for every £200 you save, you’ll receive a government bonus of £50, up to £3,000. It’s been a great help for many first time buyers, but some were shocked when they realised the bonus is only paid out after the contract has been exchanged. In other words, you won’t be able to use it to pay for a deposit. As such, many people now opt for the Lifetime ISA, which also offers a government boost. But there are still limits to what you can spend the money on, so think well in advance about where you’ll be buying and save accordingly.
4) Not shopping around for the best mortgage deal
Finding and securing a mortgage can initially seem like a daunting task. With so many rates and products on the market, it can be tempting to go directly to the lender you already bank with, or to jump for the first one that accepts your application. But for such a serious purchase, shopping around for the most suitable deal could save you thousands of pounds.
More than a third of all first-time buyers go directly to a bank or building society for their first mortgage, but doing so could severely limit your options. A mortgage broker will be able to review a far wider range of products and advise you on the right one for your circumstances. They’ll also assess any hidden costs which can sometimes be difficult to find, giving you a more well-rounded view of your options.
Once you’ve successfully secured your new mortgage, it’s important to keep on top of it. Your initial deal will usually revert to a less attractive rate – the Standard Variable Rate (SVR) – after two or five years. The simplest way to avoid lapsing onto the SVR is to set a reminder in your phone for at least three months before your initial rate comes to an end.
5) Being put off remortgaging in future
Buying a home hasn’t traditionally been the most stress-free of experiences. Many of today’s homeowners remember the process as an ordeal, so much so that our own research found that one in ten homeowners were reduced to tears while securing their first mortgage. The same number say that the memory of the experience had discouraged them from switching to a better deal later on.
There are currently two million homeowners in the UK languishing on a Standard Variable Rate who could be saving an average of £4,900 a year if they switched to a more suitable deal. People are twice as likely to switch energy provider as they are mortgage provider, despite the potential savings being 14 times greater. Switching mortgage is now just as simple, so dust off your mortgage statement and look into whether you could save.
Ishaan Malhi is CEO and founder of online mortgage broker Trussle