Ten tips for first time buyers

Written by: Your Money
Endsleigh asked mortgage expert Ray Boulger to offer advice to first-time buyers on how to get on the property ladder. Here are his top ten tips:

1. Start by looking at websites like zoopla.co.uk, rightmove.co.uk and primelocation.com. This will allow you to conveniently research the areas in which you are interested and be much better informed when you talk to estate agents.

2. Check your credit file at least 6 months before you plan to buy, preferably with all three credit reference agencies, which are Experian, Equifax and Call Credit. If there are any incorrect entries or omissions this will give you time to try to correct them. It is possible to obtain a credit report free as the firms offer a free one month trial of their service.  In addition Call Credit has a separate website, www.noddle.co.uk, which allows you to obtain free credit reports for life as often as you like.

3. Make sure you are on the Electoral Roll. One reason first time buyers frequently lose points on the credit score is because they are not registered to vote anywhere.

4. The bigger the deposit the greater the choice of lender, the lower the interest rate and the better the chance of an application being accepted. Consider trying to get help from parents/grandparents to provide a deposit/bigger deposit. Bear in mind that lenders normally want to see proof of deposit, and if it has only recently appeared in your bank account they may ask further questions about its source.

5. Lenders normally want to see bank statements, usually the latest three months, and so make sure they are in good order with no unpaid cheques/direct debits or bank charges for exceeding any overdraft limit or going overdrawn without an agreed facility. Running the account with an overdraft is not necessarily a problem providing the overdraft is not steadily increasing, although some lenders treat an overdraft as a commitment, just as with a credit card not paid in full each month. As a result using an overdraft facility may reduce the maximum mortgage available. Exceeding any overdraft limit, or going overdrawn without an agreed facility, is likely to result in an application being rejected.

6. Bizarrely, although proving you are a regular saver will not help your credit score, having one or two credit cards, especially if you pay them off in full each month will. Choose cards that give you some benefit, such as a cash back or points, and set up direct debits to pay the balances off in full each month. Providing you do this the APR on the credit cards is irrelevant as you won’t be paying any interest.

7. Don’t have a preconceived idea about the mortgage term. Many people still think a mortgage should be for 25 years. This harks back to the days when most people had an endowment mortgage. The shorter the mortgage term the less interest you will pay but the longer the term the lower your monthly payments. Think about what monthly payment is affordable, allowing for increased payments when interest rates increase, and choose the term accordingly. Most lenders offer terms up to 30 or 35 years, subject to your age.

8. Many lenders, including all the major ones, use a computerised credit scoring system to assess mortgage applications. Credit scoring works on the opposite basis to the British justice system. You are guilty until proven innocent. If you have not had any credit, such as credit cards or loans, in the recent past “the computer says no” scenario is likely to prevail because you have not proved you can handle credit. The fact you may be a regular saver is ignored by the computer.

9. A repayment mortgage will be the most appropriate type for most First Time Buyers and in any case most lenders will not offer an interest only mortgage unless the buyer has a very big deposit in both cash and percentage terms (at least £100,000 and 25%).

10. Bear in mind that if you are buying a property through an estate agent that agent is the vendor’s agent, not yours. Many estate agents are keen to recommend their in- house mortgage broker and/or solicitor and some are very pushy. Ask yourself whether it is sensible to accept a recommendation for a professional, such as a mortgage broker or solicitor, to act on your behalf from the other party to the transaction, i.e. the vendor or their agent. The same principle applies to a recommendation from the developer if you are buying a new property. A far superior way of obtaining a recommendation for a mortgage broker and solicitor is to ask family, friends or work colleagues. Some of them will almost certainly have bought a property and as well as being able to recommend a firm, they may also recommend firms to avoid! An alternative good option for a recommendation will be some other trusted independent source.

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