While getting on the housing ladder has been made more acheivable for first time buyers with the introduction of various government schemes, such as help to buy etc. It’s still important for first time buyers to improve their personal profile to get access to the best value finance.
Here are a few handy tips to follow in the current climate with lenders delving deeper into our personal spending habits. It’s worth building up a credit history and status profile:
- Get yourself a credit card, but make sure you use and clear it each month.
- Get yourself a bank account with a debit card.
- Avoid having lifestyle spend on your bank account; such as lottery tickets, magazines, online betting etc. This could be done in a seperate account.
- Make regular savings payments into a specific savings account with a building society or post office, this will show tracability of deposit source for your mortgage.
- Always have utility bills are addressed to you as the account holder for ID purposes.
- Very important to register with your local authority and get on the electoral register.
The next thing to do is check and update your credit history files at Experian and Equifax with your addresses for the last three years. Make sure you look out for ‘linked to associated persons’ and ‘linked to associated address’ and look for any unexpected ‘late payments’ especially mobile phone contracts and utilities.
- If you have self-employed income you should declare income, pay tax and get your HMRC Self Assessment certificates for last three years online.
- If you have employed income you should keep payslips and last two years P60s.
- Lenders like eveidence of stability so show full employment history for the last three years.
- Stay organised and keep bank statements in number sequence.
- Make sure passport is up-to-date and has at least 6 months remaining before expiring.
- Make sure address on driving licence is correct for current residential address.
- When it comes to looking for a killer mortgage deal try not to shop from bank to bank as it leaves a record on your credit file every time you are credit searched.
- If living in rented accommodation then get a landlord’s statement showing rent paid over last 12 months.
- Try to make regular contributions into a pension as this shows you to be thinking about your future financial situation.
Research the property market for the type of property you desire. Sometimes properties in need of a little TLC can be picked up at a good price as a result and you can add value.
How much can I borrow?
When thinking you are ready to look for property, approach a broker and ask for an Agreement in Principle, AIP. There is no charge for advice and recommendations and AIP. Then progress to a formal Decision in Principle for a mortgage from the recommended lender, showing the maximum the lender would be prepared to lend. At this point, the lender carries out a credit search leaving a soft footprint record on your credit history file.
When looking at property also consider travelling costs for work, council tax band and insurance costs. If leasehold, consider costs of service charges and ground rents (as they can vary dramatically) and reamining lease term (anything below 75 years could drastically reduce lending available).
Not always possible with hind sight but try to purchase your first home before starting a family – affordability criteria with many lenders are significantly reduced once you have dependents.
For the first time, it is perhaps wise to go for a fixed rate, three or five years, to know exactly what your monthly payments will be. Consider that after the initial period, you may have added value / equity in the property and qualify for a better deal at a lower loan to value and it may be worthwhile changing lender / mortgage product.
Once you have the mortgage, make sure you have insurance in place to either repay the loan in the event of death or critical illness diagnosed and or to make the monthly payments if unable to work through accident, sickness or redundancy.
The Right Mortgage
There are various methods to obtaining the right FTB mortgage:
- Lender standard purchase mortgage
- Help to Buy New Build schemes
- Help to Buy Equity / Deposit Loan schemes
- Shared ownership schemes
- Using parents/relatives as guarantors
- Deposit gifted from parents / relatives
- Parents buy property with you (they do not live there) but they share in capital growth tax free.
If you are going to be a student, parents could buy as a second home, you rent for a few years from parents and then parents gift the equity to you to enable you to buy outright.