What first time buyers need to know

Jennifer Smith is an Executive in the residential conveyancing department, working with many first time buyers on a day to day basis.

In Jennifer's previous article, she offers advice, tips and guidance to first-time buyers.

Challenges for first time buyers

For anybody who has bought or is trying to buy a property for the first time, you will know that it is a lot harder to get on the property ladder than it was for perhaps our parents or grandparents.

Why is it difficult for first time buyers to get onto the property ladder?

Most lenders require higher salaries, bigger deposits and more security than many people trying to get on the property ladder are able to provide, and the impact of COVID-19 has left a lot of people in an even more difficult position when it comes to purchasing a property for the first time.

2021 Update: The Government have introduced a new 5% deposit scheme in order to encourage first time buyers onto the property ladder. You can read my colleague Cheryl Phimister's article on the scheme here.

Has there been an increase in first-time buyers after lockdown?

Saying that, there has been an increase in first time buyer transactions recently, leading to many people becoming homeowners for the very first time.

A combination of many people living with parents and being able to save what they would be paying on rent, coupled with an increased opportunity to save money during lockdown has meant that many people are finally able to secure their very first homes.

Some lenders are also extending their available products to first time buyers to make it easier to obtain mortgages. This, coupled with an increase in new build homes backed by the Government Help To Buy Scheme has made some head way to assist time buyers.  

Who is a first time buyer?

A first time buyer is someone who has never owned or part owned a property before.

Are first time buyers exempt from stamp duty? 

First time buyers are able to benefit from a stamp duty exemption called First Time Buyer’s Relief. Previously the first time buyer relief threshold has been £300,000.00, for properties outside London.

However after Rishi Sunak’s recent announcement this has been increased to £500,000.00. This means that many people who are looking to buy a property can begin to look at higher value properties and still benefit from stamp duty exemption.

You can read all about the stamp Duty Holiday in my colleague Jennifer Smith's article here.

What first time buyers need to know

Advice from Jennifer for first time buyers

Get a good conveyancer who is happy to answer all your questions!

Seriously, buying a house is a big deal, especially for the first time, so it is important to ensure you instruct someone approachable and easy to get hold of to carry out the legal work.

My colleague Kym Gaisford has put together a useful checklist for first time buyers that you can read here.

Will first time buyers need a bigger deposit?

Not always. The standard deposit required by sellers is usually 10%, however many first time buyers are now benefiting from gifted deposits from family members towards the purchase price.

This enables first time buyers to pay more outright towards properties and obtain smaller mortgages, meaning lower monthly payments.

Where a first time buyer is purchasing a new build property the deposit is usually only 5% of the purchase price and along with the government help to buy scheme at 20% means a first time buyer would only require a mortgage up to 75% of the property value.

There also the option of a Help to Buy Equity Mortgage, which provides 20% of the purchase price and repayment is interest free for the first 5 years of ownership. Help to Buy will then require 20% of the sale price to be paid to them on the sale of the property.

As of 2021 there is a new help to buy equity loan scheme. My colleague Clare Hallett looks at this in a recent article, which you can read here.

Can first time buyers get a buy to let mortgage? 

First time buyers can get a buy to let mortgage, and many first time buyers invest in properties in cheaper areas which they then rent out to get on to the property ladder.

However, there are only 25 lenders who offer buy to let mortgages to first time buyers and the lending requirements can be more limited. It also  means that the first time buyer after purchasing a buy to let would not fall into the category of a first time buyer on their second purchase of the home they wish to live in so would be liable for stamp duty at the rates in force at the time.

Sarah March-Paschal has written about the increase in buy to let purchases as a result of the stamp duty holiday here.

Which first time buyer mortgage? 

There are a large number of lenders who offer great incentives to first time buyers such as cashback, waiving of product fees and flexible rates.

The best way to find the most suitable mortgage for you is to check out a price comparison site or to speak to a mortgage adviser.

Compare The Market's first-time buyers mortgage page is a particularly great resource.

How much can a first time buyer borrow?

The standard threshold for borrowing for first time buyers is usually 4.5x - 5x the applicant or joint applicant’ salaries, however a mortgage advisor will be able to assist with getting the best rate. Affordability checks are also carried out to take into account ongoing debts of each applicant such as credit cards or loan payments.

Can first time buyers get a 95% mortgage?

Some lenders offer 95% mortgages to first time buyers, however during COVID-19 some lenders are more reluctant to do this and others are offering increased mortgages. It is always best to speak to a mortgage adviser to get the best deal for you.

Can first time buyers get a 90% mortgage?

Yes. This is lender dependent and can also depend on the type of property being purchased, such as a new build. Most lenders require buyers to provide at least a 10% deposit, however COVID-19 has seen some lenders require a larger deposit when purchasing.

Have first time buyers been affected by coronavirus?

Everyone has been affected by COVID-19, especially in this industry. Many property transactions have fallen through or been put on hold as a result.

However, first time buyers may be able to benefit from sellers dropping their prices in a bid to sell quickly. With the recent stamp duty change a lot more people are looking to move and take the benefit of this saving and so the market is becoming busier again.

Conveyancing during coronavirus: Summary

Even though lockdown has been eased we cannot ignore the potential impact that covid 19 might have on the conveyancing process.  We will consider the potential impact in all of our residential transactions and work with clients and other stakeholders to ensure the best outcome

We will continue to keep our clients and followers updated as guidelines change.

Read Jennifer Smith's advice for buying and selling a home during COVID lockdown here.

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