Jubilee Finance is experienced at helping people get onto the first rung of the property ladder. It’s a huge step to take and one we don’t take lightly. We recommend you don’t take it lightly either.
Before searching for a first-time mortgage deal, planning is essential. At the very least, you’ll need to know your income and expenses. Lenders will ask for this information. Your first task to getting on the property ladder is to review your personal budget to ensure you know and can prove what you can afford to pay towards your mortgage repayments.
To help with this stage, there’s a free budget planner tool you can use here.
You also need to factor in additional home buying costs
Buying a property is a complicated purchase. As an example of the associated costs, the fees listed below are areas Jubilee Finance will advise you on before entering into a mortgage as a first-time buyer.
Additional home buying costs include:
This applies to England, Wales and Northern Ireland. The rates you pay are based on the price of the property you buy and are payable to both freehold and leasehold properties, so it doesn’t matter if your first home loan is for a flat. There may still be Stamp Duty to pay.
The first £125,000 of the property price is free. Between £125,000 and £250,000, there’s a 2% Stamp Duty fee.
As an example, should your new home cost £150,000, you’d pay Stamp Duty on the portion that’s above the threshold, so in the case of £150,000, there’s a £25,000 difference for which you’ll pay 2% Stamp Duty. That’s £500.
The percentage rates do go higher for homes that cost above £250,000, however for a first-time home to get you onto the property ladder it’s unlikely you’ll be trying to buy your dream home.
If you do need to pay Stamp Duty that must be factored into your budget because you may not have as high a deposit as you thought. The tax needs to be paid within 30 days of the completion of the sale.
In Scotland, the equivalent to Stamp Duty is called a Land and Buildings Tax Transaction. The threshold for Scottish properties is higher as your first £145,000 is exempt. Between £145,000 and £250,000 is the same 2%.
To find out if you need to factor this cost in, use the Tax Service’s Stamp Duty Calculator here. This applies to homes in England, Wales and Northern Ireland.
If you’re buying a home in Scotland, use the Revenue Scotland LBTT calculator to get the correct figures.
The average cost of a mortgage arrangement fee is £1500. It can be lower or higher as the price will vary by lender. If you can’t pay the arrangement fee upfront, most lenders will let you add the cost to your mortgage. Keep in mind that the interest will be added to the total cost of the loan if you choose to add it to your mortgage.
- Higher lending charges (HLC)
First time buyers find high loan to value (LTV) offers attractive because it’s less of a deposit you need to get onto the property ladder. Some first-time buyer mortgages can be as high as a 95% LTV meaning you only need a 5% deposit to access them, so it makes home ownership affordable to more people.
However, what lenders do that isn’t blatantly obvious is they have a threshold for the amount of risk they’re willing to take on. That could be a 75% LTV ratio, but they’ll still offer above that such as 90% LTV mortgages and higher. To cover the risk, there’s a premium added called the Higher Lending Charge. It’s used as a sort of insurance for the lender to cover the additional risk above the LTV ratio they’re comfortable with.
The HLC charge isn’t added to the total sum of your mortgage but instead to the LTV percentage difference to the lender’s threshold. If you take out a 90% LTV with a lender using a 75% LTV threshold, then the 15% difference of the homeowner loan will have an HLC added to it.
This can vary between 4% and 8% with the 8% levy being added to the 95% LTV loans for which you only need a 5% deposit to access the offer. This can be added to your mortgage, or you could get the option to pay it as a one-off fee.
Some lenders insist on not charging Higher Lending Charges, so it’s worth investigating before entering into a mortgage for a first-time buyer.
As you can imagine, it’s imperative that you get expert advice for first-time mortgage products because written into the small print could be figures that cost you thousands extra.
In addition to the HLC and arrangement fees, there are also the valuation report costs to account for in addition to any voluntary surveys you want doing.
Some of those are listed here:
Property Survey costs for First Time Buyer Mortgages
All lenders require this. The lender will arrange it but sometimes (not always) you’ll pay for it. Typical costs are from £200 to £400. This report intends to verify that the property is worth the amount of money you’re asking the lender to secure against it.
It’s important to note that the loan to value ratios is based on the properties valuation price and not the guide price the home is on sale for. For that reason, you could find that you’re asking to secure a mortgage for £125,000 for a house that’s valued at £115,000. In the case of valuations coming back as under the asking price, the lender will use the value of the property to determine how much they’re prepared to loan you.
Other types of surveys (not always mandatory but optional)
This is the cheapest option, and it’s most suitable for homes that appear to be in good condition and also for newer-build properties. The cost for this is around £250, but it’s only a guidance report and does not include any advice for buyers or take into account the value of the property.
RICS Reports (Royal Institution of Chartered Surveyors)
This type of report will survey the visible aspects of the property. Some providers may include a valuation, while others will only provide guidance on notable repairs that could be done to improve the property.
Where this could prove, valuable is with older properties that may have underlying issues such as rising damp. The cost for this is around £400, and while it won’t always give a valuation, even if it doesn’t, when it does indicate that home improvements are required, as a buyer, the report can be used to negotiate pricing based on the cost of remedial work identified by the surveyor.
This is carried out in a similar way to a structural survey but uses a point based system to address issues. Based on the points discussed at the Home Condition Survey, there’ll be advice sheets provided to advise you on how to deal with the problems identified. The cost for this is around £500.
- Full Structural/Building Survey
This is the most comprehensive report available. It’s something worth considering if you’re planning to buy an older property that could have issues that aren’t visible. The surveyor won’t be looking under floorboards or the likes, but they will give a detailed inspection looking for clues of possible issues that could arise in the future.
The cost of this can vary between £600 and £1,200.
The only mandatory report required by lenders will be the valuation report. Should you choose to have any additional surveys carried out to ensure you know what you’re buying and to protect you from unwanted surprises, you will need to factor the extra survey costs into your budget.
Should you have optional surveys carried out that reveal a different valuation to the lender, you can use that to dispute the lender’s valuation report if it works out in your favour by showing the value of the property to be higher than the mortgage lender deemed it to be.
Legal fees for a Conveyancer Solicitor
The legal fees vary by solicitor as some will work for a flat fee while others charge based on a percentage of the property price.
There are mortgage lenders around that do include legal fees as part of their arrangement fee, however for first-time mortgages, and this will usually be an additional cost you’ll need to factor in as it’s not as straightforward as a remortgage for a home owner loan already approved. You will have your name or in the case of joint mortgages, both names to be added to the properties Title Deeds, and for those details to be registered with the Land Registry (England and Wales) for which there are additional fees again.
First-time buyer mortgages are complex and best approached with expert advice, and it’s an area Jubilee excel in.
We understand the mortgage market, all the fees applicable to every offer by all lenders and take into account the total upfront costs, comparing against the long-term financial values that represent your actual cost of homeownership.
For genuinely impartial advice on what deal’s going to cost what, and figuring out what’s best for your situation, contact us.
Help-To-Buy May Be Available
Throughout the UK there are government Help-to-Buy schemes in place. The primary government scheme operating just now is the Help-to-Buy scheme, which is mostly a type of shared ownership mortgage option.
There are three stages to a Help-to-Buy mortgage:
- You pay a 5% deposit of the total amount you’re borrowing
- The government will provide a further 20% funding
- The lender only needs to give a lower 75% Loan of the property value
In the case of the 3rd aspect, this is of relevance to the Higher Lending Charge because the lenders, who do add this to their higher LTV offers, won’t need to because of the additional funding from the Help-to-Buy scheme.
For the 20% that the government pay towards your mortgage, you only pay £1 per month for six years. That’s an administration charge. After the six years, there’s then a 1.75% interest charge payable on the remaining 20% of the home loan that government financed.
After the six-year term when the 1.75% interest becomes due on the 20% additional funding made available, it could work out more favourable to remortgage your home for a higher amount to pay off the 20% funding provided by the government.
To be eligible for the Help-to-Buy scheme, the property you mortgage must be your sole residence so this isn’t an option for purchasing a second home.
About the Right-to-Buy Scheme
The Right-to-Buy scheme is another type of Help-To-Buy government initiative that can help you get onto the property ladder. In some areas, it’s ending, and in Scotland, it’s already finished.
Social Housing Tenants who have lived in their home or the same local council borough for more than three years may be eligible for a discount when buying the house from the council or the housing association. The discount available is based on the number of years you’ve been living in the property or the borough.
The discount rates do vary, however, for Wales the scheme will end in 2019 just as it already has in Scotland.