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How to buy a property in a pandemic: Our guide for first-time buyers

Even as lockdown continues and Britain adapts to the coronavirus outbreak, the property market has shown tentative signs of bouncing back.

Mortgage approvals have risen, some indices show house prices are up, and the homeloan freeze for those with smaller deposits has thawed somewhat.

Those elements and the evidence emerging that axing stamp duty on properties under £500,000 has put a swing in the upper end of the market’s step, all point to green shoots emerging.

The big question, of course, is whether property prices will fall back as job losses bite, however, many aspiring first-time buyers are still keen as low mortgage rates mean that owning a home can be cheaper on a monthly basis than renting. 

There is a lot first time buyers will need to take into consideration before purchasing a home

Some saving for a first home may also be buoyed by being able to save more, thanks to falling everyday costs for bills such as the commute and eating out. 

Nearly a quarter of those planning to buy their first property say they have been able to tuck away more cash during lockdown, according to research from the Nottingham Building Society.

A fifth also say they should be able to buy sooner because mortgage rates have fallen during the crisis, partly due to the Bank of England base rate dropping to 0.1 per cent in March, its lowest rate on record. 

However, first-time buyers still have plenty to navigate, from finding the right home to deciding what sort of mortgage is suitable for them, and that’s not to forget the not inconsisderable hurdle of making sure they can cobble together enough for a deposit to get a foot on the property ladder.

This is even more important, as the slashing of large numbers of the 10 and even 15 per cent deposit mortgages on offer, mean that while rates are still at all-time lows, it might be slim pickings for first-time buyers.  

To help potential first-time buyers understand what they need to know before buying a property in a pandemic market, we go back to basics…

What deposit do you need?

When it comes to buying a home, the typical rule of thumb is you’ll need 10 per cent of a property’s value. So, on a £200,000 home, a £20,000 deposit.

The absolute minimum is 5 per cent, but in the current climate, these deals are rare, while the average is actually 15 per cent. 

What mortgage rate you can get is the size of your deposit – how big a percentage of the property’s value you can put down. 

Having a good deposit will help open up the options for any borrower but that is particularly true for a first-time buyer.

David Hollingworth – L&C Mortgages 

As of March 2020, the average UK house price in the is £231,855, according to Land Registry data, meaning a 15 per cent deposit would be just shy of £35,000. 

David Hollingworth, associate director of L&C Mortgages, said: ‘Having a good deposit will help open up the options for any borrower but that is particularly true for a first-time buyer. 

‘The pandemic effectively closed the housing market for a period which saw lenders limiting their product ranges. 

‘Although those product ranges have expanded since the market reopened, there are limited options for those with smaller deposits. 

‘As a result the minmum expectation is a 10 per cent deposit and although there’s gradual improvement in the 90 per cent loan to value, or the mortgage as a percentage of the property price market, the choice widens for those with at least 15 per cent to put down.’

Check: Before you apply for mortgage, it is important to make sure your finances are in order

Check: Before you apply for mortgage, it is important to make sure your finances are in order

What do I need to do before applying for a mortgage?

Before you apply for mortgage, it is important to make sure your finances are in order. 

As well as making sure you have enough to pay the deposit on your home, you’ll need to factor in potential estate agent fees, extra product fees and all other associated costs that come with buying a house.

Other caveats to consider are terms such as if you leave a mortgage early, you could get charged an early repayment charge.

Before making any applications, you should do a credit check as you can see what lenders will be looking at when deciding whether to consider you or not.

You can read some tricks here on how to improve your credit score – and this could be wise in advance to applying for a mortgage.  

When you do come to applying, a mortgage lender will look at the gap between what you have to spend each month and what you have coming in – and then crunch the sums.

You will be asked about your spending on things like feeding the family, childcare, a car loan, your energy bills, mobile phone and gym contracts.

Mortgage lenders won’t just have to assess your mortgage’s affordability now, they will also need to try and work out what will happen to you in the future and stress test for theoretical interest rate rises.

It will also not be enough simply to tell the lender or adviser about these things, you will need to provide evidence of regular outgoings and how much that sets you back.

When it comes to the amount that can be borrowed the lender will look at income and outgoings to assess affordability, rather than applying a straightforward income multiple. 

It could be a useful exercise to go through monthly costs to make sure that committed and regular outgoings such as utilities, travel, food costs and childcare to ensure they are all understood accurately.

You can consider going through a mortgage broker who will help navigate through the maze, or do your own research and approach a bank directly who will put you in touch with a mortgage adviser.  

Most lenders have mortgage calculators on their website, which can show how much someone might be able to borrow. We have one below: 

Compare true mortgage costs

Work out mortgage costs and check what the real best deal taking into account rates and fees. You can either use one part to work out a single mortgage costs, or both to compare loans

For a deposit, the absolute minimum you will need is 5% but the average deposit is 15%

For a deposit, the absolute minimum you will need is 5% but the average deposit is 15%

Freehold vs leasehold

There are two different options when choosing a property – freehold and leasehold.

A freeholder owns the land and property outright whereas a leaseholder will have been granted a lease and giving the right to live in the property for a specific period of time. 

Flats are usually leasehold with the freeholder granting a lease on the flats but it can also apply to houses – although that is subject to a deal of scrutiny and now banned on new houses.

Leaseholders may then need to pay a service charge and ground rent to the freeholder. 

In some cases the leaseholders will buy the freehold of the property and set up a management company with each leaseholder being a shareholder/director.

Lenders will typically expect there to be a minimum period remaining on the lease to meet their criteria so a short leasehold term remaining will present issues. 

Leaseholders will have rights to extend their term though. Click here for more information. 

How do I put in an offer?  

Putting an offer in would usually be done through the vendor’s estate agent. House hunters usually call or go into the estate agent to confirm the offer.

Ensure you have it in writing or in an email as proof of the offer. 

The estate agent will ask you about where the money is going to come from and they might ask questions about how quickly you can go ahead with the purchase as well. 

They will then pass that offer to the vendor who can decide whether it’s acceptable or whether they want to decline it. 

If they decline the offer, it is time to decide whether you wish to negotiate the price or leave it.  

What fees am I facing?

First-time buyers were already exempt from paying stamp duty up to £300,000. This is a tax on homes and land. 

Chancellor Rishi Sunak announced a stamp duty cut until 31 March 2021 meaning that first-time property buyers lucky enough to have a chunkier deposit will potentially be able to purchase a more expensive home without having to pay.

First-time buyers can now purchase properties up to the cost of £500,000 without being taxed. But, some experts point out that this might be bad news for first-time buyers, thanks to enhanced competition for homes. 

Other fees buyers will need to take into consideration is having their property valued so that they can be sure the property will be adequate security for the mortgage. 

Lenders require this but there are many mortgage deals on the market that will cover that cost.

However, it could be worth a more detailed survey to help pick out any potential problems with the property, such as damp, which can prove costly down the road. 

That could even help with negotiation of the purchase price if there is some necessary maintenance or repair work. 

The legal costs and search fees will also be one to shop around for as they will amount to hundreds of pounds or more. 

There are different types of service varying from online conveyancing options through to a local firm and although costs may vary much will come down to the buyer’s preference.

Finally, mortgage deals can carry a range of fees and some of the lowest rates will carry big arrangement fees of £1,000 or more. 

Although these can generally be added to the mortgage on completion rather than be paid upfront it is important to factor them in when deciding on the best deal. 

Most lenders offer a range of different rate/fee combinations and may also add incentives such as free valuation and cashback. 

Looking at the overall cost over the deal period could mean that a slightly higher rate with lower fees will be cheaper overall.

A spokesperson for Nationwide said: ‘Buying a first home is often the biggest financial transaction someone will make, so it is important to get advice to make sure that they get a product that fits their needs. 

‘Lenders have specialist mortgage consultants in branches who can help guide first time buyers and answer any of their questions. 

‘Alternatively, an independent mortgage broker will also be able to offer advice and help search the market to find the right mortgage. 

‘When comparing mortgages, always make sure to factor in any fees that may apply during the term of the deal as lowest rate doesn’t always mean lowest cost.’

For a deposit, the absolute minimum buyers will need is 5% but the average deposit is 15%

For a deposit, the absolute minimum buyers will need is 5% but the average deposit is 15%

How do I get a good mortgage deal?

There are hundreds of mortgage deals on the market so it can be difficult to decide which one to opt for. 

It could be worth hiring a mortgage broker to help you with the decision although you are not obliged to pick the option they choose.

There are many different mortgage rates to compare. To help you find the best deal for you, use This is Money’s mortgage finder tool, powered by L&C.

How much you can borrow from a lender will depend on your financial situation and how many people will be paying out.

Hollingworth added: ‘Lenders will offer what’s often known as an Agreement or Decision in Principle. 

‘This takes the basic information required and the lender will credit check and score the applicant to give the potential borrowing amount. 

‘This can be useful reassurance but it isn’t a guarantee and things could change once a full application is submitted along with back up documents. 

‘Although many lenders will now only leave a soft footprint some will leave a trace on the borrower’s credit file and too many of those can put lenders off, so there’s no real benefit in taking a DIP from a long list of lenders.

‘Once the property is identified and an offer accepted it’s possible to pin down the specific mortgage product and to shop around for the best overall deal for the individual circumstances from across the market.’ 

The best 85 per cent loan-to-value deal on the market is currently a two-year fix from Lloyds Bank at 1.68 per cent with a fee of £1,048, followed by a similar deal from Marsden Building Society at 1.69 per cent with a £998 fee.

For those with smaller deposits the best 90 per cent loan-to-value deals on the market are currently a two-year fix from First Direct at 2.29 per cent with a fee of £490, followed by a two-year fix from HSBC at 2.44 per cent with a £999 fee.

What are the different types of mortgage?

There are thousands of different mortgage deals available at any one time but most will fall into one of two camps, fixed or variable.

Fixed rates do what they say on the tin and the interest rate won’t change during the fixed rate period, no matter what happens with interest rates in the wider market. 

That makes them a good choice for those that want to know exactly what they will pay for a certain length of time to help give some budgeting certainty.

Variable rates can come in different types but as the name implies they will rise and fall over time. 

Tracker rates are usually directly pegged to the Bank of England Base Rate by a specified margin, so any ups and downs will be directly applied to the borrower’s mortgage rate.

Other variable deals may offer discounts from the lender’s standard variable rate for a set period of time. 

Again that means rates can go up and down but the lender is in control of its standard variable rate, so those changes may not necessarily be in line with a Base Rate change.

With either type of variable deal, there’s a chance that rates could fall but it’s important that the borrower understands that rates could rise and that they will be able to carry on meeting payments if rates rise further than they anticipated.  

There are three types of mortgage buyers can choose from: a variable, a fixed and a tracker

There are three types of mortgage buyers can choose from: a variable, a fixed and a tracker

What happens when I exchange?

Exchange of contracts is when the two legal firms representing the buyer and seller swap sign contracts and the buyer pays a deposit. 

This essentially makes the agreement to buy binding so buyers will be expected to have handed over a deposit. A completion date will then be set. 

This is the time to make sure that there is buildings insurance in place on the new property which should be in place from the date of exchange. 

Ensure you get a written mortgage offer and if you’re buying a leasehold or share of a freehold property, read the lease carefully. 

If you have a Help to Buy Isa, let your provider know you’re exchanging so they can request the Government bonus.  

Repaying your mortgage

There are several different ways to repay your mortgage which are listed below.

Capital and interest: This is also known as a capital repayment mortgage. 

Home owners make a payment to the mortgage company each month which is made up of capital and interest and keep paying this amount for the life of the mortgage. By its end, your debt will be cleared and you own the property outright.

The sums to calculate repayments assume you remain with that mortgage for the entire term. 

As most people change mortgages or move house, your balance and repayments will be recalculated.

Help to buy 

The Help to Buy scheme is still running for existing participants but closed to new applicants in November 2019. 

This scheme helped first time house buyers who saved money into their Help to Buy Isa.

The Government boosted savings put into the Isa by 25 per cent, up to a maximum of £3,000 a year. This means for every £200 you save, the Government will put in £50.

However, the Lifetime Isa is more beneficial as savers can put in up to a maximum of £4,000 a year instead. Read about that below. 

Interest only: This option is increasingly difficult to come by – particularly for any first-time buyers applying for a mortgage.

Property owners only pay interest rather than capital repayments. 

However, the practice is often now frowned upon by lenders because at the end of the mortgage term you still owe them all the money and this is considered more risky.

If you do pick this option, it is up to you to make sure you have the money at the end of the term to pay off the mortgage.

When interest-only initially evolved most people invested in some sort of savings plan to build up the pot to pay it off, as the mortgage boom gripped this practice slid leading to widespread problems. I

f you don’t have the money to pay off the mortgage at the end of the term, you will have to sell your home to clear the debt.

Most lenders will want to see evidence at the application stage of how you are putting money away to eventually pay off the mortgage.

Capital and interest (repayment mortgage): It is also possible to get a mortgage deal with a combination of the two where part of the loan is interest only. These are among the most popular type of mortgage on the market. 

At the beginning of the term, the majority of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage. 

Over the course of the repayments, more and more of the monthly payment is comprised of paying back the capital borrowed. 

As the debt reduces, the capital element of payment increases and the interest element reduces, so although the monthly repayment stays the same, assuming the interest rate remains unaltered, the debt starts to reduce more quickly as the term of the mortgage progresses. 

Lifetima Isa

The Lifetime Isa is used by applicants to buy your first home or save for later life. 

Applicants to the Lifetime Isa are guaranteed a 25 per cent return from the Government and if you are solely looking to put it towards a home, it is worth having.

You must be 18 or over but under 40 to open a Lifetime Isa and you can hold cash or stocks and shares in your Lifetime Isa, or have a combination of both.

The Government promises to top up 25 per cent of whatever you put in to your Lifetime Isa, up to £4,000 per year.

Therefore, if you put in £4,000, drip-fed over the year, you would get a £1,000 bonus at the end of it.

The Lifetime Isa comes with a caveat though, you can only withdraw the money in it with your bonus intact if you are either buying your first home, or over 60. 

If you don’t meet those criteria, you will lose 25 per cent of the amount you have withdrawn. 

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