Buying your first home

Where to start

You do not need it worked out before you call

Most first-time buyers get in touch with a rough idea of their deposit and a long list of questions, which is exactly the right place to begin. We will tell you what you can realistically borrow before you start viewing, so you are not falling in love with something out of reach.

We would rather have a twenty minute conversation now than untangle a declined application later.

Borrowing

How much can you borrow

Lenders assess your income and your outgoings to work out what you can afford to repay. As a rough guide many will lend somewhere between four and five times annual income, but this varies significantly between lenders and depends on your commitments, your credit history and the size of your deposit.

What matters more than the rough multiple is which lender you approach. Their criteria differ a great deal, and choosing the wrong one is how perfectly good applications end up declined.

Deposit

What you will need to put down

Most lenders look for at least 5% of the purchase price. A larger deposit generally opens up lower rates because it reduces the loan to value, and the difference between 90% and 85% can be meaningful over a five year fix.

A gifted deposit from family is common and perfectly acceptable to most lenders, although they will want it documented properly and will ask where it came from.

The process

What happens and in what order

Knowing the order of events takes most of the stress out of it.

• Work out your budget, including the costs beyond the deposit
• Get a decision in principle, which shows agents you are serious
• Find the property and make an offer
• Full application, and the lender values the property
• Mortgage offer, usually a few weeks depending on the lender
• Exchange and completion, handled by your solicitor

Tenure

Freehold or leasehold, and why lenders care

If you are buying a house it is usually freehold, meaning you own the building and the land it stands on. Most flats are leasehold, meaning you own the right to occupy it for a fixed number of years while a freeholder owns the building.

Lease length is the one to watch. Lenders want a comfortable margin left on the lease at the end of your mortgage term, and many will not lend where too few years remain. Once a lease drops towards 80 years, extending it becomes considerably more expensive, so a flat that looks like a bargain can carry a large bill you have not budgeted for.

Ground rent and service charges matter too. Service charges count as a monthly commitment in the affordability assessment, so they reduce what you can borrow. Older leases with ground rent that escalates or doubles have caused real problems with lenders, though the rules on new leases have since changed.

We check the tenure early rather than three weeks into a purchase, because it is one of the most common reasons a flat falls through.

Worries

The things people ask us quietly

My credit is not perfect. Very common and rarely fatal. Some lenders are far more accommodating than others about missed payments or defaults, and knowing which is most of the job.

I am self-employed. Usually one to two years of accounts, sometimes more. Which lender you approach makes a substantial difference.

I have been declined already. Worth talking to us before applying anywhere else. Repeated applications leave marks on your credit file and can make things harder.