First Home Buyers Guide

A guide to buying your first home

GETTING ONTO THE PROPERTY LADDER

Buying your first new home can be quite an overwhelming experience and as it is probably going to be the biggest purchase of your life, it's important to make the right decisions. In this section newhomesforsale.co.uk takes you through the various steps involved to help you get a foot on the property ladder and a step closer to your ideal new home.

Begin by finding out how much money you can borrow. A mortgage advisor at the bank or an independent financial advisor will need the following information: • • • •

Details of your income.

Your outgoings.

Any savings you might have.

Your credit history.

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TOP TIPS FOR FIRST TIME BUYERS

When meeting the advisor take along: • At least three months of bank statements.

• Payslips or tax returns.

• Information about any outstanding loans.

• A valid passport.

Once they have assessed everything and they are happy to give you a mortgage offer, they will give you an 'agreement in principle', which in theory will state how much they are willing to lend you. However this will not tie you or the lender in to anything. It will just give you a rough idea of how much you can potentially borrow.

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VIEWING POTENTIAL NEW HOMES

Viewing a potential new home is much easier if you take someone along to share impressions with. Once you think you have found the development you are interested in, arrange a viewing. Visiting show homes is exciting and they can provide you with some excellent ideas of how your future home could look. However it's important to remember that show homes always look immaculate and you really need to ensure that the property meets all your needs. It's a good idea to take a list of questions with you. Take a look at the site plan, imagine the plot that would best suit you. The show home may not be the exact house type but will give you a very good indication of the standard of finish and fittings. Talk to the sales staff at the development about the features you are looking for, ask about dimensions and floor plans if you are interested in a property type which is still under construction. Find out about the energy efficiency measures the homes offer and availability etc.

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GETTING THE LEGALS IN PLACE

After your offer is accepted, you will need to appoint a solicitor or conveyancer who will oversee the contract, deal with the finances and exchange the deeds. They will carry out searches, check the terms of any lease and tell you how much stamp duty you will have to pay if applicable.

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EXCHANGE AND COMPLETION

After your offer is accepted, you will need to appoint a solicitor or conveyancer who will oversee the contract, deal with the finances and exchange the deeds. They will carry out searches, check the terms of any lease and tell you how much stamp duty you will have to pay if applicable.

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ENERGY PERFORMANCE CERTIFICATES

Energy Performance Certificates (EPCs) provide a physical inspection of the property you are buying and shows how energy efficient the home is. If you are buying a new home it should be very favourable as most developers use the very latest materials and insulation. If you are buying a new home of buying off-plan (which means it is not yet built) then you will be provided with a 'predicted' assessment and a final certificate will be given when the property is complete. New homes are far more energy-efficient than older properties. New homes are built in accordance with the very latest Building Regulations.

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TOP TIPS FOR FIRST TIME BUYERS

BUDGET Work out how much you can realistically afford to repay each month. Look at your income and outgoings and remember that you will have to pay bills, council tax, food, insurance and travel. If you are buying a leasehold apartment you will need to budget for service charges and ground rent.

CREDIT SCORE In order to find your credit rating you can go to Experian or Equifax who will give you a report. If you are making lots of enquiries to find the best deal, make sure the lenders log your enquiry as 'quotation' rather than 'application' as too many applications will leave 'footprints' on your credit score and can affect your rating. To improve your credit score, make sure you pay bills and loan repayments on time and make sure you are on the electoral roll.

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THE BANK OF MUM AND DAD

The biggest stumbling block when trying to buy your first home is trying to save enough money for a deposit. Even if you have managed to save up a tidy sum, lenders are now very fussy about who they will give a mortgage to. If you have any debts, a low credit rating or you are not in a well-paid secure job it could pose a problem.

There are more 90% LTV mortgages coming on to the market but often the rates are less competitive, and the higher the deposit a first time buyer has, the more affordable the mortgage repayments will be. Many parents are now prepared to lend a hand as they are looking for alternative ways to maximize interest on their savings and if their own property has increased in value they feel comfortable releasing some of the equity to pass on to their children.

Parents have also been helping their children by guaranteeing mortgages. This means that they have to prove they can afford the repayments but some lenders feel that this is too risky and so guarantor mortgages are increasingly difficult to obtain.

There are several lenders who will help: Nationwide and Halifax will allow parents to take on the mortgage if their child cannot make the payment Lloyds TSB's Lend a Hand scheme asks the child for a 5% deposit, but the parents must contribute a deposit of 20%, which is held in a savings account. Lloyds put a charge on the savings, which means that it can be recovered to pay the child's mortgage, but it remains in the parents' name.

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IS IT LOAN OR A GIFT

If parents are willing to help, there are some important decisions to be made. If the deposit is a loan, many lenders will not be happy as this means that the repayments will be deducted from the child's monthly outgoings and so this will reduce the amount they can borrow.

If the child is buying with a partner, it is wise to draw up a declaration of trust that states exactly who owns what share of the property in the event of a sale. The child and their partner should also be declared as tenants in common under the trust. This will allow them to split the equity however they like.

If the parents give their child money as a gift it and they live for seven years after giving the money, the child will not have to pay inheritance tax on the amount. Parents can use a trust to put a second charge on the property and state that when it is sold a percentage of the equity must go back to them. A solicitor can advise on setting up a trust.

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SETTING A BUDGET

Finance is probably the biggest obstacle first time buyers will encounter. The first challenge will be saving up for a deposit, which is normally around 10% of the property price although there are now more mortgage products available, which require only a 5% deposit. There are also many developer schemes on new build homes aimed at helping the first time buyer, but usually the bigger the deposit, the better the mortgage rate will be. A mortgage is a loan used to buy a property and normally is repayable over 25 years. The loan is secured on the property, which means that if you fall behind with repayments then the lender can repossess the home, although this scenario is always the last resort for lenders. However, it is vital to buy a property, which you can realistically afford.

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FIND A NEW HOME

Once you have found the right location you will need to find a new home that suits your needs. You can easily locate new home developments on newhomesforsale.co.uk and even refine your search to locate shared ownership properties for sale. It's a good idea to sign up to receive free 'email alerts' a service which will automatically notify you of any new developments, availability and special offers etc.

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LOCATION LOCATION LOCATION

• Questions to ask yourself • What are the transport links like?

• What is the commute time to work?

• Is there convenient shopping?

• What leisure facilities are nearby?

• Are there good local schools and colleges?

Before you start your new home hunt, it is a good idea to make a list of the locations you would consider living in. Then, check the property prices to see if you can actually afford to buy in the area. It is also advisable to visit the location several times both during the day and at night to check it out. If you are considering moving to a completely new area that you don't know then the best way of finding out about the area is to talk to the local people. Pop into shops and pubs, for example, and ask what it is like to live there. Buy the local newspaper and internet searches may well find you community websites, which will give you an insight into the area.

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MAKING AN OFFER FOR A NEW HOME

When you make an offer to buy a property your offer will be subject to the survey and contract so you are not legally committing yourself to this price. Once your offer has been accepted, tell your mortgage lender who will do a valuation to ensure the property is worth the money that is going to be advanced.

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10 YEAR NHBC WARRANTY

If you are buying a brand new home then it should have a 10-year warranty and insurance cover from the NHBC (National House-Building Council). The cover is split into two periods damage or defects to your new home, which occur during the first two years from the date of legal completion and secondly, damage to specified parts of the home (essentially the structural elements), between years three to ten. If you decide to sell your new home within the ten-year period, it is possible to transfer the balance of cover to the new owner. NHBC inspectors check all new homes at key stages of their construction and provide a free dispute resolution service between the you (the homeowner) and the builder should the situation arise.

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BUILDINGS INSURANCE

Insurance is a vital part of protecting your home. There are two types of insurance that you will need. Buildings Insurance covers the cost of rebuilding your home if it is damaged. You will not be able to exchange on a property until this is organized. The sum insured must be enough to cover the cost of rebuilding your home if it is severely damaged by fire, flood, storms or any other catastrophes. It will only cover the bricks and mortar to rebuild your home so will be considerably lower than the value of your property. It is important to read the small print on your policy, as you must not assume that every policy covers every eventuality. Never under insure your property but don't pay more than you have to by over insuring either. The other is contents insurance, which covers your possessions. Unlike buildings insurance, this is not compulsory but most people think it wise to ensure their possessions are covered. Once again it is important not to under insure or over insure so you need to do your sums to work out exactly how much it would cost to replace your furniture and belongings if the worst did happen.

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FIND A FRIEND TO BUY WITH

There are websites, which will match up potential shared buyers if you haven't got a friend to buy with. It can be risky though as you will be entering a big financial commitment with a stranger.

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BUYING A NEW HOME WITH FRIENDS

If you decide to buy a new home with friends, then you both have to be sure you will be happy living together and have the same ideas about the practicalities of sharing. The first step is to take professional advice and make sure you have the proper legal documents drawn up. You can own a property as tenants in common, which means that each person own a set share of it. This could be equal shares or, if one person is contributing more than the other, they will own more. This will cover any problems arising from the death of one of the owners, as their share will pass on to whoever they specify in their will.

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TOP TIPS FOR FIRST TIME BUYERS BUYING WITH FRIENDS

DEED OF TRUST A solicitor should also draw up a deed of trust. This sets out the equity that each owner is entitled to if the property is sold. The share depends on how much money each person put into the property either as a deposit or mortgage payments.

COHABITATION AGREEMENT This should include all eventualities that could possibly arise.

The most common problems are if one person wants to • Move and sell up • Ask their boy or girlfriend to move in • Rent out their room • Live 'rent free' because they are unable to pay their share of the bills or mortgage.

GETTING A MORTGAGE FOR A NEW HOME When friends buy together there is more financial clout and many mortgage lenders will consider lending to friends but they will differ in how they operate and how much you can borrow. If more than one person is offered a mortgage, it will be on the basis that the applicants are 'jointly and severally liable', which means that each person is responsible for repaying the mortgage if the others are unable or unwilling to do so. Do remember though that your credit record will be linked together, too. A bad mark on either record will show up on yours and your friends.

OTHER IMPORTANT FACTORS Set up a joint bank account to pay the mortgage and bills. Make an inventory, which is kept up to date, of shared and individually owned items so if there is a change in circumstances there will be no disputes.

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FIRST TIME BUYER MORTGAGES WHO TO APPROACH

You can apply for a mortgage direct from a bank or lender or via a mortgage broker or financial advisor. A broker will be able to look at all the deals available and advise you on which one they feel is your best option. They will help you with any paperwork and will deal with the lender on your behalf right up to completion. You may have to pay them a fee or in some cases they get commissions from the lender. It is important though to find out how they are paid before committing to anything. Mortgage advisors in banks usually only offer you products, which are available by that particular bank and so it's important to shop around and look at all the options. There are many websites where you can compare mortgage products such as www.moneysupermarket.com

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OBTAINING INFORMATION ON FIRST TIME BUYER HOMES

It's simple to obtain further information on your selected new home development. Simply find the development that interests you via the simple search system above. You can search by postcode, place name, by developer or the development name.

You then have a range of options available to you: • Call the builder directly to find out more • Request further information via email or in the post • View an online brochure of your chosen development • Request an appointment to view the development

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BUYING A BRAND NEW APARTMENT

Many first time buyers will opt to buy an apartment as their first purchase. Buying an apartment is slightly different to buying a house because someone else owns the rest of the building and the land it stands on. The owner is known as the freeholder and the purchaser as the leaseholder for a specified period.

FREEHOLDER AND LEASEHOLDER RESPONSIBILITIES A Freeholder is responsible for: •Buildings Insurance.

•Maintenance and repair of the communal areas such as the stairways and roof.

A Leaseholder is responsible for: •Ground rent •Service charges •Contents insurance •Costs of upkeep with other leaseholders If you are buying a property and the time on the lease is 85 years or less, it is worth finding out the costs of renewing the lease. Many lenders will not lend on a property that has fewer than 70 years of the lease left on it. For information on how to renew a lease go to www.alep.org.uk.

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ADVANTAGES OF BUYING A NEW HOME

As a first time buyer, who is more than likely working to a tight budget there are many advantages of buying a new build and developers often offer good value starter homes in mixed developments.

• There will be little maintenance required for the first few years.

• You may be able to choose paint colours, tiles and flooring if you buy early enough.

• They will be well insulated and energy efficient so cheaper to run.

• Fitted kitchens and bathrooms and flooring are often included in the price.

• The property will be chain free so there will be less chance of any hold-ups.

• Many developers offer deals and incentives for first time buyers.

• Many also have financial advisors who can help to secure a mortgage.

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ARE YOU ELIGIBLE FOR A GOVERNMENT-BACKED SCHEME?

The government runs several HomeBuy schemes to help people get on the ladder. To be eligible your household income needs to be less than £60,000 a year. For details contact a HomeBuy Agent. They are housing associations that handle the application process for HomeBuy products.

Go to www.homesandcommunities.co.uk/homebuy_agents for more information.

HOMEBUY DIRECT Under this scheme you have to contribute at least 70% of the purchase price of your home, which is usually met with the mortgage and deposit, while the remaining cost of the home is paid for by the government and the house builder through an equity loan. The loan is interest-free for the first five years, and the buyer can borrow up to 30% of the purchase price of the property. The main scheme ended in September 2010 but some more new homes are being built under the programme up until March 2012.

NEW BUILD HOMEBUY (also known as Shared Ownershop or part-buy, part-rent) This scheme gives buyers the chance to purchase as little as a 25% share in a property and pay the rest in the form of subsidised rent. There is then an opportunity to buy more shares until it is owned outright. The shares can be bought in 10% increments. This method is called 'staircasing'.

RENT TO HOMEBUY With this scheme you rent a newly built property for up to five years and pay a reduced rent. This gives you the chance to save for a deposit so you can apply to buy a share of the home later.

FIRSTBUY In the 2011 budget the government threw a lifeline to first timers with a new 'top-up' deposit scheme worth 20% of a new build property's value. FirstBuy will be launched in September and Londoners earning up to £73,500 a year and £60,000 elsewhere will qualify for low interest loans designed to supplement the minimum 5% they have already saved. The loans will be interest free for the first five years, with the rate rising to 1.75% in the sixth year and then 1% above the retail price index after that. The loan can be paid back at any time or when the property is sold.

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