First-Time Buyers Guide

Taking that first step onto the housing ladder can be an exciting prospect, but it can also be a daunting and confusing time. First-time home buyers often have to navigate legal jargon, lengthy paperwork and mortgage uncertainty.
If you’re considering buying your first property, read this first-time home-buyer guide and discover everything you need to know about the first-home legal process, including the importance of acquiring specialist legal help, home-buying tips and the potential pitfalls to avoid.

What is a first-time buyer?

A first-time home buyer is someone purchasing a property who has never owned or part-owned a property previously.

Having prior ownership of a property, regardless of whether it was inherited or purchased, bought in the UK or overseas, or purchased by a family member on the buyer’s behalf, typically disqualifies someone from first-time buyer status.

Buyers who are married to or cohabitate with someone who owns a property and those who co-purchase a property with someone who already owns a property are also not considered first-time home buyers.

Eligibility criteria

The First Homes scheme launched in 2021 and is a government initiative to help people onto the property ladder, allowing first-time buyers to purchase a property at 30–50% less than its market value.

The scheme is only available in England, and there are various eligibility criteria that must be met by buyers:

Property

• The property must be a sole or main residence.
• The property must be either a new-build home or a previously owned home purchased through the scheme.

Age

• Only those 18 years or older are eligible for the scheme.

Income

• The buyer’s income from the previous tax year cannot exceed £80,000 a year before tax deduction (£90,000 if the property is in London).

Deposit

• As many first-time buyer mortgages require at least a 5% deposit, a £200,000 First Homes property, for example, would require an approximate £10,000 deposit.

Joint buyers

• All parties must be first-time home buyers.
• The application must be made together, even if there are buyers who are not entering into a mortgage.
• The joint income cannot exceed £80,000 a year before tax deduction (£90,000 if the property is in London).

Local authority

Some local councils may apply additional eligibility criteria, such as giving priority discounts to local buyers, key workers or those on low incomes. These local criteria apply only for the first three months that the property is on sale. Buyers do not have to be local or key workers if they meet the following criteria:

• They are a member of the armed forces.
• They are divorced or separated from a member of the armed forces.
• They are the widow(er) of a member of the armed forces whose death is related wholly or in part to their service.
• They are a veteran of five years or less

New First Homes properties cannot exceed £250,000 (£420,000 if a property is in London) after a discount, but local authorities have the power to lower this amount.

Financing options

As a potential first-time buyer, you might be hesitant about purchasing a property due to the costs involved. However, there are various financing options available to you, so be sure to check if any of the following apply to your situation.

Lifetime individual savings account (LISA)

LISAs can be used to finance homes costing £450,000 or less and are available to anyone between 18 and 39. If you are buying with another first-time buyer who also has a LISA, you can use the savings towards your first property.[2] The government will add a 25% bonus to any savings, up to a maximum of £1,000 per year.

Be aware that there is a penalty for making a withdrawal if you’re not putting the money towards a deposit or withdrawing after age 60.

Help to buy ISA

Similar to the lifetime ISA, the help to buy ISA allows you to receive a 25% bonus on your savings, but you are limited to saving £200 per month versus the £4,000 per annum available with the LISA.

Help to buy mortgage guarantee scheme.

In the case of first-time buyers having a deposit of only 5%, the mortgage guarantee scheme offers lenders the option to purchase a guarantee on mortgages, compensating lenders if the mortgage payments are not made and the property is repossessed. The scheme runs until 2025 and applies to 80% of the property’s purchase price.

Shared ownership

Shared ownership involves buying a share of the home from the landlord (usually a housing association or local authority) and then paying reduced rent on the remaining share.

There is the option down the line of buying a larger share of the property – up to 100% of its value. A mortgage is needed to pay for the share, which can be between a quarter and three-quarters of the home’s full value.

Mortgage types

Your mortgage is likely to be the largest financial commitment you ever make, so be sure to find one that is right for you. As a buyer, you must be able to obtain a mortgage for at least half of the property’s purchase price.

Mortgage types include fixed rate, tracker, variable rate, guarantor and interest-only. The mortgage you choose depends on your individual requirements: do you require the safety net of a family member’s guaranteeing the repayments if you fail to meet them, for example, or do you want the peace of mind that comes with knowing that a fixed-term rate means you’ll pay the same amount for two, three or five years?

Another aspect to consider is that with a 10% or even 15% deposit, you’ll have more mortgage deal options and at lower rates, which could save you a great deal over the course of your mortgage.

The role of conveyancing solicitors

Legal advice for first-time buyers is imperative for ensuring a smooth home-buying process and mitigating the risk of any issues further down the line. Conveyancing Solicitors for first-time buyers are there to offer you specialist advice, keep you updated at every stage and answer any questions you may have about the buying process.

Be sure to check online reviews and get a feel for solicitor services; there is no better endorsement than word of mouth. It is advisable to be proactive and to enlist a lender and a solicitor before searching for a property, avoiding any potential major issues. Ask your lender to confirm your loan in writing, as this is one of the first things your solicitor will ask for.

Conveyancing solicitors for first-time buyers can make the buying process as stress-free as possible by managing all of the paperwork, organising any property searches, dealing with the stamp duty and notifying the Land Registry of the sale on your behalf.

Post-purchase responsibilities

Typically, mortgage lenders require details of your home building insurance prior to completion. As soon as the contracts have been exchanged, the home becomes your responsibility, so any insurance should be effective from that date. Many buyers opt to purchase contents insurance at the same time, protecting them from costly payouts in the case of large item theft or accidental damage, for example.

Mortgage payments are typically set up via monthly direct debit. Be sure to keep track of your payment date and when any amounts are due to increase or decrease, and contact your lender sooner rather than later if you are finding it difficult to meet the payments. Effective mortgage management is essential for peace of mind, leaving your free to enjoy your new home.

As a homeowner, it’s your responsibility to maintain the property. It is wise to budget for any unforeseen circumstances, such as electrical goods failures, and for costly renovation projects. Improving your home typically leads to a higher asking price if and when you sell, so home investments are well worth considering.

Buying your first home can be a stressful and daunting time. Whether you feel anxious about the prospect or confident in your knowledge, expert solicitors for first-time buyers are there to make the transition as risk-free and smooth as possible.

More information: https://www.qualitysolicitors.com/housing-and-property/first-time-buyers