Habito’s guide for first-time home buyers: what no one tells you about buying a home

It’s no secret that purchasing a home is complicated. There are countless fees, endless acronyms, chains before you exchange, solicitors, and unfortunately a lot of waiting before you know whether you’ve actually landed your home. But don’t worry! The habito team has put together some trade secrets for first-time home buyers to help make the process faster, easier and much more transparent.

15 essential dos and don’ts when getting a mortgage and buying a home for the first time.

1. DO ask yourself if it’s what you really want

Owning a property rather than renting will almost certainly make you better off in the long term, but home ownership isn’t for everyone. You’ll need a big chunk of capital to put down a deposit on your first home and there are loads of extra costs when you buy rather than rent, from buildings insurance to buying things from the furniture store. Above all, do your sums properly, and then do them again. If you think you’ll be busting your budget by buying your first home, it may be better to carry on saving before taking the leap.

Still keen to stop renting and start owning? Buying in an up-and-coming area, getting a bigger property where you could rent out a room and budgeting for a few years ahead are all ways to make sure that you don’t end up in homeowner hell further down the line.

2. DO research what deals you can get as a first-time buyer

Being a first-time buyer can be very daunting and buying a home is almost certainly the most expensive thing you’ll do in your life. So it’s good to know that there are a range of government schemes to help you get a foot on the property ladder, from Help to Buy to Shared Ownership. For a full rundown of all the schemes currently available, click here. It’s also worth visiting the Energy Saving Trust site for details of the various energy grants on offer.

3. DO save hard for that deposit

The biggest factor when it comes to which mortgage rate you can get is the size of your deposit – the percentage of the property’s overall value you can afford to put down as a lump sum. So it’s really important to save super-hard to maximise your deposit before taking the plunge. Fortunately, a small deposit doesn’t necessarily stop you being a homeowner – and there are plenty of government schemes to help first-time buyers get on the property ladder (see above) – but bear in mind that a low deposit will mean a jump in rates. So the more you can put down, the better.

4. DO make yourself credit-check worthy

One of the main goals when it comes to securing a mortgage is to get the best interest rate on your loan. But to get that rate, you need to make sure your credit history is as clean as can be – having a good credit rating is crucial when it comes to mortgage applications. In the UK, the three main credit reference agencies (CRAs) are Experian, Equifax and CallCredit, and each will hold a file on you called a credit report. The report has a footprint of your credit history (credit cards, loan agreements, mobile phone contracts, etc). Check all three before applying for a mortgage, address any mistakes and cancel any unused credit cards that show up.

5. DO know your timeline and be flexible

Recent research shows that it takes the average person just 27 minutes to decide whether to buy a property after viewing it, but that’s only the beginning of an often long and drawn-out process. By all means get excited when you finally get shown round your dream home, but keep your head and don’t try to rush things. There will inevitably be hiccups during the buying process, so stay flexible and make sure you root out the best deal for you – whether that’s finding a brilliant mortgage or negotiating a discount on the asking price.

6. DO step away from the comparison sites

To get an accurate view of what you can afford, use a mortgage calculator that adds in all the costs you’ll pay (such as stamp duty) and doesn’t just use the bank’s teaser rate. These are free and shouldn’t come with credit checks. Avoid comparison websites or ‘best buy’ tables that show you different products and interest rates – there’s no way of telling if you’ll actually be eligible for them by putting in just a few details.

7. DO get a real Agreement in Principle (AIP)

Several websites will promise to give you an AIP in minutes (also known as a Mortgage in Principle or Decision in Principle), but be forewarned they are just an output of a mortgage calculator. When you’re ready to put an offer on a house, get a lender-backed Agreement in Principle. The application is based on all of your personal circumstances and financial information and runs a credit check to see if you’re eligible for the home loan. Just don’t get several of them, as it can have a damaging effect on your credit score.

8. DO get your documents ready in advance

This can help to move your application along much, much faster. And not having them ready is unfortunately one of the most common reasons why an application gets held up.

Documents include high-resolution scans of:

• Proof of salary (payslips, or SA302 forms if self-employed)
• Proof of address (council tax/utility bill)
• ID (passport or driver’s licence) and bank statements

A full list of documents can be found here.

9. DO consider your existing debts

You’ll increase your chances of getting a decent mortgage by paying off as much outstanding debt as possible before making your application. Personal debt won’t necessarily stop you from getting a mortgage, but it will affect the amount a lender is willing to offer you. To make sure you can afford a mortgage, lenders look at your disposable income. If you have large monthly repayments to make – car finance, credit cards, student loans, etc – it will reduce the amount of income you have to spend on your mortgage.

10. DON’T forget stamp duty

Stamp duty can be a pretty hefty extra on top of the purchase price of the property you’re buying. The good news is that properties under £125,000 are exempt, but the bad news is that the average purchase price among first-time buyers in the UK was £205,170 in 2016. The tax applies to both freehold and leasehold properties – whether you’re buying outright or with a mortgage. There are several rate bands for stamp duty and the tax is calculated on the part of the purchase price that falls within each band (0% on £0-£125,000; 2% on £125,000-£250,000; 5% on £250,001-£925,000 and so on). So let’s say you buy a house for £275,000, the stamp duty is £3,750. Oh, and you only have 30 days to pay it after purchase (your solicitor will usually deal with the stamp duty return on your behalf, but double-check).

11. DON’T settle for a bad mortgage deal

Like anything, it pays to shop around when it comes to mortgages. A smart way for first-time home buyers to do this is through a mortgage broker. Many charge fees, so look beyond your neighbourhood broker and instead use real-time, online services such as habito. They’re completely free, available 24/7 from any device and, most importantly, search thousands of mortgages across the market to find the right one for you.

12. DON’T automatically use the estate agent for brokering…

Did you know the UK’s largest mortgage broker is also the country’s largest estate agent (Countrywide brokered an astonishing £12.2 billion of mortgages in 2015)? The problem is estate agents are raking in the cash from these in-house deals and the customer isn’t benefitting. By discussing finances with an in-house broker, you’re effectively letting the estate agent know the maximum you can afford to pay for a property – not a great bargaining position. Habito doesn’t sell houses, they only broker mortgages, and they never charge a fee to customers.

13. …or conveyancing

Similarly, you should avoid using an estate agent’s recommended conveyancer as it will likely be a commission-based recommendation and end up costing you more. Instead, negotiate a fixed fee with your solicitor or a licensed conveyancer for the work.

14. DO compare the costs of moving

As completion day on your new home approaches, sundry costs such as council tax, home insurance and removal fees can quickly mount up. So make sure that you plan for these well in advance and get the best price you can. Make a budget and include everything from removal fees and mail redirection to buildings insurance and council tax. And remember, you don’t have to stay with the same utility companies as the previous owner, so shop around and get the best deal on everything from energy to broadband.

15. DO remember – you can remortgage when you’ve bought your home!

Remortgaging is just like switching your energy, mobile or broadband provider, only with much bigger returns. If you’ve had a mortgage for more than two years your introductory offer could have expired, leaving you on an SVR (standard variable rate). What does that mean? When your fixed term ends (usually two years or five years), your initial rate is over and you’re then switched on to your lender’s standard rate – which is usually significantly higher. You could possibly save thousands – yes, thousands – of pounds a year just by switching to a new lender. When it’s time to remortgage, habito alerts customers and helps them switch quickly and easily so they can be sure they’ll never pay more than they have to.

Habito customers Steve & Susie, Lauren & James, and Luke shared all the things they wish they’d known before getting their mortgage.