Complete First Time Buyer Guide

You should consider making arrangements for your mortgage before searching for your first home. Though it may be tempting to start window shopping for properties, you won’t know what you can afford until you find out how much a mortgage provider is willing to lend. It’s not quite as straightforward as taking the amount you have in savings as deposit. There are a number of factors that a lender will take into account (see below). You don’t want to find yourself in a situation where you’ve set your heart on property, only to have the purchase fall through as you can’t borrow as much as you expected. By starting the process early and obtaining an agreed mortgage in principle, you can avoid lengthy delays and disappointments.

Though you won’t complete the full mortgage process until you’ve had an offer accepted on a property, all lenders will be able to give you a preliminary indication of what they are prepared to lend. Some mortgage providers will offer you a mortgage agreement in principle. As a buyer, this provides proof of your borrowing power and may put you at an advantage over competing buyers. Mortgage providers offer a mortgage agreement in principle as an incentive for you to select them as a lender (though there is no obligation for you to do so). Your mortgage in principle is based on a series of initial credit checks and you will need to provide evidence that you meet their eligibility criteria. Before requesting a mortgage in principle, you should compare the market to ensure you are getting the best possible deal.

There are three main factors that lenders take into account when determining how much you can afford to borrow:

Salary

Lenders will typically will lend 4 to 4.5 times your salary. They will also take any other income outside of your main salary into account, such as investments.

Outgoings

Lenders will conduct a thorough assessment of your monthly outgoings to determine how much of your mortgage you’re able to repay. This will include estimates of your monthly spending, bills, and loans, as well as the number of dependents (ie children) that you support.

Credit History

Lenders will perform a series of credit checks to determine the risk involved in offering you a a loan. Any previous debts, arrears, or bankruptcy will be flagged and will impact your chances of obtaining a mortgage. Lenders will also stress test your finances to ensure you’re able to maintain repayments if your personal circumstances change, for example if you have a baby or become seriously ill.

When selecting a mortgage, you need to decide where you want a variable or fixed rate of interest. With a fixed rate, your repayments won’t be affected by any changes to interest rates. Lenders will fix your rate for a set period, usually between two and five years, but sometimes longer. This option is popular with first-time buyers as it offers certainty over your monthly payments, and you won’t be impacted by any fluctuations in the market. However, with a fixed rate mortgage, you will be liable to pay a penalty known as Early Repayment Charge if you leave your mortgage before the agreed term. Also, unlike variable rate mortgages, your payments won’t go down if interest rates drop.

You may also be entitled to special deals and mortgage rates as a first-time buyer. Usually these incentives are designed to alleviate the initial expense of buying your first home. First-time buyer mortgages may include a lower deposit, reduced application fees, and a cheaper rate for the first few years. You should be wary of any incentives that end up costing you considerably more in the long run.

Guarantor mortgages are mortgages designed for first-time buyers who are receiving financial support from a guardian or relative. A guarantor will agree to pay for your mortgage if you are unable to make a repayment. Having a guarantor alleviates the risk to the lender, meaning they are more likely to approve your application. An alternative option is the Barclay’s Family Springboard Mortgage. Here, there are options for a guarantor, or ‘helper’, to cover the full cost of the deposit. This will be held in a designated savings account with the lender and released after a fixed period if the mortgage payments are maintained.

Most banks will ask you to pay at least 5%, and more often 10%, of the value of the property for a deposit. However, it’s always a good idea to save as much as you can in advance. This obviously reduces the amount that you will have to pay back in the long term and also gives you a much wider choice of cheaper mortgage products in the short term. According to Halifax, the average deposit first-time buyers paid in 2021 was almost £59,000. This is why so many first-time buyers look for financial help, often in the form of gifted deposits from family members, to help boost their savings and get a step on the property ladder.

If you are receiving a gift to help with the purchase of your first home there are some things you’ll need to consider to ensure your application can progress smoothly.

• The estate agent will likely want to see evidence of the source of funds to comply with various money laundering legislation. The donor should be prepared to part with their bank statements and ID documentation.
• A standard instruction from lenders to conveyancers is to report where funds are being used towards a transaction that did not originate with the borrower/purchaser. To avoid delay, you must disclose the gifted element of your deposit to your broker and/or lender at the outset of your mortgage application.

You can no longer open a Help to Buy ISA. If you already have a Help to Buy ISA, you can continue paying in up to £200 each month until November 2029. The government will top up your savings by 25% (up to £3,000) when you buy your first home. If you are buying with someone who also has a Help to Buy ISA, both of you will receive the 25% bonus. You can claim the 25% bonus until November 2030.

Example

Lenders will typically will lend 4 to 4.5 times your salary. They will also take any other income outside of your main salary into account, such as investments.

The home you buy must:

• have a purchase price of up to £250,000 (or up to £450,000 in London)
• be the only home you own
• be where you intend to live

As your solicitor, we will apply for the extra 25% during the conveyancing process which will be paid to us before legal completion. The bonus must be used towards the purchase price of the property. Just make sure you let us know you are using a Help to Buy ISA so that we can process the appropriate declarations and closing statements in time to claim the bonus. You cannot make use of the bonus post-completion of your purchase. Any bonus funds received after completion will need to be returned to the government.

You can use a Lifetime ISA (Individual Savings Account) to buy your first home. You must be 18 or over but under 40 to open a Lifetime ISA. You can put in up to £4,000 each year, until you turn 50. You must make your first payment into your ISA before you’re 40.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. The Lifetime ISA limit of £4,000 counts towards your annual ISA limit which is £20,000 for the 2021 to 2022 tax year.

To open and continue to pay into a Lifetime ISA you must be a resident in the UK, unless you’re a crown servant (for example, in the diplomatic service), their spouse or civil partner.

You can withdraw money from your ISA if you’re buying your first home. If you withdraw cash or assets for any other reason, you’ll pay a withdrawal charge of 25%. This is known as making an unauthorised withdrawal. This recovers the government bonus you received on your original savings.

You can use your ISA to help you buy your first home if all the following criteria apply:

• the property costs £450,000 or less
• you buy the property at least 12 months after you make your first payment into the
• Lifetime ISA
• you use a conveyancer or solicitor to act for you in the purchase (the ISA provider will
• pay the funds directly to them)
• you’re buying with a mortgage

If the person you’re buying with has a Lifetime ISA, they can also use their savings and government bonus.

They’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in another property (for example they’re a beneficiary of a trust that includes property).

If you have a Lifetime ISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home.

You can transfer money from a Help to Buy ISA to a Lifetime ISA. However, if you transfer money from a Lifetime ISA to a Help to Buy ISA, you’ll have to pay the 25% withdrawal charge.

It is essential to flag any unsecured borrowing you are intending to finance your deposit with to your broker and/or lender at the outset. Many lenders will not agree to additional borrowing. You will have to provide evidence of source of funds. If a loan is disclosed at a late in the process, you could find yourself liable for any costs if the lender withdraws your mortgage offer.

You have had your offer to purchase accepted but it remains subject to contract. There is no binding agreement for the sale until exchange of contracts (see the conveyancing process below). Each party reserves the right to withdraw until a binding contract is made. There is no recourse to the seller and you must be prepared to accept any incurred costs if the transaction does not proceed to exchange.

A conveyancing solicitor delivers support and guidance throughout the conveyancing process. Most importantly, we provide you with relevant legal advice in language that you’ll understand. To offer the best possible service, your conveyancer needs to have an in-depth understanding of the intricacies of land law, as well as a thorough knowledge of the formation and formalities of contracts, misrepresentation, and remedies for breach of contract. A conveyancing solicitor will have undertaken extensive legal study and continued professional development in these areas. As solicitors are a regulated body, you’ll receive a high quality service you can trust. The firms in which they operate also maintain professional indemnity insurance.

If you are buying a new build property, you may be referred to a conveyancer by a development site office with the promise of speedy service. Your reservation agreement with the developer will likely require you to exchange within 28 days and you may fear losing your reservation fee. However, you should not compromise on the quality of legal advice for the sake of speed. The legal side of buying a new build home is more complex than any other type of conveyancing. That’s because the potential for something to go wrong is much higher with a new build purchase, with issues like non-compliance with planning regulations and incomplete agreements for roads and sewers. These issues can cost you dearly in the future if not addressed. Quite often, referred conveyancers prepare a standard report pack for a development, which is then recycled for every plot they act on. This documentation may not be revisited as the development progresses and new issues arise. The best way to protect yourself is to instruct an experienced conveyancing solicitor to manage the legal aspects of the purchase.

The estate agent’s role goes beyond simply marketing and selling your home. They communicate with the many parties involved to ensure that everyone is working towards the common goal of legal completion. The agent identifies issues up and down the chain and can provide you with the necessary information to manage expectations in terms of timescales etc. Too often a scenario arises where you are ready to exchange but are prevented by unknown obstacles down the chain. Your conveyancing solicitor is limited in what they can do and will only receive information from the seller’s solicitor. The estate agent can get to the source of a problem quickly.

Caveat emptor (‘let the buyer beware’) is a cornerstone of conveyancing in England and Wales. The law imposes a clear obligation on you as a buyer to find out about a property, as it only recognises a limited duty of disclosure from the seller. It is therefore essential to find out as much as possible about a property before contracts are exchanged, as you will have to take the property in whatever condition when there is a binding contract for the purchase. You should consider instructing a chartered surveyor to provide a survey report to highlight any matters of concern or consideration before you commit to exchange.

We always recommend undertaking a Local Authority Search, a Water Search and Environmental Search when you buy a home. These will be conducted when you obtain your mortgage.

• Commons Registration Search
• Coal Mining search
• Index Map search
• Land Charges search
• Company Search
• Other searches dependent upon the location of the property

You can find an example of the Local Search, Drainage Search and Environmental Search here.

Your solicitor will investigate the evidence of title produced by the seller’s solicitor and will raise enquiries (requisitions) on any matters that are unsatisfactory or unclear. It is likely that your solicitor will also act for your lender. The lender will ensure there are no defects in the title which would adversely affect the lender’s ability to sell the property and recover the loan. Your solicitor will ensure that title is good, marketable, and free from incumbrances that will adversely affect the use and enjoyment of the property. Where your solicitor also acts for the lender, they will ensure the title conforms with the mortgagee’s instructions to the solicitor.

Many conveyancers still practise defensive lawyering and issue as many enquiries as possible. This heavy-handed approach is sadly not uncommon and can lead to unnecessary delays. Our solicitors only raise necessary and specific enquiries, ensuring that you receive focussed advice when we report to you on the title.

We consider the terms of the draft contract scrupulously in the light of your instructions, the replies to pre-contract enquiries, the results of the searches, and the title investigation. If amendments to the contract are necessary then we’ll make the amendments and send to the seller’s solicitor for approval. You need to sign the contract before exchange. It is standard conveyancing practice to have two identical contracts, one signed by the seller and the other signed by the buyer. These are exchanged so that the buyer receives the seller’s signed contract, and the seller receives the buyer’s signed contract.

As soon as there is a valid contract, the beneficial ownership in the property passes to you. This means that you bear the risk of any loss or damage to the property, subject to the seller’s duty to look after the property. In addition, the contract is likely to pass the risk to the buyer on exchange (unless the contract is for a purchase of a new build property where the risk is likely to remain with the developer). It is obviously important for a buyer to arrange adequate insurance of the property from the moment of exchange because if the property is damaged (e.g., by fire), the buyer will still be contractually bound to complete the purchase.

Once completion has taken place we shall prepare and submit online your SDLT return as your agent, and pay the tax due (if any). We will ensure (if you are eligible) that we make an application for First-Time Buyer Relief.

More information about First-Time Buyer Relief can be found here: https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note

Once we are in receipt of the signed Transfer from the seller’s solicitor, we will make an electronic application to register your purchase at the Land Registry. The Land Registry receives around 18,000 requests to change the register per day so it is unlikely that the register will be updated with your details immediately. Most changes are completed within a month of the Land Registry receiving the application. Applications to register Transfers of Part (most New Build properties, for instance) are likely to take in excess of 6 months.

If you are buying the property with another person, you will become a co-owner. As co-owners, you can hold the property in one of two ways:

• As joint tenants;
• As tenants in common.

“Joint tenants” and “tenants in common” are ways of describing how you own the property.The terms have different legal meanings to tenants who rent property from a landlord.

If you hold the property as joint tenants, both of you will own the whole of the property. You will not each have a quantified share in the property and will not be able to leave a share of the property in your will.

If you sell the property, or if you separate, it will be presumed that you own the property equally, regardless of your respective contributions to the purchase price. If one co-owner dies, their interest in the property will automatically pass to the remaining co-owner without any further action. The surviving co-owner will own all of the property and, upon their death, it will form part of their estate. This is known as the “right of survivorship”.

Married couples, or those in a civil partnership, commonly use this method of co-ownership because the right of survivorship makes it straightforward to inherit each other’s shares in the property.

However, there may be reasons not to become joint tenants. For example, if one of you has made a larger contribution to the purchase price of the property and you would want this to be recognised if the property is sold or if you separate. A joint tenancy is also not suitable if you have a family from an earlier marriage and wish to leave your interest in the property to them, instead of passing it to the other co-owner.

If you hold the property as tenants in common, each of you will own a specified share in the property. You need to consider whether each person’s share will be fixed from the outset or whether the shares will vary according to the financial contributions made by each person.

If you opt for fixed shares, your shares may be equal, but they do not have to be. Holding the property as tenants in common in unequal shares may be desirable if you have made unequal contributions to the purchase price of the property.

If your shares are fixed, you need to decide the size of those shares now. You may need to revisit the split later down the line to reflect any relevant changes in circumstance. For example, if one of the co-owners pays the costs of significant improvements to the property.

If your financial contributions towards the property throughout your ownership are unequal (for example, if one person pays a larger proportion of the mortgage repayments), you may want your shares to reflect this.These calculations will be more complex and you will need to keep accurate records of each person’s contributions.

As tenants in common, your share of the property can be passed on to another person, either during your lifetime or under your will. If you do not have a will at the time of your death, then your share will pass in accordance with the rules of intestacy. Holding the property as tenants in common may be appropriate if you have children from previous relationships and would prefer them to inherit your interest on your death rather than your co-owner.

If you wish to hold the property as tenants in common, you should sign a declaration of trust. A declaration of trust is a document that formally records that you hold the property as tenants in common and sets out your respective shares in the property. If you sell the property, or if you separate, the declaration of trust will be referred to in order to determine your entitlement to the sale proceeds from the property.

How you wish to hold the property must be your own decision and is something that you should keep under review following the purchase of your property. If you decide to hold the property as joint tenants but then wish to split your interests, you can “sever” the joint tenancy and turn it into a tenancy in common at any time. It is also possible for tenants in common to become joint tenants at a later date by entering into a new declaration of trust.

You should be aware that if you decide to hold the property as joint tenants:

• Either party can sever the joint tenancy without the other’s agreement.
• The joint tenancy may be severed automatically in various situations, including where one party becomes bankrupt.
• You will need to take out a suitable life insurance policy to cover the mortgage if one of you dies before it is paid.
• You should make a will, or review your existing will, to ensure property passes in accordance with your wishes (this is particularly important if you hold as tenants in common at the time of death).

It is important to specify and document how you wish to hold the property now, to avoid any uncertainty or future litigation.