A guide to buying a first home

For first time buyers the prospect of getting on the property ladder feels overwhelming and out of reach. Here we simplify the steps you need to take to get started and demystify the process of buying a first home.

Angela Kerr Director, Editor

Right now buying a first home might feel out of reach but there are small things you can do to get started. Here we simplify the essential first steps and set out what you need to do and what help you can access when buying a first home.

1. Start building your deposit

Buying a first home starts with saving a deposit. In terms of how much deposit you need to buy a house, normally you need a deposit of at least 5% of the value of the property you want to buy. So if you want to buy a home costing £250,000, you’ll need to save up a deposit of at least £12,500. Ideally though, when buying a first home you would save more than 5%. The bigger the deposit, the wider range of mortgages you’ll be able to access and at cheaper rates. This is because with a bigger deposit you’re perceived as lower risk by mortgage lenders.

As house prices have soared so has the amount you need to save. The average first-time buyer had a £62,500 deposit in 2022, according to Halifax.

The good news is you can get help from government to boost your deposit when you’re buying a first home. With a Lifetime ISA, you can save up to £4,000 a year – and the government will add a 25% bonus, up to a maximum of £1,000 annually. This is first on the list on our guide to buying a first home as the sooner you start saving, the bigger the bonus you’ll be able to get. Restrictions on using the cash apply though, find out more with our Best Lifetime ISA guide.

2. Check your credit score

While you‘re planning on buying a first home, you can start sprucing up your credit rating ready for when you make a mortgage application. Lenders want to see you are a reliable borrower when they are assessing your mortgage application, so it helps to have a good credit score. Read our full guide to find out how to improve your credit rating.

3. Clean up your current account

How much you can borrow when buying a first home will be determined by your lender who will do an affordability test based on your income and monthly outgoings. It can be a really good idea, therefore, to go through your current account six months before you make a mortgage application and see for yourself where all your money is going. If you have an expensive gym membership, regular big nights out or expensive credit agreements try to cancel them and curtail your spending so that your finances look in better shape when the lender starts looking.

Check out our mortgage calculators to find out what you can afford to borrow.

4. How much can you borrow?

When you’re buying a first home, you’ll want to know how much you’ll be able to borrow on a mortgage. The following calculator will give you a good idea.

Once you’ve got a rough idea, it’s important to get a ‘mortgage in principle’ This is an indication that a lender could lend you a specified amount, based on details you’ve provided about your income, spending and debts. 

With our partners at L&C, you can get a personalised Decision in Principle in just a matter of minutes. And unlike some other lenders, getting a Decision in Principle from L&C won’t impact your credit score. Getting a mortgage in principle means you won’t waste time looking at properties you’re unlikely to be able to afford and they are useful to show to estate agents to prove you’re a serious buyer.

5. Get expert advice from a mortgage broker

It’s amazing how many people think they are a mortgage expert and arrange the biggest loan of their lives without getting any advice or shopping around. But, with a six-figure loan, a tiny difference in the interest rate can mean you end up paying tens of thousands of pounds more over the lifetime of your mortgage.

Similarly, the fees on your mortgage can make a big difference to the overall cost of buying your first home.

Getting expert mortgage advice is also important as it’s not just the mortgage rate you need to consider but also the type of mortgage, whether fixed or variable and the term of the mortgage.

Mortgage brokers will also be up on new mortgage products like 100% mortgages, Deposit Unlock or Green mortgages and can discuss the pros and cons of these.

Using a mortgage broker and their expertise means you’ll get the best possible mortgage for your circumstances at the lowest possible rate. They can also help you navigate the mortgage market when you’re buying a first home, explore options and may introduce you to lenders who you’ve never even heard of but have the best product for you and your circumstances.

6. How much is first time buyer stamp duty?

First time buyers buying a home up to £425,000 in England and Northern Ireland do not have to pay any stamp duty.

When buying your first home, if your new property is worth £425,001 to £625,000 you’ll pay 5% stamp duty, but only on the value above £425,000. Different rules apply in Scotland and Wales. Find out more in our guide on First time buyer stamp duty.

7. Understand all the costs

When buying a first home, you’ll find it involves a lot of additional costs that you’ll need to factor in when working out what you can afford. This includes legal fees, surveys and removal costs.

Once you own your first home, you’ll discover there are also a lot of costs involved in running it that you may never have had to deal with before. These may include ground rent, service charges, ongoing maintenance costs and utilities.

Understand the full range of costs involved with our guide on the cost of buying and owning a home.

8. Ways your family could help

Your family may be able to help you in a number of ways when buying a first home. The Bank of Mum and Dad is now considered the seventh biggest lender in the UK mortgage market because so many parents are helping their children stump up a deposit on their first home.

But when it comes to how to buy a first home, family can also help without having to hand over their savings. Many mortgage lenders now offer products aimed at people whose family want to help them buy their first home. It could be a guarantor mortgage – where a family member agrees to meet repayments if you can’t – or a joint mortgage where you buy a place with your parents. Alternatively, you could get a family offset mortgage where a family member puts their savings into an account that is used to reduce your mortgage costs.  Or, perhaps your family can assist with a gifted deposit.

A mortgage broker can help explore the options available.

9. Consider shared ownership

Another way to make buying your first home easier is to only buy part of it. Shared ownership schemes are offered by housing associations and private developers who allow you to buy a proportion of a property and then pay rent on the remainder. You then have the option to buy more of the property when you can afford to.

But make sure you do your research and tread carefully with shared ownership properties. The properties are usually leasehold and you therefore have to pay a monthly service charge as well as contribute to major maintenance works. The process of buying more shares can also be quite complicated so make sure you understand the process and costs involved before you buy.

10. Mortgage Guarantee Scheme

The Mortgage Guarantee Scheme, a government backed scheme which lets you get a mortgage with just a 5% deposit, will run until June 2025. The scheme applies to all types of properties (new build and old) that cost less than £600,000. However, its purpose is to stimulate lenders to offer 95% LTV deals, so the scheme isn’t something you specifically apply for and you may not know if your lender is using it.

Not all lenders use the mortgage guarantee scheme when offering 95% mortgages. So don’t assume choosing a lender that is taking part in the mortgage guarantee scheme will be the best option for you. You should always speak to a good mortgage broker.

11. First Homes Scheme

In June 2021, the government launched the First Homes Scheme. The First Homes scheme works by offering newly built homes to first time buyers with a discount of at least 30% compared to the market value of equivalent properties. This discount stays on the First Home forever. This means that, every time the property is sold, the new buyer benefits from the discount. The scheme has extremely limited availability, so competition is high and the scheme is not as accessible to all first time buyers in all regions. The scheme was due to end in September 2023.

You can discover more including eligibility criteria and the pros and cons in our guide on the First Homes scheme.

12. The Deposit Unlock Scheme

With the end of the government’s Help to Buy scheme in 2023, house builders developed “Deposit Unlock” so that first time buyers and home movers could buy a new build home with just a 5% deposit from a participating house builder using a mortgage offered by a participating lender. There are pros and cons to the scheme and you can find out more in our guide Deposit Unlock explained.

13. Other Government schemes

Other government schemes include Help to Build, Rent to Buy and Right to Buy. The best way to buy a first home will depend on your circumstances. Find more information in our guide on Government home buying schemes in 2023.

For help with all the mortgage options, get fee-free advice from our mortgage partners at L&C. Start your search online or speak to an adviser today

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