Ray Boulger's Top Tips for First Time Buyers
Posted on 31 July 2012 by
1. Prepare well in advance - a little planning can avoid problems that might otherwise occur and may well enable you to get a cheaper deal.
2. Before expending any shoe leather start by looking at websites like rightmove.co.uk, primelocation.com and zoopla.co.uk. This will allow you to conveniently research the areas you are interested and be much better informed when you talk to estate agents about the type of property and areas you might be interested in. Spend time actually looking at a few properties before you are ready to buy so you get a good feel of the market and prices.
3. Check your credit file a few months before you plan to buy, preferably with all three credit reference agencies, which are Experian, Equifax and Call Credit. If there are any incorrect entries or omissions this will give you time to try to correct them. Likewise if there is something you have overlooked or forgotten about.
4. It is possible to obtain a credit report free as the firms offer a free one month trial of their service. To do this details of a payment card are required and you must then cancel within a month. In addition Call Credit has a separate website, www.noddle.co.uk, that allows you to obtain free credit reports for life as often as you like.
5. Make sure you are on the Electoral Roll. One reason first time buyers frequently lose points on the credit score is because they are not registered to vote anywhere. If you are a student and changing digs each year or just moving around frequently you must register, even if the next election is some time away or you don’t intend to vote. A good idea for students will often be to register at your parents' address, which will probably be your one permanent base during university.
6. Lenders normally want to see bank statements, usually the latest three months, and so make sure they are in good order with no unpaid cheques/direct debits or bank charges for exceeding any overdraft limit or going overdrawn without an agreed facility. Running the account with an overdraft is not necessarily a problem providing the overdraft is not steadily increasing – exceeding your overdraft limit is! However, bear in mind that lenders normally want to see proof of deposit.
7. If you can't afford to pay off any credit or store card(s) in full each month always make sure you pay at least the minimum monthly payment on all cards. Failing to meet minimum credit commitments will have a serious adverse impact on your credit score and in the current market even a late payment can mean automatic rejection by some lenders. Also bear in mind that any outstanding loans or credit card balances will affect the maximum amount you are able to borrow, as lenders take existing financial commitments into account when assessing the maximum loan.
8. Most lenders, including all the major ones, use a computerised credit scoring system to assess mortgage applications. Credit scoring works on the opposite basis to the British justice system. You are guilty until proven innocent. If you have not had any credit, such as credit cards or loans, in the recent past “the computer says no” scenario is likely to prevail because you have not proved you can handle credit. The fact you may be a regular saver is ignored by the computer!
9. Bizarrely, although proving you are a regular saver will not help your credit score, having one or two credit cards which you pay off in fill each month will. Choose cards that give you some benefit, such as a cashback or points, and set up direct debits to pay the balances off in full each month. Providing you do this and stick to it the APR is irrelevant as you won’t be paying any interest.
10. Consider carefully what you can afford per month, allowing for an increase in interest rates and bearing in mind that there will be some additional costs as a homeowner on top of the mortgage, e.g. insurance and repairs.
11. You can usually borrow up to 4 – 4.5x joint income, but a lower income multiple means a wider choice of lender.
12. Never over commit yourself. Some lenders may not be prepared to lend as much as you are confident you can afford, but on the other hand just because a lender is prepared to offer a certain amount doesn’t mean you have to borrow that much.
13. The bigger the deposit the greater the choice of lender, the lower the interest rate and the better the chance of an application being accepted by a lender. Consider trying to get help from parents/grandparents to provide a deposit/bigger deposit.
14. A repayment mortgage will be the appropriate for most First Time Buyers and in but case most lenders will not offer an interest only mortgage unless the buyer has a very big deposit (at least £100,000).
15. Make sure you buy the insurance cover you need but don’t be pressured into buying insurance you don’t need.
16. See a good independent mortgage broker to help you make the right decisions on your mortgage and insurance needs and do so several months before you plan to buy. That will not only allow time for any potential issues to be identified but also allow time for you to address any such problems and give you a good idea of what price range property is feasible.
17. Always ask a broker you are considering using if they recommend mortgages from the whole market or only from a panel of lenders. If they use a panel they won’t be truly independent.
18. Bear in mind that if you are buying a property through an estate agent, that agent is the vendor’s agent, not yours. Many estate agents will be keen to recommend a mortgage broker and/or solicitor, very often one actually employed by the same firm. Ask yourself whether it is sensible to accept a recommendation for a professional to act on your behalf, such as a mortgage broker or solicitor, from the other party to the transaction, i.e. the vendor or their agent. The same principle applies to the developer if you are buying a new property.
19. A far superior way of obtaining a recommendation is to ask for one from your family, friends or work colleagues. Some of them will almost certainly have bought a property and they may also recommend firms to avoid!
20. If you don’t feel your adviser is being totally honest with you or can’t (or won’t) answer questions to your satisfaction find another adviser.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.