Buying your first property in the UK – First Time Buyers
Buying your first home is a big deal, and getting a mortgage to do it, can be a bit overwhelming. There are lots of things to think about, and it can be hard to know where to start. But don’t worry, there are plenty of banks and building societies out there offering different kinds of mortgages for first-time buyers like you.
If you work and live in the UK, you’ve probably thought about buying your own place at some point. Whether it’s because you want a stable place to call home or you’re excited about making a space that’s all your own, getting a mortgage is likely on your mind. That’s where we come in – our experts are here to help you find the right mortgage for buying your first home in the UK.
First Time Buyers in the UK – who are they and what can they expect?
First-time buyers are individuals seeking to purchase their initial home in England, Wales, or Northern Ireland. They have never previously owned a property in the UK or elsewhere. This definition aligns closely with the one published by HM Revenue & Customs.
” A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.”
Benefits for First Time Buyers
What benefits does being a First Time Buyer bring? Typically, they include exemptions or reductions in Stamp Duty Land Tax (SDLT) when purchasing a property, as well as access to government schemes or lenders offers specifically tailored for first-time purchasers.
1. Stamp Duty Land Tax (SDLT) Relief:
SDLT relief is a financial benefit that First Time Buyers can receive when purchasing their first property. This relief allows them to avoid or reduce the tax burden associated with buying a property, which can significantly impact transaction costs. Currently, if you’re buying your first home, you may qualify for relief or complete exemption from paying Stamp Duty.
When purchasing your first property in the UK up to £425,000, First Time Buyers won’t pay any Stamp Duty. If the property price is between £425,001 and £625,000, the tax will be 5% on the amount above £425,000.
Example – property price £500,000 for First Time Buyers:
- 0% on the first £425,000 = £0
- 5% on the remaining £75,000 = £3,750
- Stamp Duty tax will be £3,750.
It’s worth noting that to qualify for these reliefs, all buyers must meet the definition of a First Time Buyer. For properties above £625,000, there are no exemptions for first-time buyers, and standard Stamp Duty rates apply.
The rates and regulations for Stamp Duty may vary depending on when the purchase transaction is completed. Therefore, it is advisable to verify the current rates and potential liabilities with your solicitor or on official government websites.
2. Lifetime Individual Savings Account (LISA):
LISA is a special savings account that allows individuals planning to buy their first property in the UK to save money for housing purposes and receive a ‘government bonus’ of up to 25% on the deposited funds if these funds are used for a deposit on the purchase of their first property. Therefore, individuals who decide to open a LISA account can benefit from the government’s contribution to savings, which can accelerate the achievement of their housing goals. LISA can also be used for long-term retirement savings.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.
By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:
(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and
(ii) your current and future entitlement to means tested benefits (if any) may be affected.
3. Access to Shared Ownership or Right to Buy Programs:
Shared ownership or right to buy programs are government initiatives that enable First Time Buyers to acquire properties partially or fully on preferential terms. Shared ownership allows the purchase of a portion of shares in the property, while right to buy offers the opportunity to purchase a currently rented property from local authorities.
4. Preferential Terms on Mortgage deals, e.g., cashback, free valuation, lower product fees:
Lenders often offer First Time Buyers favourable mortgage terms, such as cashback, free property valuations, or reduced product fees. Thanks to these benefits, borrowers can save money and increase their financial accessibility when purchasing their first home.
What documents will be needed when applying for a mortgage to buy your first property in the UK? Here’s a list of the most commonly required documents:
1. Proof of Income
Specific requirements will depend on how you work; for example, for those in permanent employments, it might be payslips and P60s. For self-employed individuals or directors/shareholders of limited companies, you’ll likely need to provide tax returns for the last 2 years in the form of Tax Calculations (SA302) and Tax Year Overviews.
2. Bank Statements
Most lenders may require access to personal bank statements for the last 3 months. If you run your own business, they may also ask for statements from your business account.
3. Identity and Address Confirmation
Similar to opening a bank account, when applying for a mortgage to buy property, the lender will want to verify your identity. Typically accepted documents include a passport, ID card, or UK driver’s license. If asked for address confirmation, documents like council tax bills, utility bills, or credit card statements should suffice.
4. Visa or Settlement Status
If you don’t have a British passport, you may need to provide evidence of your settlement status or an appropriate visa.
5. Deposit Confirmation
One of the current requirements is to provide and document the source of your deposit. Depending on where your funds come from, you may need bank statements (showing savings), a gift confirmation (e.g. for money received from immediate family), or other relevant forms confirming the source of funds (e.g. car sale agreement).
It’s also a good practice to generate and review a full credit report to ensure there are no problematic issues on your credit history that could negatively impact mortgage approval and preliminary credit checks. There are many services where you can obtain a credit report for free or for a small fee (e.g. Experian, Checkmyfile, or Equifax).
Your home may be repossessed if you do not keep up repayments on your mortgage.
Why use the services of a mortgage broker when buying your first property in the UK?
Utilising the services of a mortgage broker during the purchase of your first property in the UK offers numerous benefits. Brokers have knowledge and experience that can be invaluable for individuals applying for a mortgage for the first time. They help find suitable mortgage options tailored to clients’ individual needs and financial capabilities. Additionally, brokers often have access to exclusive mortgage product offers that they can present to their clients, potentially resulting in additional savings and streamlining the process of purchasing their first home. With professional assistance from a broker, the mortgage application process becomes more transparent and efficient, avoiding unnecessary difficulties and increasing transaction success confidence.
What do you gain by working with a mortgage broker – Prestige Financial Advisers?
By using the services of a mortgage broker in the UK – Prestige Financial Advisers, you can expect to receive appropriate support throughout the process of applying for a mortgage to buy your first property. With our years of experience, access to the whole of UK mortgage market, personalised approach, and professional knowledge, Prestige Financial Advisers will help you find the right financial solutions tailored to your needs and requirements. We’ll guide you through every step of the mortgage application, providing full support and advice at every stage of the transaction.
Our fee for handling a mortgage for property purchase typically ranges from £399 (for standard purchases) to £499-£799 (for Right to Buy / Shared Ownership / non-standard properties / more than 2 borrowers / deposit from gift or problematic credit history applications). A non-refundable administrative fee of £100 is charged at the start of application work, and the remaining part is payable upon receiving the mortgage offer. The initial consultation and affordability assessment are free and non-binding.
