What Is A First-Time Buyer?
A first-time buyer is someone who is buying their first house and doesn’t own — or has never previously owned — another home. A first-time buyer can also be a couple who are buying their first house and neither of them owns or have previously owned property. Sounds pretty straightforward, right? Unfortunately, there are some grey areas when it comes to first-time buyers.
If you’re buying your first house and you own, or have previously owned, a commercial property (like a shop, bar or restaurant), you still qualify as a first-time buyer. This can be slightly confusing, because you’ve technically bought property in the past. But first-time buyer relates only to homes.
However, if your commercial property has or had living quarters attached to it, you’ll no longer qualify as a first-time buyer.
Who Isn’t A First-Time Buyer?
Obviously, if you currently own or have previously owned a house, you aren’t a first-time buyer. If you’re a couple and one of you owns or have previously owned a home, you also won’t be first-time buyers.
If you’ve inherited a house or someone (perhaps your parents, if you’re lucky) has bought a house for you in the past, you also don’t qualify as a first-time buyer. Yes, even if you didn’t buy it yourself. This is where the “buyer” part can be a bit misleading.
You also don’t qualify for first-time buyer status if you’re planning to rent out the property you’re buying (what’s known as a buy-to-let).
What You Need To Know As A First-Time Buyer
Buying your first home is an exciting time, but it can also be a daunting and confusing process. You’ll only ever be a first-time buyer once in your life and the decisions you make will have a huge impact on your medium and long term future. This is why it’s important to speak to the experts before making a choice. Huxley Mortgage Services are mortgage advisors in Chester who can give you the help and advice that you’re looking for.
Here are the biggest factors you need to consider before buying your first home.
- Save enough money for a deposit
Ideally, you want to put down a deposit equal to at least 10% of the price of your house. The bigger the deposit you put down, the better mortgage rates you can get, and the less you’ll pay in the long run. Some mortgage lenders accept 5% deposits, but you’ll be offered less competitive interest rates. If you’re seeking a large mortgage with a small deposit, you might face a Higher Lending Charge, which is used by your lender to take out an insurance policy that protects them should you default on the mortgage.
For the uninitiated, a mortgage is a loan you get from a bank or building society to help you buy a house. You, as the borrower, has to pay back the loan (plus interest!) over a set period of time, typically 25 years.
In order to secure a mortgage, you’ll need to provide your lender with thorough financial information (your income, outgoings, credit history etc) to prove to them that you’re able to keep up with your mortgage payments.
There are many different mortgages out there for you to choose from. If you want to pay a set amount each month, you can get a fixed rate mortgage. If you want to try your luck with fluctuating interest rates, you can choose between a tracker mortgage or a discount mortgage. An offset mortgage allows you to use your savings to reduce your interest payments, while a flexible mortgage gives you the option of paying more, paying less or taking a “payment holiday.” You can even choose between paying back the loan and the interest each month (repayment mortgage) or just the interest (interest-only mortgage).
Which mortgage you choose all depends on the amount of money you’re borrowing, your attitude towards interest rates and how much risk you want to take.
What Are The Benefits Of Being A First-Time Buyer?
While buying your first home can be a daunting process, being a first-time buyer actually comes with plenty of perks.
- Government schemes to help you buy your first home
In 2013, the Government introduced Help to Buy, a scheme to help first-time buyers get on the property ladder. The scheme is multi-faceted and can help first-time buyers in different ways, depending on their circumstances.
Help to Buy ISA — Where the government boosts your savings by 25% to help you buy a house. In other words, for every £200 you save for a deposit, the government will give you £50. The maximum bonus you can receive is £3,000 on £12,000 savings.
The Help to Buy ISA is available to each first-time buyer, not each household. So if you’re buying a house with your partner, you could double the amount you get from the Government, earning up to £6,000 in bonuses.
However, the Help to Buy ISA officially ends on November 30, 2019, and will be replaced by the Lifetime ISA.
Lifetime ISA — Replacing the Help to Buy ISA from December 1, 2019, the Lifetime ISA also boosts your savings by 25%. You can put in up to £4,000 each year until you’re 50, and the government will pay out a 25% bonus on your savings, up to a maximum of £1,000 per year. However, you’ll only be eligible if your house costs £450,000 or less, and you’re buying the house at least 12 months after you opened the Lifetime ISA.
Help to Buy Equity Loan — If you’re buying a newbuild house worth up to £600,000, all you need to do is cover 80% of the price through a deposit and mortgage, and the Government will loan you the remaining 20%. You don’t pay any interest fees on the government loan for the first five years of owning your home. This could be a 5% cash deposit and a 75% mortgage, making it ideal for those with a small deposit.
Help to Buy Shared Ownership — If you’re a first-time buyer who can’t afford to buy a home, this scheme offers you a solution. It gives you the chance to buy a portion of your home (between 25% and 75% of the home’s value) and pay rent on the remainder. You can always buy a bigger share of the property in the future. Typically, Shared Ownership properties are sold through resale programmes from housing associations and are always leasehold.
Right to Buy and Right to Acquire — These are two similar schemes that allows council tenants and housing association tenants to buy their rented council home at a discount. There are different criteria you have to meet, though. Right to Buy is only available if you’ve had a public sector landlord (for example, a council or housing association) for a total of three non-consecutive years, while Right to Acquire stipulates that your property must have been owned by your housing association after 31 March, 1997.
Stamp Duty Land Tax is the tax you pay when you buy a property over a certain price in England and Northern Ireland. The higher the value of your house, the more tax you have to pay. The standard Stamp Duty tax rate currently looks like this:
- 0% tax on the first £125,000.
- 2% tax on the portion from £125,001 to £250,000.
- 5% tax on the portion from £250,001 to £925,000.
- 10% tax on the portion from £925,001 to £1.5 million.
- 12% tax on the portion above £1.5 million.
If you’re a first-time buyer, however, you’re eligible for Stamp Duty relief, meaning you will pay less tax or no tax at all, depending on the value of your house. Here’s what the Stamp Duty rates look like for first-time buyers:
- 0% tax on the first £300,000 of your house.
- 5% tax on the remainder up to £500,000 (the portion from £300,001 to £500,000).
If your property is worth over £500,000, you won’t be eligible for Stamp Duty relief, so you’ll pay the standard Stamp Duty rates.
How We Can Help If You’re A First-time Buyer
Buying your first home is a special milestone in anyone’s life, but it can also be a daunting and complicated process. You’ll only ever be a first-time buyer once and the decisions you make can have a huge impact on your financial future. Huxley Mortgage Service is here to guide you through the entire process and give you the best possible start on the property ladder.
We’re an independent, whole of market mortgage brokers in Cheshire with access to over 140 lenders, meaning our friendly and fully-qualified advisors can help you find the perfect mortgage for you. Using our contacts and experience, we can offer you exclusive mortgage deals that you won’t be able to get by going direct to lenders.
We pride ourselves on putting our clients first and really getting to know their individual needs and circumstances. Our red-carpet service means we’ll manage the mortgage process from start to finish while giving you constant updates and offering you evening and weekend appointments, seven days a week.
If you’re a first-time buyer looking for a mortgage in the Chester area, we recommend our no-obligation free mortgage quote or getting in touch with us today to find out more about our services.
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