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Buying your first home – Deposits, mortgages, and ISAs explained, plus what your conveyancer will do

July 15, 2019

Buying your first home can be a daunting but exciting prospect that invites careful consideration in order to get the maximum benefit from your lawyer. You’ll likely have many questions when you step into the unknown and make that big purchase, but we’re on hand to answer some frequently asked questions that will help you feel more knowledgeable  before you get to pick up those new set of keys!

How much deposit will I need?

This varies depending on many factors such as if you’re using a specific Government scheme e.g. shared ownership, and on how much you can afford to save towards the cost of the house. The average amount varies from 5% upwards, with data from Halifax finding that the average UK deposit in 2018 was about 15% of the average property price.

You’ll need to get a mortgage on the remaining value of the property. The amount you can borrow will depend on your income, so it may mean you’d benefit from having a larger deposit to reduce the mortgage amount.

What type of mortgages are there?

We’ve rounded up some of the most popular mortgage types below with a brief explanation of each:

·       Fixed rate – The interest rate is set  over differing lengths of time and reverts to the standard rate at the end of the fixed period
·       Interest only – You will only pay interest on this type and capital is repayable at the end of the term
·       Repayment mortgage – You’ll pay capital and interest
·       Tracker mortgage – Tracks base rate plus a small margin
·       Guarantor mortgage – This allows parents to contribute towards the mortgage and guarantees mortgage payments
·       Offset mortgage – You can link savings/current account to offset your mortgage.

Do I need a mortgage broker?

There are certainly plenty of advantages to using a mortgage broker as they search the market to find you the best deal and provides financial advice. Some brokers have contacts at different banks and building societies which can help ensure your mortgage application is processed smoothly and efficiently.

Another bonus is that they can often recommend an appropriate life insurance policy for you or help you find a good deal on your buildings insurance.

However, some can be tied to specific lenders which means you may not be getting the best deal in the market, so always double check and undertake your own research. There’s nothing to stop you doing it all yourself by approaching banks and building societies directly.
What First Time buyer schemes are available?

There are different schemes available to help you save and afford your first home including:

·       Help to Buy – This is a loan from the Government at 20%. You’ll need to have a deposit of 5% and secure a mortgage of 75%. There are limits on property values when you use this scheme
·       Help to buy ISAs – The Government will gift you a bonus of £50 for every £200 saved when you are ready to purchase your first home. The scheme ends on 30 November 2019 so you’ll have to open this type of ISA before then to make use of it. The property you buy with this type of ISA can be a maximum of £250,000 outside of London or £400,000 within London
·       Lifetime ISA (LISA) – This scheme gives 25% on your savings and can be opened by 18-39-year-olds. Once it matures, it can be used towards deposit funds but a lawyer has to certify it is being used towards a purchase of a property. You can put in up to £4,000 a year until you’re 50 and you have to have saved the money for at least 12 months before purchasing a property. There are penalty charges if you want to withdraw money early.

Is a First Time Buy exempt from Stamp Duty?

Stamp duty is not payable on the first £300K (homes worth up to £500K) but there is a 5% rate above that on the figure between £300,001 and the purchase price.

When will I need to spend money during the legal transaction for the purchase?

There are three stages:

·       Initial costs for searches – approximately £300/£400
·       Exchange – 5%-10% of the purchase price
·       Pre-completion – the balance of monies towards price to include stamp duty/land registry fees.

What will my conveyancer do?

Your conveyancer will carry out steps to determine your identity and the identity of the lawyers acting for the seller. They will also determine the source of the purchase funds in order to comply with anti-money laundering regulations. This includes:

·       receiving initial funds to obtain searches such as local/water/environment/chancel
·       receiving contract pack (title/lease/Property Information Form/Fittings and contents form/maintenance information) and raise searches and enquiries
·       receiving and checking your mortgage offer and report to you on mortgage
·       reporting on contract pack/search results and replies to enquiries
·       collecting deposit funds
·       agreeing a potential completion date
·       exchanging contracts
·       requesting mortgage monies and preparing financial statements
·       receiving mortgage funds and funds client needs to pay
·       completing the purchase by sending funds to seller’s solicitors
·       registering ownership/mortgage at Land Registry

At stevensdrake, our experienced team can assist you with all of the above, making the transaction of buying your first home as smooth and as stress-free as possible.

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