Common First Time Buyer Mistakes

first time buyer with head in her hands

It is no secret that being a first-time buyer is both daunting and exciting in equal measure. The possibility of owning your own home can lead to first-time buyers being over-eager and missing crucial steps along the way. These steps can prove extremely costly, so it is important to get it right.

The great news is there are plenty of ways you can make your first-time buying process go swimmingly and this guide outlines the common pitfalls you may fall into and how to avoid them.

Let’s discover the common first-time buyer mistakes and the steps you can take to ensure your first property purchase goes to plan.

Not Obtaining a Mortgage in Principle

Before you start searching for properties on websites like Zoopla and Rightmove, it is prudent to get a Mortgage in Principle. A Mortgage in Principle will tell you exactly how much you can expect to borrow and allow you to find a property that is in your budget.

Failing to get a Mortgage in Principle can be detrimental on two fronts. Firstly, you may try to purchase a property you are unable to get a mortgage on and second you may find the mortgage you expected to get is not possible due to affordability or property restrictions.

When you get a Mortgage in Principle, a broker will have isolated a specific lender and told you how much you can borrow. The lender will also have a set of property requirements which you can check as you look for a home. For example, most lenders do not like properties with a thatched roof, so if you have your heart set on one, finding a lender up front will save you from heartache down the line.

Getting a Mortgage in Principle with a whole of market broker, like Boon Brokers, should be your first step before you search for properties to purchase.

Taking Out Credit Before Applying for a Mortgage

Mortgages are debt. Because mortgages are attached to properties, many people overlook this and expect lenders to accept their application irrespective of any other debt they hold.

You should prepare for your mortgage application in the same way you would for a personal loan. Ensuring you are not borrowing before you make your application increases the likelihood of the mortgage being accepted.

Taking credit before a mortgage application is not an automatic decline, but you may be surprised to know your borrowing amount will be reduced to reflect your existing debt.

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Using an Overdraft

It is extremely common for people to use overdraft facilities regularly. This is encouraged by banks and building societies as a low-risk form of borrowing.

This is unfortunate as lenders do not see the use of an overdraft as low risk. In fact, they view it as you not being able to live comfortably within your financial means without relying on additional borrowing.

In short, overdraft usage can be a big red flag for mortgage lenders and you may even find your application is declined outright because you regularly use an overdraft. To combat this, repay any outstanding overdraft and avoid using it in the months leading up to your mortgage application.

Understanding the Cost of Home Ownership

It is no secret that home ownership costs money. What is often overlooked is just how much money it costs.

Of course, you will have basic expenses such as bills and council tax, but you will likely encounter hidden costs.

This is especially the case with maintenance. Even new build properties will have problems over time you will need to rectify to keep your property in good condition. Remember, lenders will require you to maintain your property to a minimum standard as part of your agreement with them.

It is a great idea to build an emergency pot of money in case you have unforeseen expenses in the future.

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Leasehold vs Freehold

Freehold is by far the best way to buy a property because you will be responsible for the entirety of your home. A freehold gives you the control of the property and land on your title deed.

Leasehold is where someone else owns the freehold and you are leasing a part of the title deed. For example, you may be leasing a flat in a block of flats.

Some leaseholds are inexpensive, known commonly as peppercorn leases. Peppercorn leases have minimal lease costs and can be as low as a £1 charge a year.

Finding these leasehold properties is rare though and most have service charges attached to them. The service charges are at the discretion of the freeholder and can change drastically without warning. Currently the government is attempting leasehold reform as leaseholders have found themselves with crippling bills for cladding and other maintenance.

For example, you could purchase a leasehold property for £150,000, with a service charge in the first year of £1000. In the second year if remedial work is required you may find your service charge is eye-watering and some leaseholders have encountered cladding bills over £300,000.

Remember, these charges are legal (at time of writing), and you will be on the hook for them, even if you cannot afford the bill.

Skipping a House Survey

House surveys highlight underlying problems that your property may have. For example, if there is flood damage or structural damage hidden under the surface.

Failing to get a survey can open you up to significant financial hardship, and you may find the property is so damaged it is worthless. For the cost of a full survey (around £1500), it is often worth it to make sure you are not buying a property that could financially ruin you.

Approaching a Bank or Building Society for the Mortgage

Unfortunately, first-time buyers simply walk into their bank and get whatever mortgage product they can, without comparing how competitive the product is on the market.

This can be extremely costly, especially if your bank has unfavourable rates or conditions. You could save thousands of pounds in monthly mortgage payments simply by using a reputable fee-free, whole of market, mortgage broker to compare the market for you.

Get First Time Buyer Mortgage Advice

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides fee free mortgage advice and has helped thousands of first-time buyers achieve their property dream.

Contact Boon Brokers to discuss your mortgage goals today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.