You first-time buyers have it tough. Not only is building a deposit for a first home one of the biggest financial milestones you’ll meet, but the process of buying a home is also so complex and a lot of the industry is full of jargon which makes things even harder.
It’s no surprise that first-time buyers are likely to make at least one mistake when they’re buying their first home. But, luckily, you have something they didn’t. Us!
The whole reason we exist is to help people like you understand the home buying process so you can have a smooth ride, so today we want to highlight a few a few common mistakes we’ve seen over the years so you can avoid them yourself.
1) Only saving enough for a house deposit
We understand that saving enough money for a house deposit is no easy feat so you’re probably not going to like what we’re about to say, but we’re going to say it anyway. When it comes to buying a home, the deposit isn’t the only cost you need to foot upfront. There are also different fees you need to cover such as legal fees, survey fees and sometimes booking fees on the mortgage.
When someone hasn’t accounted for these extra costs, it can leave them in a sticky situation whereby they can’t afford to kit out their home or cover the general running costs. Or, even worse, they can’t actually cover the minimum deposit amount required.
To make sure this doesn’t happen to you, make sure to factor these costs into your savings goal on top of what you need to save for the deposit. If you’re not sure how much it should be, we’d recommend speaking to one of our mortgage team (it’s totally free to do so) so they can help you work it out for your specific situation. Or if you’d rather, we have written another blog all about the different costs of buying a home, so give that a read.
2) Giving notice to your current landlord too early
If you’re currently living with your parents, this one probably won’t be too much of a concern to you. But if you’re currently renting from an external party, then listen up.
We hear about a lot of people who give notice to their landlord and then the legal process gets delayed, meaning there’s an awkward few weeks where they don’t have a place to live. That’s not a situation we want anyone to be in, so we’d always recommend accounting for these delays – they’re more common than you might think. Even if your solicitor gives you an indication you’re close to exchanging contracts, we’d still suggest holding off until that process is complete so you’re definitely covered.
If you’re contracted to a long notice period and it isn’t possible to wait until after exchange, still try to give yourself two weeks wiggle room and then have a backup plan should something unexpected happen. We’re sure a friend or your family would welcome a lodger for a few weeks if necessary.
3) Taking out a car finance agreement
This is something a lot of people don’t think about, but a car finance agreement can have a huge impact on your mortgage application – particularly when it’s a PCP (personal contract purchase) or PCH (personal contract hire) agreement.
This is because, when mortgage lenders review your affordability (i.e. decides whether or not you’ll be able to repay the money they lend you), they don’t just look at your monthly payments. They also look at the outstanding balance on your credit file which, with a PCP or PCH agreement, will show as the total purchase price of the car, less any payments you’ve already made.
What that means is, rather than them only taking into consideration the amount you will actually pay towards the car, they consider the full value of the car – even if you’ll never actually pay that much. For example, if you took out an agreement for a car that was valued at £30,000 over 3 years with a monthly payment of £250, the total amount you would pay is £9,000 over the 3 years and then you can give the car back. However, on your credit file it would show the full £30,000 as your debt.
This is a problem because it negatively impacts something called your ‘debt to income ratio’, which essentially looks at how much debt you have in relation to what you earn. If you have more debt than your salary, it could impact how a lender rates your affordability.
Our advice to you is, if you’re about to get a mortgage, hold off on any PCP or PCH agreements if you can. If you already have one and are concerned about how it might affect you, speak to one of our mortgage team. They’ll be able to check on everything properly for you without any cost to yourself.