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Buying your first home can be an overwhelming experience and is likely to be one of the most expensive transactions of your life, so is imperative you get it right. It is essential to initially decide whether you are going to buy or rent a property depending on your lifestyle. This first time buyers guide will take you through the process of purchasing your first home.

First Time Buyers Guide: Rent or Mortgage

There are a number of positives and negatives to both options. In order to make an informed decision, you need to consider your current financial situation whilst planning ahead for the future. Taking out a mortgage as opposed to renting means your monthly repayments go towards purchasing your home, rather than disappearing into the pocket of your landlord. You will also be able to live rent-free at the end of your mortgage term and could also make a profit when selling if house prices rise.

Nevertheless, although you have the freedom to renovate the property in any way you wish, mortgage fees and stamp duty can seem like an unnecessary expense. The process of finding a place to rent is also much quicker and more straightforward than the process of buying a property. Your landlord also has to pay for any renovations, repairs and you don’t risk losing any money if housing prices drop. You may also be able to afford a larger home in a more favourable area when you rent rather than when you buy.

Initial deposits are generally less than the upfront costs of buying a property means that renting can often be cheaper in the short term. The monthly payments you pay are also likely to be less than mortgage repayments. Nevertheless, depending on the size, condition and location of the property, mortgage repayments can be less than paying rent and overall may cost you far less in the long-term. In this article, we are mainly going to focus on buying your first property rather than renting.

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How much deposit do I need when buying a house?

Before looking into properties, you need to know you have enough in your savings for a deposit. If you don’t, then you need to postpone house viewing and spend some time saving up. It is suggested to try and save at least 5% to 25% of the amount you wish to pay. For example; if you are looking at properties around £200,000 then you will need to save at least £10,000. However, it is advised to save more than 5% which will give you a more extensive range of cheaper mortgages available.

What additional costs will I have to pay for?

There are a number of additional expenses you need to bear in mind when purchasing a house other than your monthly payments. Here are a list and the average prices of each extra expense.

  • Survey Costs – These surveys prevent homebuyers with unexpected repair costs when they purchase a house. They provide you with a professional opinion of the property and an idea of how much you may need to invest in after you buy the house. The cost of the survey will be based on the value and size of the property and typically costs from £150 to £1,500.
  • Solicitor’s Fees – You are likely to need a solicitor to carry out all of the legal work when it comes to buying your first house. You can expect to pay around £850 to £1,500 in legal fees.
  • Removal Costs – The average cost for a full removal service in London for a two bedroom house is approximately £600. It is essential to decide on a reliable company guaranteed to effectively pack and transport your valuables.
  • Furnishings and Decorating Costs – This is entirely dependent on the quality and quantity of your existing household items, but also on the condition of your new home. If you are purchasing a new build, decorating costs will be much lower than what they would be for an older property.
  • Stamp Duty – First Time Buyers do not need to pay stamp duty on the first £300,000 of a property worth up to £500,000. From thereafter you will have to pay normal rates of 5% for the remaining sum.

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How do I find the best mortgage?

Finding the most suitable mortgage for you based on your lifestyle and income is essential. It is a good idea to seek professional advice from mortgage brokers to aid you in the right direction. There are two main form of mortgages; fixed rate and variable rate. Fixed rate means that the interest you are charged stays consistent for usually two to five years. Variable rate means that the interest you pay can alter at any time. There are positives and negatives of both options. For more information take a read of the beginner’s guide to mortgages. You may also want to look into mortgage comparison sites, such as Which?, Moneyfacts and Moneysupermarket, which will help you to find a mortgage tailored specifically to your needs.

What Government schemes are there?

There are two separate schemes run by the government to help first time buyers or those struggling to buy a property. There is the Help To Buy scheme which is for individuals looking to buy a property worth less than £600’000 and have saved up a deposit of at least 5%. The equity loans are interest-free for the first five years but then rises to 1.75% of the loan and increases every year by 1%, plus at the rate of the Retail Prices Index. You will then need to have repaid the loan in full after 25 years or when you sell the property, but will only pay the market value of the loan rather than the amount you initially borrowed.

The second government scheme is the NewBuy project which was set up in 2012 and is specifically for those looking into new build properties. The property should be £500,000 or less and has to have been built by a builder taking part in the scheme. For more information take a look at the Home Buy Service website.

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Summary

Whether you decide to rent or buy your first property, it is essential to make sure you have conducted adequate research and made the best decision for you based on present income, predicted income and aspects of your lifestyle. You need to be certain that you can afford the monthly repayments, whether that be rent fees or mortgage instalments. If you have found this article useful, please share it on your social media channels and let us know what you think.

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