1. Speak to an adviser
This may seem obvious, coming from a mortgage adviser. They are experts in their field with detailed knowledge of all the lenders’ criteria. Your own bank may decline you for a mortgage, but there could be plenty of other lenders willing to provide you with one.
A good adviser will guide you through the house-buying process, help you create a sensible budget (including costs you may not have considered), explain the various mortgage product options available to you, and discuss relevant insurance products you should consider. While the internet and speaking to parents might seem like logical starting points, not everything on the internet is true, and parents may have moved house 20 years ago. Things have changed a lot since then.
2. Check your credit history
Lenders will use it to decide whether they are willing to approve you for a mortgage. If you have a poor credit history, you will likely be declined.
There are three major credit reference agencies that collect information on how you have managed your previous borrowings, such as loans, car finance, credit cards, mobile phone contracts, and utility bills. Missed or late payments, as well as defaults, can potentially cause problems. Other issues, such as not being registered on the electoral roll or having access to a large amount of credit or being close to the maximum limit on credit cards, can also cause problems, even if all payments have been made on time.
If there are any issues that negatively affect your credit, a good adviser will help highlight them to you and explain how you can improve the situation. However, improving a credit history takes time, and there are no quick fixes. You can access your credit history for free on sites like Credit Karma, but subscription-based sites like Equifax, Experian, and Checkmyfile provide more detailed information.
3. Create a budget
Owning a property may appear similar to renting, but it is very different. Just because you have been paying a certain amount of rent each month does not necessarily mean you can afford a mortgage payment of the same amount. A good adviser will go through a detailed budget planner with you, ensuring you consider all the costs you may not have thought of and have enough spare money to cover repairs (things always break when you own a house).
One cost that first-time buyers often fail to consider is insurance. A good adviser will always make sure that if they have put you into debt with a mortgage, they can help you get out of debt should someone die, become ill, be unable to work, or lose possessions or your home due to fire or flood.
4. Get your documentation ready
During the mortgage application and conveyancing process, you will be asked for a lot of documentation to verify your identity, income, and comply with money laundering regulations. Below is a typical list of documentation you will be asked for, along with things to watch out for:
Passport: Is it still valid? If not, apply for a new one.
Driving licence: Is it registered to your current address? If not, apply for a new one showing the correct address.
Payslips: Can you easily access your most recent three consecutive months? If not, request new ones from your employer.
P60: Can you find your latest P60? If not, request a new one from your employer.
Bank statements: Can you easily access your most recent three consecutive months? Online statements are acceptable, but if you still receive paper copies and can’t find them, request new ones from your bank. Does the address on your bank statements match your current address? If not, update your address with the bank.
Self-employed?: Can you access a minimum of your latest two Tax Calculations & Tax Overviews and full audited accounts? If not, speak to your accountant.
Have you paid all outstanding corporation/personal tax? Make sure everything is settled as outstanding tax may cause issues.
5. Save effectively
There are government schemes available designed to help first-time buyers get on the property ladder. Using these schemes will help you save more for a deposit and get on the ladder sooner than you might think. The biggest one was the Help to Buy ISA, which was offered by most high street banks. However, you can no longer open a new Help to Buy ISA. You can continue to pay into one until November 2029 and claim the bonus until November 2023. You can pay in up to £200 each month, and the government will top up your savings by 25% (up to £3,000) when you buy your first home. If you are buying with someone who also has a Help to Buy ISA, both of you will receive the 25% bonus.
These have subsequently been replaced by Lifetime ISAs, which work similarly to a Help to Buy ISA. For further information on these, you can visit www.gov.uk/lifetime-isa.