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What to know before getting your first mortgage

If you’ve ever discussed the merits of education around the dinner table with a few good friends, you may have touched on topics such as ‘why didn’t we learn about taxes?’ or ‘they should have prepared us better for mortgage applications.’ As far as taxes are concerned, I’ll leave that to a colleague who can take you through the ins and outs. I’m here to take the guesswork out of your first mortgage, and tell you what you need to know before you sign the loan acceptance letter.

I’ll take you through the tough stuff in a mortgage application that often only lands on your lap once you’re already midway through it. It’s important to know what you’re getting into before you’ve gone that far. A mortgage loan can be a means to afford your dream home, but it can also be a serious expense (in addition to your repayments!) if you don’t pay attention to the fine print.

A lot of your past spending behaviour and financial management will come into play during your mortgage application, so it’s best to be prepared. For first-time buyers, there are many products that can ease you into the process and even the mortgage itself offers different options.

The surveyor is not going to inspect every nook and cranny

While you may feel at peace that the property you’re buying is priced right because a property surveyor approved it, you could still find yourself in a tight spot months or years down the line. Crumbling foundations, faulty structures, rotten timbers, and pest infestations might not be noticed at first glance and can be problematic down the line. The assessment done by the property surveyor is purely for the sake of confirming value, not finding fault. If you have any doubts about a property, it’s important to request a full survey. There are five different surveys to choose from that will be payable from your own pocket.

  • Condition report (around £250) – usually done on new properties and properties that are in a seemingly good condition.
  • Homebuyer report (around £400) – suitable for properties that are in reasonable condition, offering detail about possible damage or issues that may arise.
  • Building survey (around £400) – ideal if you’re looking at larger or older properties.
  • Full structural survey (around £600) – the best option for buildings that are clearly in need of repair.
  • New-build snagging survey (around £300) – important if you’re buying a new-build. Highlights potential issues to developers.

Read up on government initiatives to help with your deposit

In the UK, lenders typically grant loans of up to 90% of the value of the property. However, some factors may influence lenders to offer a loan of less than 90%, such as the condition of the property or your credit profile. In such a situation, when a lender feels that the risk of the loan is not high enough to turn down, but high enough to warrant a higher deposit, they may request an additional 5% to 10%. This means that 10% should be considered the minimum deposit required. 

It’s worth looking into the Help to Buy ISA option offered by many financial institutions, as the government will add 25% on top of the amount saved if the funds are used to purchase a property. However, you’ll need to be quick as this product is only available to new savers until 30 November 2019.

The product could well be worth getting your skates on for as you can access a bonus of between £400 and £3,000. You need to have at least £1,600 saved to qualify for the minimum bonus of £400, and the maximum you can save is £12,000. This product is particularly handy for couples buying their first property, as it’s applicable per person and not per household. This means couples can earn a bonus of up to £6,000 towards their first property.

Have money set aside for extras

When you purchase a property, there are a number of other fees that come along with the purchase. Stamp Duty Land Tax is one of the higher fees to consider. Buyers usually pay Stamp Duty Land Tax on increasing portions of the property price above £125,000. The good news for first-time buyers is that there is some exemption. There is no Stamp Duty Land Tax on properties under £300,000, and you only pay 5% on any portion from £300,001 to £500,000. Properties over £500,000 don’t qualify for the Stamp Duty Land Tax exemption and the standard duties apply.

Another fee to be aware of is the lender’s application fee, which is often referred to as a booking fee. While some financial institutions don’t charge this fee at all, those that do usually charge around £99 per application. This is an automatic fee that is charged even if you don’t finalize the application for any reason. 

Costs that tend to creep up and eat away at the budget are usually the small things, such as ensuring there are curtains for all the windows, doing minor renovations, or buying those first few essential pieces of furniture.

It’s important to find out the estate agent’s fees upfront, and which property inspections are covered by the seller. If additional inspections are required, these might be paid for from the purchaser’s pocket. The final cost that you need to be aware of is the fee for the solicitor that is handling the legal side of the transaction.

It’s also wise to keep an eye on choices that could affect your overall repayment, such as adding fees and costs to your loan amount or extending your term.

Educating yourself on personal finance and understanding the financial products that you use everyday can make the difference between comfortable finances and constant stress. At MyWalletHero, we aim to make learning about personal finance rewarding and fun.

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