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First-time buyers: managing your finances

Tom Martin
Written by Tom Martin, Content editor

Edited by Nisha Vaidya, Content Editor - Mortgages, 23 August 2021

Buying your first home can be both exciting and daunting, but our advice for first time buyers will help you stay on track.
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First-time buyers

When you’re first thinking about getting on the property ladder, you might end up falling in love with a house or flat that’s out of your reach. If buying a property, be sure to take a good look at your finances and use mortgage affordability calculators so you have a decent idea of what you can afford before you contact estate agents and start viewing properties. 

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First time buyer mortgages

Our top tips for first-time home buyers will help you build up your finances and prepare to find your first home.  

Save, save, save

The most important first time buyer tip is to save for your deposit. The bigger the deposit you have, the better – especially as many lenders have pulled their 90% Loan to Value (LTV) mortgages in the wake of the Covid-19 pandemic. Having a larger deposit will give you more choice when it comes to taking out a mortgage, and will also give you access to better deals with lower interest rates. 

However, the deposit is not the only upfront cost to consider. You also need to pay legal fees, which could add £1,500 to your bill. You’ll also have to pay stamp duty on any home worth more than £300,000. 

Ways to maximise your savings include investing up to £4,000 a year into a tax-efficient Lifetime ISA (LISA), which the government tops up with a 25% bonus each year. Other options include fixed rate bonds that often pay higher rates than easy access savings accounts.

Either way, setting up a direct debit from your current account to your savings account will make it easier to steadily build your savings pot. 

Manage your spending

By reducing your spending, you will be able to save more towards a deposit. When it comes to applying for a mortgage, lower outgoings will also improve your chances of being accepted for a loan.

So analyse your income and outgoings and identify areas where you could spend less. Cutting back on small things, such as buying lunch or a coffee at work every day, can make a big difference over time.

Comparing prices and switching to a cheaper provider on things like your gas and electricity or car insurance is also a great way to save money without having to make any lifestyle changes.

Compare first time buyer mortgages

Compare a huge range of first time buyer mortgages on our comparison tables

Give your finances a health check

Having a healthy credit history is essential when it comes to finding a mortgage.

So check your credit report to get a snapshot of your outstanding credit. You can see how much you owe on everything from your mobile phone to shopping catalogues, credit cards, and loans.

By viewing your credit report, you'll also be able to check that all the information it contains is correct and contact the relevant organisations if there are any errors. Just bear in mind that you will be expected to provide proof that a mistake has been made.

If you have a good reason (such as a serious illness) for any past credit problems, you can also apply for a Notice of Correction to be added to your file. Again, however, you’ll need to provide proof for this to be done.

First-time buyers

Register to vote

If you aren't on the electoral roll at your current address, get on it now. Lenders will check that you're on the electoral roll at your given address when deciding whether or not to lend to you as a precaution against fraud, so it's vital that you're registered.

You may also want to close any old, unused accounts, as having too much credit available – or using up too much of your overall limit – can have a negative impact on your credit score.

Get to know the mortgage market

Don't just look at mortgage rates from one or two lenders; look at what's on offer from a range of different providers to make sure you find the best deal for you.

And remember to compare the overall cost, including mortgage charges such as the arrangement fee, when deciding which mortgage offers the best value for money.

Consider too external factors that could make one type of mortgage more attractive. If, for example, the Bank of England is expected to raise the base rate soon, a fixed rate mortgage could prove a good choice. If economists are predicting the base rate will fall, you might be better off with a variable rate mortgage.

Compare first time buyer mortgages

Compare a huge range of first time buyer mortgages on our comparison tables

Think creatively

Getting on the property ladder for the first time is tough, so you might need to think creatively to become a homeowner.

An increasing number of people are opting to buy with friends, and there are also shared equity schemes, where you buy a percentage of property and a commercial partner such as a housing association owns the rest.

There are also government schemes, such as Help to Buy: Equity Loan, with which you can borrow 20% (or 40% in London) of the cost of your home from the government, then take out a mortgage for the remainder – you only need to provide a 5% deposit.

Only available on new-build homes, the scheme offers the loans at 0% interest for the first five years and will end on 31 March 2023.

Apply with caution

When you are finally ready to apply for your mortgage, don’t be tempted to make multiple applications just to see what kind of offer you will get.

Every mortgage application you make leaves a record on your credit report and lowers your credit score by a few points, which can make other lenders less likely to approve you for a loan. 

Instead, compare mortgages online and use a mortgage calculator to work out how much you are likely to be able to borrow. Or get mortgage advice for first time buyers from a mortgage broker. They can help you find the best mortgage for you.

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