Buying a home in 2022? Here are the seven tips first-time buyers need to know

Here is our no-nonsense guide based on the most common Google searches that new home buyers actually want to know…

Buying your first home is an exciting milestone that many people look forward to. But as we move into a new year, what exactly do new home buyers want to know in 2022? With the internet inundated with ‘not so useful’ buyers’ guides and advice, it can be daunting to even know where to begin. And if you’re new to the process, finding the answers to your questions can become a minefield.

Buying a new home

Once you’ve saved up and have your lender sorted, it should be easy. However, in reality some may feel a sense of confusion due to the different steps involved in the house buying process – many of which you may never have experienced before. But fear not, as St. Modwen Homes’ handy guide will help break down the most important steps to make it feel slightly less daunting.

There is some good news for first-time buyers – you may be able to avoid the additional stress that can come with selling a home. With no chain behind you, in simple terms, you could buy a house today and move in tomorrow, so you are a home seller’s dream. This means that you can focus on the important stuff, including which extras and upgrades you’re going to choose.

How Does ­Mortgage Affect Your Credit Score?

(Credit scoring – 673k monthly searches)

When you begin to plan your first home purchase, the idea of a ‘credit score’ can be intimidating. And those who have spent months working to build their credit score must be prepared for it to drop within the first few months of their mortgage. Don’t worry, it isn’t as scary as it seems!

According to a study by Lending Tree, credit scores tend to drop around 15 points after taking on a new mortgage. This may seem defeating; however, it only takes buyers an average of five months to recover from this drop, and around 11 months to improve your credit score and make it better than ever before – providing you keep up with your payments.

Top tip: If you are planning on taking out any new credit or loans during the period when your credit score is lower than usual, you may get struck with higher interest rates.

Can you get a mortgage with a bad credit score?

(Mortgage Calculator – 673k monthly searches)

What if your credit score was not good to begin with? It is possible to achieve a mortgage with a lower credit score, but it may be difficult to source a lender who is willing to take a risk with you, minimising your options and resulting in higher interest rates.

If your credit score is looking less than pretty, a few months of healthy money changes can improve it rather quickly and put you in a better position:

• Make all of your regular payments in full, on time.
• Provide a guarantor for your lender’s reassurance.
• Make small changes in your day-to-day habits to increase your savings – which can be contributed towards your deposit.

If your credit score is lower due to a past personal reason such as illness, you should add a note to your report with evidence for lenders to consider.

How do I calculate the cost of my monthly mortgage payments?

Mortgages can often feel complicated at first, so it’s no surprise that many first-time buyers search the web for calculators to do the math for them. Essentially, your monthly payments incorporate three elements: the amount you are borrowing, the length of your repayment plan, and the interest rate you are paying on top.

St Modwen Homes’ mortgage calculator can help you gain an overview of how much your new home may cost each month. However, if you are on an adjustable-rate mortgage, you will need to make these calculations monthly depending on the varying interest rates.

What Are The ‘Hidden Fees’ Associated With Mortgages?

Once you have made your calculations, what are some of the most important things to know about mortgages?

You may have saved an impressive deposit and reduced the amount you need to borrow for your mortgage, but there will still be valuation fees charged by the lender. These fees will be used to assess what they agree the property is worth, and if the lenders are prepared to loan you the money for it.

You will need a solicitor or licensed conveyancer to carry out any legal work involved in buying your property, so ensure you factor all of these ‘hidden’ costs into your finances!

One fee that is often overlooked is the electronic transfer fee for the mortgage lending – which covers the lender’s cost of transferring the mortgage money from the lender to the solicitor. Although in the grand scheme of things it’s not much, it is something you need to be aware of.

What Is Stamp Duty, And How Does It Affect First-Time Buyers?

(Stamp Duty – 165k monthly searches)

We’re sure you have heard of the dreaded stamp duty, but what is it all about? Essentially, stamp duty is property transaction cost – or in even simpler terms, a tax to be paid on any home that is on the market for more than £125,000.

Luckily for first-time buyers, this is something that works slightly differently! If you’re buying your first home, you can claim a discount (relief), which means you’ll pay no stamp duty up to £300,000, and just 5% on the portion from £300,001 to £500,000.

However, if your new home is more than £500,000, or this is not your first property purchase, then all bets are off, and you need to pay the duty. Your solicitor should ensure any stamp duty payments that are due are paid correctly and on time – so there’s no need to worry!

What Insurance Do I Need?

(Home insurance – 90.5k monthly searches)

When you take out your first mortgage, it will probably become your biggest monthly expenditure. This is why it is important to take out some kind of insurance to make sure you can continue to pay it if a barrier to payment, such as illness or redundancy, may occur. According to Which?, there are two main ways of insuring your payments.

First on the list is building and contents insurance. Building insurance is protection for your actual home, for example, if it got destroyed in a storm, or vandalised to the point of no return. This type of insurance is non-negotiable, so you must prove a policy is in place when exchanging documents with your mortgage provider.

Top Tip: These costs can vary based on the rebuild value of your home, and how prone the area of your home is to natural disaster – which will be revealed following an inspection once you have received your offer.

Contents insurance protects your home’s content (everything from your technology to your carpets). To take out this type of insurance, you will need to have a rough estimate of the total cost of everything in your home… yes, we mean everything! The location and safety of your home is also taken into account when receiving a quote for this type of insurance. Remember, contents insurance is not obligatory, however it is better to be safe than sorry!

Do I Need Home Insurance?

Another thing to consider is mortgage payment protection insurance (MPPI) which will cover you through illness, unemployment, or accidents which would lead to you losing your income. The average quote for a new homebuyer under the age of 30 for this type of insurance is £19.27, increasing to £23.55 for those aged 30 to 40. This price will fluctuate based on job and lifestyle, and how high-risk this is seen to be. For example, if you work on a building site, expect to pay more than someone who works in an office.

An alternative to MPPI is income protection insurance. This insurance essentially protects your income if ill health, accidents or redundancy strike and you are unable to make payments. This type of insurance may be more suitable for you if your employment already offers redundancy benefits, as it offers a better illness policy that can place payments for you until you are back to work, or up until retirement if you are unable to return to work.

If you aren’t sure which type of insurance is best for you, it is always best to talk to a trusted financial advisor.

What Are The Average House Prices And Costs In The UK?

(House Prices – 110k monthly searches)

The average house price in the UK outside of London is £271,000, raising to a staggering £495,000 in London. So, how much do you need to save to make these prices achievable?

To grant a mortgage on a £200,000 home, you would need around £14,800 for upfront costs, and an annual income of around £47,000 if buying unassisted. For a more expensive, £500,000 home, expect these figures to raise steeply to £46,800 upfront costs, and an annual income of £118,750 if buying unassisted.

What Is Shared Ownership?

(Shared Ownership – 165k monthly searches)

Shared ownership is essentially buying shares in your home from a landlord. As you only own a portion of the home, the mortgage costs are a lot lower, and more manageable, than a full mortgage. You can start with as little as a 25%, and usually bring it all the way up to 100% if you find yourself in a financial position to do so.

Is Shared Ownership a Good Way To Get Onto The Property Ladder?

Shared ownership makes moving onto the property ladder easier for those on lower incomes, as it can make mortgages more accessible. As your financial situation improves, you can purchase more shares in your home, or you can stay at the lower share to keep costs low and help to boost your savings.

However, it is important to note that for the remainder of the property you don’t own, you will still be paying rent to a housing association – so this should be factored into your costs. Rent on a shared ownership home is usually set at around 3% of the unsold equity, however, the exact figures will be sent to you with the viewing details. This route will also mean that large-scale renovations may be declined by the housing association.

How Can I Get Onto The Property Ladder?

(Property Ladder – 24k Monthly Searches)

As a first-time buyer in the UK, there are many schemes to help you onto the property ladder. It’s best to do some research into your options and see which suits your needs the most. Check out some of them below:

• Shared ownership: As above, you can purchase your home in shares, and pay a decreased rent as you build your finances.
• 95% LTV mortgages: These Government-backed schemes help first-time buyers get onto the property ladder by only requiring a 5% deposit. If the home ends up being repossessed, the Government will cover some of the losses to the lender, making them more likely to offer you a mortgage in the first place!
• The Help to Buy Scheme: Ranging from 5% to 20% deposits of the full price of your home (the loan can go up to 40% of the purchase price if you live in London). To help you work out your costs, we have a handy ﷟Help to Buy Calculator so you can work out what monthly payments are affordable for you.

We always recommend speaking to a financial advisor to help you identify which path is the most beneficial for you.

Top Tip: St. Modwen Homes has a number of ‘ways to buy’ one of its properties. From a £5,000 Deposit Boost scheme to a tailored Key Worker incentive, there is something for everyone.

Is It Worth Moving Into a New-Build Home?

(Upgrades/Extras – 18.1k searches)

Before you move into your home, one thing we wish everybody knew is that you should invest in your interior at the build stage, rather than afterwards! Whether you are looking to add additional spotlights, or an integrated dishwasher, you could save a bunch of money that you can use elsewhere (like on your mortgage!).

When buying a new-build home, there are often deals to be had. Homebuilders are keen to assist with first-time buyer offers, so it’s a good idea to check any new developments in the areas you’re considering first. Also, dealing directly with a national homebuilder could save you legal and conveyancing fees, as they often have their own in-house departments to deal with such matters for both parties.

With a new-build home, you have a blank canvas. You also will have a range of options and upgrades products to choose from, from worktops to walk-in wardrobes, and these should not be overlooked. Upgrading at the build stage rather than making additional purchases after you’ve moved in can work out to be a lot cheaper – so it is often worth the additional upfront cost to make long-term savings.

For example, installing extra downlights in the kitchen during the build process will cost a lot less money, and cause a lot less mess than finding your own electrician further down the line to rewire and add a few lights.

Can Somebody Help Me Through The Process Of Buying A New Build Home?

Jo Winston, Sales Director at St. Modwen Homes says:

“There’s no denying buying a home is one of the biggest, and often most difficult, decisions we make in our lifetime. Knowing exactly what to expect along the home buying journey certainly does help to relieve some of the pressure. However, being aware of the hidden costs, and understanding how to navigate your way around them can really make the difference to a first-time buyer’s experience.

“And no matter how old a first-time buyer is – in fact our research shows the average age is 31 – and how many homes they’ve looked at, they are still relatively green. As a national homebuilder, we are used to walking first-time buyers through the whole build process and we are always keen to help.

” We understand the enormity of buying a home for the first time, and our goal is to make the whole process as hassle-free as possible. We have created our First-Time Buyer Boost scheme to help – buyers can reserve their new home from just £99, and we’ll cover the legal fees and even include the carpet or flooring of the buyer’s choice.

“Buying your first home is a life-changing event. We want to help first-time buyers every step of the way to ensure this milestone is an amazing, life-affirming one.”