First time buyer guide

What is a mortgage?

If you're looking to buy a home, you'll probably need to apply for a mortgage. It's a loan which is secured against the value of the property.

The mortgage will either be:

• a repayment loan, where you pay back a proportion of the loan plus interest each month; or
• an interest-only loan, where you pay the interest on the loan each month but not the loan.

With interest-only loans, you need to have plans in place showing how you'll pay back the amount you borrowed when the mortgage ends.

Saving for a deposit for a home

Mortgage lenders assess the amount you want to borrow against the value of a property. This is called Loan To Value (LTV). Most mortgages require a deposit of at least 5% of a property's value, which is a LTV of 95%. The average deposit is usually around 20% to 25% of a property's value which is a LTV of 80% to 75%. You're likely to get a mortgage deal with a lower interest rate if the LTV is under 60%.

To help you put money aside for a deposit, TSB offer a range of savings accounts.

Affording mortgage repayments

To work out how much money you have available for mortgage payments, add up all of your monthly outgoings and take the total amount away from what you have coming in each month. You should include in your outgoings:

• any debts you're paying off, e.g. credit card, store card or loan payments
• everyday and household spending, e.g. utility bills, travel costs, fuel and food
• money spent on going out and holidays

Buying a home costs

The costs you'll need to set money aside for are:

• mortgage fees - fees paid to your lender for arranging your mortgage and valuing the property you want to buy
• a conveyancing fee - a fee paid to a conveyancer for sorting out the relevant legal work. See the section below called 'The legal side of buying' for details.
• Stamp Duty Land Tax (or Land and Buildings Transactions Tax in Scotland) - a tax paid to the Government when you buy a residential property over a certain price
• removal costs - the cost of moving your belongings to your new home

For the Stamp Duty Land Tax rates in England and Wales, see the gov.uk website

For Land and Buildings Transactions Tax rates in Scotland, see the revenue.scot website

You may also want to set money aside for a property survey to check whether the property is in good condition. If the survey points out any major problems you could ask the seller to fix them or ask for money off the property price.

Reducing your debts

If you have existing debts it may reduce the amount a mortgage lender will lend to you. To increase the amount you could borrow, you could reduce your debts before you apply for a mortgage.

Improving your credit history

Your credit history will affect the mortgage amount a lender can offer you. You can check your credit history by getting a credit report from credit rating agencies such as Experian and Equifax

• If your credit history isn't good, you can improve it by keeping up to date with payments on loans, phone contracts, utility payments and credit cards - missed or late payments are likely to affect your chances of getting a mortgage
• Cancel any unused store cards, credit cards and bank accounts.

If you have no or little credit history, lenders have little evidence that you can borrow responsibly and may be more reluctant to offer you a mortgage.

Registering to vote

It's important you register to vote so your name appears on the electoral register. Mortgage lenders use the register to check your identity. If you're not on the register it's likely that your mortgage application will be rejected.

What you want from a home

It's a good idea to write down what you want from a home and order it in terms of priority. You need to think about:

• where you want or need to live
• what type of area you'd prefer
• the size of the property you want or need

You also need to get a feel for an area to check it suits your lifestyle. Find out about transport links and parking, where shops and green spaces are, how busy the area is and how far you'd be from friends and relatives.

Questions to ask at property viewings

Before you go to view a property, write down a list of questions to ask the estate agent.

Here are some of the questions you could ask:

• Is it a freehold or a leasehold property?
• Which direction does the house face?
• How much storage space is there?
• How old is the boiler and the roof?
• Why is the seller moving and when they hope to move?
• How close are transport links and the local shops?
• A freehold property is where you own a building and the land it stands on, while a leasehold property is where you hold a lease for a set number of years. In England and Wales, most flats tend to be leasehold while houses are usually freehold.

Before you make an offer

Before you make an offer on a property, try and find out from the estate agent:

• is the seller ready to move, e.g. have they found another property to move to and secured a mortgage
• if they've received any other offers
• which fixtures and fittings are included in the price

In Scotland, before you express an interest in a property you appoint a conveyancer. Once you find a property you're interested in, your conveyancer registers a 'note of interest' on your behalf so you're kept informed of any closing date for submitting an offer. The seller must give you a copy of the Home Report which outlines what the property is worth, its condition, the repairs required and its energy-efficiency rating.

Making an offer

In Wales, England and Northern Ireland, you can make an offer directly to the estate agent. You can let them know you're serious about buying the property by having a mortgage approved in principle, and want to move quickly. If the seller:

• rejects your offer, if you can afford to, you can increase your offer
• accepts your offer, ask the estate agent to confirm it in writing and take the property off the market

In Scotland, you instruct your conveyancer to make a written offer on a property on your behalf. If the offer is acceptable, the conveyancers agree the conditions of sale through the exchange of formal letters. This process is called 'concluding the missives' and may happen quickly if little negotiation is required. Once the missives are concluded neither you nor the seller can pull out without penalty.

Types of mortgage

The types of mortgages generally available are:

• Fixed rate mortgages where monthly payments are fixed for a set period of time
• Tracker rate mortgages where payments are variable, meaning they could go up and down depending on the movement of the Bank of England's Base Rate
• Capped rate mortgages where interest payments can't go above a certain amount but may vary depending on an interest rate set by the lender
• Offset mortgages where your savings are placed in an offset savings account and help reduce the interest you pay on your mortgage debt

With most mortgages when the initial period ends, you move onto a standard variable rate set by the lender which could go up and down.

At TSB we currently offer a range of fixed rate and tracker rate mortgages for first time buyers in England, Scotland and Wales.

Mortgage advice and eligibility

A Mortgage Advisor can advise which type of mortgage best suits your needs. To do this, they'll ask for details of:

• your deposit and required loan amount
• the age of each applicant and their income and outgoings
• your personal circumstances

If they can recommend a suitable product, they'll talk you through the key features of the mortgage and what the repayments will be. These details will also be given to you in a document called a Mortgage Illustration.

Mortgage agreement in principle

When you put an offer on a property, you can show estate agents you're serious about buying by getting an 'agreement in principle' (AIP) from a lender. The AIP states the amount the lender is likely to lend you. It's not a legally binding agreement as it's subject to a valuation of the property and you sending in any evidence the lender requires, such as payslips.

You shouldn't ask many lenders for an AIP, as it requires a credit check against your credit file. The credit check leaves a footprint which can be seen by other lenders on your file and may affect your ability to get credit.

Making a full mortgage application

To make a full mortgage application, you'll need to provide your lender with:

• details of the property
• proof of your employment and income, e.g. your most recent payslips
• proof of your identity and address
• copies of your bank statements for the last three months

If your lender is happy with the evidence you've provided and the purchase price of the property after a valuation, they'll send you a formal mortgage offer.

Protecting yourself & your home

At TSB, we understand it’s important to protect what you value the most. That’s why we offer a range of insurance products to look after what’s important to you, whether it’s home, contents or life insurance.

Appointing a conveyancer

A conveyancer deals with the legal side of a buying a property. They sort out the transfer of ownership by:

• drawing up and exchanging contracts with the seller's conveyancer (or 'concluding missives' in Scotland)
• arranging the payment of Stamp Duty Land Tax or Land or Buildings Transaction Tax in Scotland
• conducting legal searches, including local authority, water drainage and environmental searches
• registering the property title in your name

In Wales, England and Northern Ireland, you appoint a conveyancer once your offer is accepted on a property. In Scotland, you appoint a conveyancer before you make an offer on a property, as they are responsible for placing the offer on your behalf.

Getting a survey done

A survey should point out any major issues with the condition of the property. If it brings up issues you're not aware of, you could ask the seller to reduce the sale price or fix the issues before exchange of contracts. If they're not willing to do this, you could withdraw your offer.

The different surveys available are:

• a mortgage valuation (Level 1) - a very brief report on the property's condition and its market value based on a limited inspection of the readily visible and accessible parts
• a home survey and valuation (Level 2) - a more detailed survey giving guidance on defects and repairs that need sorting out
• a home survey (level 3) - a comprehensive survey for older properties giving a full breakdown on the structure and condition of a property. It can be tailored to the property

In Scotland, the seller provides you with a Home Report outlining what the property is worth, its condition, the repairs required and its energy-efficiency rating. You can also choose to instruct your own survey as well.

Exchanging contracts

Your conveyancer will arrange for all the paperwork to be in place before completion date. They will exchange contracts (or conclude missives) with the seller's conveyancer, once you've:

• received your final mortgage offer
• checked through and are happy with all the legal documents
• transferred your deposit to your conveyancer
• agreed a completion date
• signed the contract

You'll need to have buildings insurance in place before you exchange in England, Wales and Northern Ireland. In Scotland, buildings insurance must be in place before the completion date known as the 'Date of Entry'.

You're legally bound to buy the property once you've exchanged contracts or concluded missives. If you decide to pull out after this point, you could lose your deposit and may face legal action from the seller.

After exchanging or concluding missives, you'll need to sign the mortgage deed and a document to transfer ownership of the property to you.

Completing

Usually, completion takes around six to eight weeks but it may be longer if you're in a property chain. On the day of completion you can move into your new home once your conveyancer confirms the money has been transferred to the seller's conveyancer.