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Lessons for first-time buyers, from people who learned the hard way
8th February 2023
“Go through a mortgage advisor.”
I’ve long said that personal finance, including tax and borrowing, such as mortgages, is something which should be taught at a school level.
Many go into the process of securing their first mortgage completely in the dark.
One thing I’d recommend to anyone, especially as a first-time buyer, is going through a recommended mortgage advisor.
It’ll take the shopping around element out of the process, provide you with a clear outline of options and rates and make remortgaging significantly easier when your fixed-term ends. In our case we were almost over the line with one provider which then informed us it would only lend at a higher deposit.
But because we were with an advisor it meant the work had almost all been done and swapping to a new lender was easy. Generally the advisor fees are covered by the lender.
Knowing what costs you’re facing up front would certainly have been helpful, including solicitor fees and any taxes or stamp duty.
It would have been useful to understand ‘loan-to-value’. We borrowed with a 5% deposit and as a result our initial rate wasn’t great. But because we didn’t overpay and the value of our property rose, the next rate was considerably better as our loan-to-value had improved significantly.
With interest rates as they are now we were relieved at not borrowing too much. You could be offered a considerable loan, which when the Bank of England base rate was at 0.1% was affordable, now may no longer be with the rate at 4%.
“Don’t be swayed into borrowing more than you need.”
Before going to a mortgage broker for advice, my wife and I did some basic calculations of our income and expenditure to produce a figure which we thought was reasonable to spend.
When we got to the broker and he ran his calculations, we were stunned at how the banks were prepared to lend us vastly more than we thought we could afford. This was long after the financial crash, when lending rules had supposedly been tightened.
It’s important to remember that buying with a mortgage is not really buying until the mortgage is paid off. The banks were relaxed about dangling loads of money in front of us because if one of us got ill, or lost our job, or for whatever other reason couldn’t keep up the repayments, the bank could simply take the house.
The most important thing I came to understand at the time was the value of paying off more each month than is necessary.
If the mortgage repayments are £500 a month but you can afford £600, it adds up to a huge saving on interest payments, which are calculated daily.
Check your bank’s rules — most have a limit on how much you can overpay each year before they hit you with extra fees.
Many will also treat this as an ‘overpayment fund’ — a sort of insurance policy which means if you ever can’t afford your repayments or need the money for something else they will simply come out of that pot rather than you getting into arrears.
“Your main investment is in your own happiness.”
People are often told to use their head rather than heart when making their debut in the property market.
Countless TV programmes are centred around the investment potential of properties. Is it better to get a fixer upper or a turnkey apartment or house? Is it in an up and coming area and likely to rocket in value? Should I postpone until prices and interest rates are lower?
Do your homework. Price check properties, get a proper survey, research the neighbourhood and make sure you’re not overextending.
But don’t forget this is your first home and the main investment should be in your own happiness.
Are you buying because you think you should be on the property ladder or because you actually want to?
Are you buying because you think the property is an astute financial investment or because you know in your heart it’s the one for you?
Our first home was a good investment. The purchase was smooth and the sale six years later in 2007 at the height of the property market was seamless and lucrative.
We sold our second home in 2009 when the property market was crashing, knowing it wasn’t a good time to sell. But we were moving to another country and didn’t want the burden of looking after it from afar.
If we had moved to our third home in 2007 instead of 2009, we would have been mortgage-free. But even knowing that, I don’t think I would give up the two years in my favourite home to date.
From the moment I walked into its front hall, I knew it was the one and I still miss it.
Source: Margaret Canning, Belfast Telegraph