Buying a Home in 2021: Everything First-time Buyers Need to Know

Despite the negative impact the COVID-19 pandemic has had on the British economy, UK average house prices are higher than ever. The average UK house price is now at a record high of £250,000, an increase of 8.9% year-on-year. The average cost of a home in London is now £492,000.

 “Although taking the first steps onto the ladder can be daunting, it’s not all bad news for those first-time buyers looking to purchase in 2021,” says Anthony Mellor, Head of Product from Swinton Home Insurance. “Buyers can still benefit from Lifetime ISAs with savings bonuses, 5% deposit schemes and stamp duty holidays. Despite the current condition of the economy, property remains a good investment, and now could be the perfect time to buy.”

Though the UK housing market has both increased and dropped in the last twelve months, Rishi Sunak’s latest budget announcement gives some great incentives for first-time buyers to finally get on the property ladder. So if you’re looking to purchase your first home, now could be a good time to buy.

Incentives to buy in 2021

5% deposit

5% deposits give buyers access to 95% loan-to-value mortgages, which means that the loan is for 95% of the property’s value. These mortgages were standard before the pandemic, but became unpopular with lenders because they were deemed to be high risk. 

Today, the 5% deposit scheme means there is now an additional incentive for lenders as the government has agreed to pay out if the borrower defaults on payments.

The scheme starts in April 2021 and will run to December 2022. To qualify you must:

  • Be buying a main residential home in the UK
  • Choose a property worth £600,000 or less
  • Have a deposit equal to between 5-9% of the property’s purchase price (so a mortgage LTV of between 91-95%)
  • Apply for a capital repayment mortgage and pass a lender’s normal mortgage affordability criteria

Stamp duty holiday

Stamp duty is a land tax that is paid when houses, flats and other land or buildings are purchased over the cost of £125,000. The stamp duty holiday means that:

  • Until the end of September 2021, buyers will not pay stamp duty on the first £250,000 of a property’s purchase price

Saving and budgeting: Tips for first-time buyers

1.    Know your finances

While it can be intimidating to get to know your finances, there’s no way that you’ll be able to proceed unless you’re in the know about your money situation.

Get to grips with your monthly ingoings and outgoings. From this, you can work out a realistic savings goal and go on to work out your deposit. You’ll also need to have a good credit score: paying monthly bills on time and registering to vote can improve your rating.

2.    Do your research

You’ll have to be organised and do your research. Luckily, if you’re excited about the prospect of owning your own home, a lot of this might be fun to do. Discover which areas you’d like to look for property in, find out the average cost in your area, and start to keep an eye on the market — even before you get your deposit together. This will give you a head start when it comes to looking for a property, as you’ll already know your budget, your dream location, and how quickly the market moves.

3.    Begin to save

This can be one of the most difficult things to do, especially if you’re already renting. Banking apps like Monzo or Plum are designed to help you meet your savings goals, but if you don’t already have one, look to set up a Lifetime ISA (known as a LISA). These are high-interest savings accounts that are designed for people who are saving for their first home or retirement.

If you take out a LISA, you will receive a 25% bonus of what you pay in, every tax year. Remember that saving for a deposit is just part of the costs. You’ll also need to budget for everything else — which could be up to an extra £12,000.

Start by making little cutbacks here and there, and add the money you save to a savings pot that you can’t tap into.

4.    Find a good mortgage broker

Once you’ve got the savings squirrelled away, a trustworthy mortgage broker will help you to find the best deal on your mortgage.

Choose one that’s been recommended to you by a friend or family member, or use a mortgage broker listing site like My Local Mortgage. These professionals will help you to get a mortgage agreement in principle (AIP) so that you can start viewing properties to buy. Many mortgage brokers don’t charge the home-buyer, they’ll get a commission from the mortgage lender once your loan is accepted.

At viewings: Tips for first-time buyers

1.    Get in there quickly

As well as browsing online, make sure you call estate agents and ensure that you’re on their mailing lists — this will mean that you’re among the first to know when new properties are available on the market. It’s also possible to set up alerts on Rightmove so that you get a message sent to your phone if a home becomes available in your desired postcode.

2.    View some places

This is the fun part! But when you’re viewing the home of your dreams, be sure to keep a poker face to have greater negotiating power further down the line. If you’re still interested after the first viewing, arrange another at a different time of day.

Try to view the home both in the evening and in the daytime. This will help you get a good grasp of the local area, as well as the habits of neighbours. Remember to ask permission to take pictures and videos to share with family and friends — second opinions can be important!

3.    Decide what your deal-breakers are

If you think it’s your perfect home, but you can’t afford to finish all the jobs that need to be done, then it simply isn’t perfect for you. Although buying a fixer-upper is a great way to get onto the ladder, be aware of your limitations, and set a few boundaries.

You should decide what issues you can live with and what will be a deal-breaker. Write yourself a checklist and take it around with you. Things like damp or black mould, cracks in ceilings, holes in the roof or rotten windows should be a cause for concern.

4.    Ask questions

Be curious, and don’t be shy! Remember that this is likely to be your biggest purchase so far in life, so it’s important to be clear and have all communications in writing.

Ask about the condition of the house — things like the age of the boiler and wiring, as well as the property’s time on the market. How long has it been for sale? Why are the vendors looking to move? The answers to these questions may even be able to help you negotiate a cheaper price when push comes to shove.

Making an offer and completion: Tips for first-time buyers

1.    Negotiate price

Properties that have been reduced in price could signify that the owner requires a quick sale. Look out for these on sites like Zoopla, where edits to the property listings are tracked.

If the housing market in your town is less competitive, be sure to offer under the asking price, and expect them to say ‘no’ the first time — this is a normal part of the negotiation process. To make sure that you don’t get burned, remember to make your offer with the condition that the seller takes the home off the market, and get included fixtures and fittings in writing.

2.    Find a good value conveyancer or conveyancing solicitor

Choosing the right solicitor or conveyancer can save you money and time in the long run. They will look at legal paperwork, land registry and local council searches before drafting the contract and handling cash exchange.

Solicitors can cost between £100 and £1,500 but ask for a full fee breakdown to be sure of what’s covered. During the process, remember to chase them — they often manage multiple accounts at once so a phone call to prompt them is likely to work out well.

3.    Get the right survey

Surveys are important as they can stop you from making a huge financial mistake, as well as giving you ammunition to haggle the price.

There are two main types of survey: homebuyer’s reports (suitable for properties less than 50 years old, £300-£400) and structural surveys (for older residences up to £1000). New builds also need a snagging survey to pinpoint defects so that the developer can correct them before completion.

If there’s a lot to do, make sure you get a quote for the work from a trusted tradesperson and try to haggle this amount off the cost of the property.

4.    Sort out your home insurance

Your conveyancer will instruct you to arrange insurance on your new property before you get the keys. From the moment contracts are exchanged, you are obliged to proceed with the purchase and the house becomes your responsibility. Therefore, it’s important to have it insured at this stage in case anything happens. Contact your insurer to see if they can insure you for this period. If they can’t, look for temporary home insurance for this period instead, and once you’ve moved in, find an insurance provider that you’re happy with.

First-time buyers in 2021

For those looking to secure their first property, 2021 could be a good time to buy. Don’t underestimate the amount of time, admin and money you’ll need in order to get your keys — but preparation and research, as well as making use of government schemes like the LISA and 5% deposit, can ensure that you’re able to buy sooner rather than later.