As a first time buyer, purchasing your first home is one of the most important decisions you can make to improve your lifestyle.

For people new to the property and mortgage market it can be overwhelming with so many options to choose from as you search to make the best choice for you.

This is why as a first time buyer you can rely on the independent advice from London City Mortgages to help you get on the property ladder. As a first time buyer we can take you through the schemes designed to help you buy your home and recommend the most suitable and affordable options.

We can help you make sense of the technical jargon, find the best mortgage deal and make the online mortgage process easy for you.

How much for a deposit

Saving for a deposit is one of the biggest hurdles to buying your own home. In many cases first time buyers must save tens of thousands of pounds for a deposit to purchase their first property.

This can often seem impossible to achieve when property prices are rising and your ideal home demands an ever larger deposit. Even so there are more mortgages available requiring only a 5% deposit of the property value and schemes such as Shared Ownership and Help to Buy that can help you own your first home.

The greater the deposit you have the better the mortgage deal a lender can offer and the lower the cost of the mortgage, so saving for a deposit saves you money in the long term. If you can afford a larger deposit of 10% the choice of mortgages increases and very competitive rates are offered where your deposit is 25% or more.

If you only have a small 5% deposit the mortgages are much more expensive as you pay more in interest due to high loan to value (LTV) of 95%. You will have a larger loan and the lender charges a higher interest rate as their risk for giving you the loan is higher. The interest rate you pay for a 5% deposit can be 2 to 3 times higher than for someone with a 25% deposit.

The interest rate is reduced by the lender for 90% mortgages although you would need a bigger deposit. For example, if the property was valued at £200,000 for a 5% deposit you would need £10,000 and for a 10% deposit you would need £20,000. If you do not have a large deposit your family helping you to buy could reduce the cost of interest payments significantly.

If you go for a 75% mortgage LTV this means you have a 25% deposit or £50,000 and can expect very good interest rates but with a 60% LTV you would have the best rates on the market. The reason is that the risk to the lender of negative equity and default occurring in the future is much lower so they offer a much better deal.

Main costs of a new home

Apart from your deposit you will need to budget form other costs when buying your home and here are some general examples although actual costs may vary depending on your property value and preferences:

Type of costs you can expect	What could this typically cost?
Mortgage arrangement fee	£0 - £1,500
Local Authority searches	£80
Valuation fees	£0 - £250
Land Registry fee	£200 - £500
Stamp duty	0% - 12% (see below)
Mortgage adviser fee	£200 - £500
Solicitor’s fee	£500 - £1,500
Survey costs	£250 - £1000
Removal costs	£750 - £1,500
Furnishing and decorating	£5,000 plus
Building & contents insurance	£125 - £250

For providing a mortgage a lender will have an arrangement fee for setting up the loan and this can be as much as £1,000 to £1,500. In general the lower the interest the higher the arrangement and this can usually be added to the mortgage. It is important to remember if this fee is added to the mortgage that you will pay interest for the term of your mortgage.

There are a number of legal costs and for properties with a higher market value the largest cost of buying your home is a government tax called stamp duty which does not apply for the first £125,000. On the next £125,000 the tax is 2%, the next £675,000 it is 5%, the next 10% it is 10% and 12% for amounts above £1.5 million. As an example for a property worth £350,000 the stamp duty will be £7,500.

You will need to appoint a solicitor for the legal aspects of the purchase and their costs will amount to between £500 to £1,500. The cost depends on the complexity of the work required although they can agree a fixed fee.

Another legal fee is the land registry fee that records property transactions in England and Wales. This fee depends on the property price and range from £200 to £500.

Schemes helping you buy

For first time buyers struggling to find a deposit help is at hand. There are a number affordable home buyer schemes backed by the government aimed at both first time buyers and home movers to give you a helping hand onto the property ladder.

The Help to Buy schemes have proved to be popular and available on properties valued up to £600,000. The first phase equity loan scheme allows you to have a small 5% deposit with up to a further 20% of the purchase price provided as an interest free equity loan from the government.

The mortgage required to buy your home would be 75% of the property value. This scheme is for new builds only but there is another you can consider.

The second phase mortgage guarantee Help to Buy scheme is for new builds and existing home or home movers and would also allow a small 5% deposit. The government would provide a guarantee to the mortgage lender of up to 15% of the property value.

This security is intended to encourage lenders to offer larger mortgages at more competitive interest rates to borrowers. In this case the mortgage required to buy your home would be 95% of the property value.

As an alternative you could consider Shared Ownership which is a part-buy and part-rent scheme from a housing association with a share of the property from 25% to 75% of the value. It means you need a smaller deposit for your share and allows you to have a smaller mortgage from a lender. The balance is rent at a reduced percentage usually from 1.5% to 3.0% depending on the property value.

For example, if your property was valued at £200,000, you could have a 50% share of £100,000 and a deposit of £10,000 or 10% which would be half the amount for the whole property. The other 50% belongs to the housing association and if the rent was 2.75% you would pay £229 per month.

Shared Ownership allows you to increase your share of the property over time either by paying for the extra share in cash of as an additional mortgage until you own the whole property.