104. Homeownership 101: The First-Time Buyer Guide ft Dan Knott

This week's episode is with mortgage advisor Dan Knott demystifying the home-buying process for first-time buyers. He covers how mortgages work, what to be aware of before making an application and schemes available to boost your savings financially.

FOLLOW DAN 🏡
Instagram - https://www.instagram.com/dandoesmortgages_/
LinkedIn - https://www.linkedin.com/in/dan-knott-1740b31b0/

Transcript

Speaker 1: 0:00

Hey guys, welcome back to the Penny Spounds podcast with your host, kia, and this is a podcast. We're able to dispel your myths, simplify difficult financial jargon and rectify your own personal problems. Happy Monday, everyone. I hope you've had an amazing weekend and I am back to bring you an incredible episode all around home ownership. Now, a question that we get a lot through Penny Spounds is regarding first time buyers. What should we be doing? How much money to save up? What's available to help me get on a property ladder? Now, never fear, I have got those answers and more. Courtesy of my special guest Guests, who are you.

Speaker 2: 0:32

My name's Dan Knott, known online as Dan Does Mortgages. I'm a mortgage advisor who works primarily with first time buyers nationally, helping those people to get onto the property ladder and, hopefully, making mortgage advice accessible and digestible, and maybe even enjoyable.

Speaker 1: 0:48

You are, Dan. You've been doing this for a long while, but I wanna ask you how did you get into this then?

Speaker 2: 0:53

So I bought my first home in 2018. And I had a mortgage advisor and it maybe wasn't the best experience. I felt like my advisor you know it was all jargon and we were talking. I felt like it was very transactional. He wanted to get into the appointment, get out of the appointment. I'd been working in finance for around about a decade at that time and I made the decision to move into mortgage advice, to become qualified and yet to start doing this job and helping people to buy the first homes.

Speaker 1: 1:24

I love that. I love it when people get into careers because of something that they've experienced so like. Your story is similar to me with finance. That's why I started, so I love that. I'm super excited, so let's get straight into it then. What does the property market look like right now for those who are looking to buy? There's a lot of things going on in the news, but let's demystify that. What's going on?

Speaker 2: 1:45

So 2023 actually saw the lowest amount of first time buyers for 10 years.

Speaker 2: 1:50

Wow, for a multitude of reasons you know, from the pandemic up until 2023, property prices went through the roof, interest rates increased significantly A little bit of scaremongering on the news, arguably.

Speaker 2: 2:04

And yeah, 2023 was a little bit of a slow year A lot of people choose into hold back to see what happens, what would happen in the market At the end of 2023, so November and December, and then January of this year, rates actually started coming down quite consistently, gradually but consistently, and it looks like at the start of this year that things are definitely looking a lot brighter.

Speaker 2: 2:28

The Guardian have actually released an article today referencing right move, in which the amount of sales agreed has increased by 13% in comparison to last year, by demand by 8% compared to last year, and they also believe the average house price on right move is increased by 1.5% over the last month, which is the highest increase in the last 10 months. So things are looking brighter and to support that, you know my diary, the diary of colleagues. People are getting back in touch, as I see, a lot of people last year were a little bit wary and some people did choose to hold off. But now I think people are ready to get stuck in, see where their options lie and maybe look to make the move soon.

Speaker 1: 3:13

I think that's some good news for anyone who's looking to buy to know that things are on the up and up. But this is the question I'm sure you get a lot, and we definitely get a lot of pennies of pounds is when is the right time, right? So, as you said, people were weary at the end of 2023. Maybe people were thinking, you know, I don't know, should I continue to wait? Should I buy now? So let me ask you, what would you say to anyone who has that thought in their mind?

Speaker 2: 3:37

Yeah. So something I see a lot online is that if it's the right time for you to buy in your life so maybe you're in a couple and you're rent, you know your rental agreements coming to an end and you'd like to actually own a home maybe it's time to move out of your parents' house. Whatever it might be, if it's the right time for you to buy and you can achieve your goal in the current market so you can buy the house that you want to buy on an affordable basis, then it's a good time to buy. The reason being we simply can't guarantee where things are going to go.

Speaker 2: 4:07

It's quite a chaotic economy, or it has been recently. So you know, if you wait another year, where will house prices go to? What will happen with interest rates? There's no guarantees and especially over the pandemic, there was a lot of people choosing to wait. But that's a good example over the pandemic, because a lot of people were choosing to wait, but then house prices increased further over that period and it's just an example that there's never really a perfect time to buy. So if you can achieve your goal and you want to achieve your goal, it's definitely worth having a look at what's possible.

Speaker 1: 4:37

OK, that's good. That's good for people to kind of figure it out. I like the fact that you said it depends on you because it comes down to personal finance. Right? Everything is personal and it's down to your own personal timing to see what works.

Speaker 2: 4:48

I would say you know, when you buy in your first home, it's not purely transactional or an investment. You know in your life, as I say, it might be the right time to buy. Simply, you know your circumstances mean that this is the time to make the jump. If you're not at that stage, or it's not the right time for you to buy in your life, then maybe not. But yeah, it's not. It's not only interest rates, house prices. Obviously, when you consider those things, it's a massive part of it. Of course it is. But yeah, when you're buying your first home, it's a home that's going to be roof over your head, your partner's head, where you might choose to raise children in the future. There's a little bit more to it.

Speaker 1: 5:22

Yes, I agree. So let's move to the mortgage side then.

Speaker 2: 5:25

Yeah.

Speaker 1: 5:26

Can we break down what a mortgage is Just in layman's terms? What exactly is a mortgage?

Speaker 2: 5:31

Yeah, so a mortgage is a loan secured against the property for the purpose of buying a property. So yeah, the mortgage process. You know there's over 100 mortgage lenders on the market banks and building societies. What I would say is most mortgage advisers are most mortgage advisors, like myself, a whole of market mortgage advisors. That means that you have access to all banks, all building societies, and it's essentially my job to make sure that everybody ends up with the most suitable financial solution for them from the whole of the market, on time and first time.

Speaker 1: 6:05

I'm glad that you mentioned that because it's something that comes up quite a lot. And I was speaking to my friend who's looking to get the first property and we had this conversation and they were like, okay, I'm going to go for a mortgage, but I'm going to go with my bank because I've been banking with them for ages. And I said, have you had a look at what's out there? And they're like no, no, no, I'll just talk to my bank and I'll just whatever they've got I will take. So obviously I know what that means, but I want to explain to everyone who's listening. Is that a good thing? So let's say, someone's been banking with a certain bank for 10 plus years and like I do everything with that bank, I'm going to get my mortgage with that bank. Is that a wise thing to do, or should they look elsewhere?

Speaker 2: 6:40

So not necessarily the benefit of going direct to your bank is convenience. Potentially it can be convenience. Maybe you've already got the banking apps. Maybe you know the person who works in the bank. You've already got that relationship. But your bank will only offer you their own criteria for a mortgage. So if you don't meet their criteria, you may become stuck at that bank and they'll only offer you their own mortgage products. So your bank isn't going to tell you if the bank next door or down the road has a better deal for you. So you are limiting yourself financially. So I would always advise, if you do speak to a mortgage advisor, it's literally their job to make sure that you end up with the best possible deal for you on time and first time. That's the guarantee that I would offer to my home buyers. So yeah, if somebody does choose to go to the bank, it is typically for convenience reasons, and that's absolutely fine as long as you are aware that there's other options out there, if, which could potentially save you money and hassle.

Speaker 1: 7:34

That's good. I like the fact that you said that, because I know a few of my friends. They've gotten mortgages of companies they didn't even know existed. They know it's just like I don't know this bank was a thing, but they managed to get it because it was a good rate and their advisors told them that it was going to be good for them.

Speaker 1: 7:48

So I think I like the fact that you said that. Let's talk about mortgages on another side then. So there are a lot of fees that come with home buying. The biggest one that we know of is a deposit, so people will need to save a deposit, but what other costs would you say that first time buyers should be aware of when it comes to actually planning their savings? Because I speak to a lot of people who say, right, I don't know, I need a 5%, 10% and that's what they're saving, but there are additional costs that come with actually getting a house. What else should people be factoring in?

Speaker 2: 8:15

So you will need a solicitor to carry out all of the legal work associated with buying a home. Now, the cost of that will depend on the purchase price, the solicitor you use things such as are you being gifted deposit money? Is a leasehold property, are there any adults who are going to live at the property not named on the mortgage? There's a lot to consider there. But, yes, you should be getting quotations from solicitors, as that is a big part of the upfront cost when buying a home. In addition to that, property surveyors. So property surveyors are optional but they are advisable. Reason being you wouldn't buy a £300,000 car and not have a mechanic check it over. Yes, okay, so the are advisable. A property survey typically will cost somewhere again depending on the property and who you use somewhere between £500 and £1000.

Speaker 2: 9:00

Mortgage advice so if you are using a mortgage advisor, that can come with fees typically anywhere between £0 and £1000. When you're working with a mortgage advisor, I would always recommend asking when those fees are payable. Some advisors may charge upfront, someone decision and principle, someone mortgage offer, someone completion or a mix of a few different times. So, yeah, those are costs that we need to consider. As well as that, some mortgage products will have something called an arrangement fee. Now, an advisor will always make you aware of this and they can be avoidable. But, yeah, some products may have an arrangement fee of up to £1000.

Speaker 2: 9:39

Okay, so you need to be aware of these things as well as that stamp duty. So when you are buying a home, stam duty can be payable. Now, if you're a first-time buyer, the Stam duty relief up to £425,000. So if you're buying a property for less than that as a first-time buyer, there'll be no Stam duty. Above that, you'll begin to pay Stam duty again. But it's about you know, speaking to people, your advisor, you solicitor, knowing what the costs are and then preparing for that.

Speaker 1: 10:06

There are a lot of additional fees. That's what I'm hearing now. We need to make sure that you've got your deposit money and a separate pot to cover the additional fees that come in. Even a big one is moving costs. I think a lot of people forget that I've done this. I've gotten the property when I've actually got to move furniture in, either from wherever you've been previously living, or as a family, or Just getting new things in. That is also an additional cost that comes with it, isn't it?

Speaker 2: 10:28

It is, and as well as that, you need to consider that really you should have an emergency fund. Yes, and you know the emergency fund when you do buy your house. If your car breaks down, the mortgage lender still is still going to want their money at the end of the month. An additional thought would be typically, your first mortgage payment would be higher than the ongoing mortgage payments, so you should be aware of that, because when that first payments do come out, it may be a little bit higher than what you may be expecting.

Speaker 1: 10:54

Wow. So there's a lot to factor in here, but it's not to scare anyone, it's just so everyone can be fully aware of what they need to say. What for? I'm gonna ask you, then when is the right time to get a mortgage advisor? Because there's different times, you know. You're like some people might be at this point where they're saving yeah, they're not ready to buy just yet, but they're not too sure how much they want to save because, for example, we know there's different products in the market. When's the best time to actually seek out someone like yourself, a mortgage advisor?

Speaker 2: 11:19

So it's genuinely never too early to speak to a mortgage advisor, because just having an initial chat with a mortgage advisor, running through your income, your debts, your credit history, how many children you have, what your goals are, how much of a deposit you think you're going to have saved or you intend on having saved An initial conversation of nothing else, will just lay some foundations and give you a little bit of clarity of right.

Speaker 2: 11:43

Okay, my goals are realistic and maybe I we could carry on like this. We will be able to achieve that goal in the future. Or Maybe we need to make certain amendments reduce our debt, increase our income, improve credit file, but finding that out as early as possible gives you the time to make those adjustments to make sure that you can achieve that goal when the time comes. You know, there's nothing worse than where I speak to somebody who's maybe Dan. I found a home and I've never spoke to a mortgage advisor, but I've made an offer that offers accepted and then sometimes you know it may not be in a position to buy it, but they didn't.

Speaker 2: 12:17

They didn't realize that. So it's never too early. I would say, you know, as a minimum, I think you should be speaking to an advisor at least six months before you're planning on looking and, as I say, layer those foundations and Find out if there's any issues and if there are, you've got time to make some changes.

Speaker 1: 12:34

That's good. That's a good one so people can be aware of what they need to fix up on. I think credit is a big one that people you know you need to have it in a good place. What does that mean? What is good? Yeah, to speak to someone and you get to know what that means.

Speaker 2: 12:45

Yeah. So I would say At least I would say 50% of my home buyers have some form of adverse credit. If that's as little as one missed payment on a utility bill, I would say 50% have some form of adverse credit. Of those with adverse credit, I would say at least 50% don't fully understand what their adverse credit looks like, so they don't know exactly what adverse credit they have, whether it's an area or a default, a CCJ, and they don't know exactly when it occurred, what the figures are, when was it satisfied, and so, yeah, there's definitely a lack of awareness about that, and credit history is something that can Really have a big impact on your options and can cause restrictions. Most people don't look at a credit report until they absolutely need to.

Speaker 2: 13:29

So I always recommend download a credit report, check my file credit report, and my opinion is is the best option. It includes Equifax, experian, transunion. Now, what a lot of people don't realise is that each of those will actually hold different information about you. So you know, experian may have an area of which Equifax have missed, for example. As well as that, different mortgage lenders Will use different providers, and so, yeah, as well as I check my file, it's just, it's displayed in the nicest way, it's the easiest to read. So, yeah, I would always recommend Understanding your credit, your credit history, where that leaves you, and then again, you've got that clarity and there'll be no surprises when the time comes that's it.

Speaker 1: 14:10

That's a good one. I think that's when we all try and hit home on. Credit is so important. No one where you are knowing and like so people miss stuff. People miss phone bills. You don't realize you missed it and that it's been longed. Yeah, and that could affect you. So if anyone does anything today makes you check your credit file, go and check my file and See what's on there and if you need to make any changes, you can do so with that knowledge in mind.

Speaker 1: 14:31

Yeah let's come back to the savings element, then, of buying a house. So what is available for first-time buyers to give their savings a boost?

Speaker 2: 14:41

So the lifetime ices the big one. And so lifetime ices is essentially a savings account which allows you to save towards either buying your first home or later life. But let's talk about buying your first home. So you can contribute 4,000 pounds annually and the government will make a 25% Contribution on top of that and you don't have to contribute 4,000 pounds. It can be less, but up to so, if you do contribute 4,000 pounds per year, you get a thousand pounds top up from the government, which is essentially free money. Now, if you are buying with a partner, you can both have a lifetime ica and you really can benefit, and you know who doesn't want more money for a deposit.

Speaker 1: 15:17

I mean I'll take it.

Speaker 2: 15:18

I'll definitely take it so that's the obvious one now Considerations would be a lifetime ica can only benefit from a lifetime ica up to a property purchase price of 450,000 pounds. So if the property that you're buying is going to be more than that, then maybe the lifetime ica is not for you. As well as that, you can only benefit from the lifetime ica after you've After 12. Well, you can only benefit from a lifetime ica 12 months after you've made that first payment. So if you're looking to buy a house next week and you haven't got a lifetime ica yet, probably don't open one yet. So the general guidance is if you're thinking about buying a house in one year, two years, ten years, get the lifetime ica open, stick a pound in, get the clock ticking and then if the opportunity does arise to buy a home you hopefully won't be impacted by that by that 12 month deadline amazing.

Speaker 1: 16:08

Are there any schemes available that people can have a look at? In terms of Deposit saving it's in just in general, like go trying to get the property other okay.

Speaker 2: 16:16

So there are certain schemes and such as the shared ownership scheme, and the shared ownership scheme is essentially where you will purchase a share in the property less than 100%. Typically, that may be somewhere between 10 and 90% of the property. Okay, with that, you know, you will have to pay rent in addition to your mortgage payments, so there's a lot to consider there. But I would say first time buyer schemes are a fantastic option for those that need them. They're not a cheat code to owning a home. Not everybody should use a first time buyer scheme like that, but if you need them, they're a fantastic opportunity. And but you need to be aware of the pros and the cons, some of the terms you know. For example, some home associations will only allow you to staircase so many times.

Speaker 2: 17:01

Stair casing, by the way, is where you will purchase more shares in the property, so you can't do that year. One year, there may be a maximum of three times that you can staircase. So you need to be aware of these things. Okay, but yeah, it's a great option For those that need it. As well as that, there's certain different schemes and often run by councils of which essentially, you can buy properties at a Discount of the market value Okay, typically on new builds, but again it's can be a fantastic option. You buy the property at something like a 30% discount, depending on the council, and then you would have to sell it again at a 30% discount. Okay, there's pros and cons to all of these things, but they're great option for those that need them amazing.

Speaker 1: 17:38

Thank you so much. It's really good to know what's available, and I think Episodes like these just give first-time buyers that ease. There's so much being said online. There's so many things going on that people always think feel like it's unachievable. When you hear people like yourself talking about it feels like okay, I can actually do this, I can put together a plan, seek out the help and I can reach the goal that I want to reach, which is, hopefully, home ownership. Those people before we run off, then, dan, I want to ask you what would be your three top tips that you want to leave my listeners with when it comes to Save enough for a deposit and get an FS mortgage.

Speaker 2: 18:10

Okay. So it would be speak to a mortgage advisor early, get that clarity. It would be look after your credit history, okay. And as a third point, it would be save that deposit because unfortunately, you will need a deposit. You know, the more of a deposit that you have, the better. That doesn't mean that you're going to have to use all of that deposit, but having a little bit of flexibility in terms of him what you're going to put down, okay, that will leave you in the best position possible and yeah and sure that you're going to achieve success on time and first time.

Speaker 1: 18:43

Amazing. Thank you so much. It's been such an insightful episode for everyone listening and watching. Where can they find you?

Speaker 2: 18:48

So my main social media is Instagram, which is at dandosmore, which is Underscore, and the tag is dandosmore, which is across Facebook, tiktok, linkedin, and yeah, instagram is the main page.

Speaker 1: 19:01

Amazing. Thank you so, so much for coming to the podcast until everyone listening and watching. Thank you again and we'll back again at next week. Have an amazing episode. Bye, guys.