(Elizabeth told me in a separate Ask that it was okay to share this publicly, I asked as I thought others might benefit from this information too.)
Congrats! It’s a big step, but a smart one if you can do it right. I’m going to assume you looked at a bunch of “top five tips to buying your first home” articles on google, so I won’t waste your time with “get pre-approved, make sure you get a home inspection, blah blah blah”. Instead, these are the things that might have been passed over in those articles.
You live in England, but I only know US laws covering mortgages, so I don’t know that all of this will apply in the same way, but…
Put down as much as you can. In the US, if you put less than 20% down, you have to buy “Private Mortgage Insurance” or PMI. PMI protects the bank from you not paying and them having to sell the house at a loss. It does nothing for the buyer, but the buyer has to pay for it! PMI is typically 1% per year of the home’s value, so a $200,000 house would cost $2,000/year extra to cover with PMI.
Once you’ve paid off 20%, you can then legally cancel the PMI, but it’s a pain in the ass. You have to send a notarized letter to your bank requesting that the PMI be canceled, and you have to pay for a new formal appraisal of the home, which could take months and cost a couple hundred dollars. Meanwhile you’re still paying the PMI bill every month, and PMI expenses are not tax deductible like regular mortgage interest is. PMI is a heavy tax on those who want to buy before they’re financially ready.
Also, the more you put down, the less interest you’ll pay over time. With current interest rates (between 3.5% and 4.5% for those with good credit), even if you put down 20%, over the 30 years you have the mortgage you’ll end up paying twice for your home. $200,000 in principal, and another $200,000 in interest. In the US, the interest is tax deductible usually, so that helps. But it always hurts to see that total payment amount.
Making extra payments when you have the spare cash helps greatly too. If you make an extra payment early on of, say, $500 with your Christmas bonus or whatever, that actually reduces the total amount you pay by $2,000! (because you’re paying interest on $500 less principal over 30 years, so early extra payments are worth three to four times the actual dollar amount in the long run, it’s the easiest way I know of for you to triple your money!)
Because this is your first house, you should be buying a starter home. Keep your expectations realistic. House Hunters and other HGTV shows make the $600,000 homes look like the minimum starting point. They are not. That is super luxury in most areas. Those houses make good TV, but not so great starter homes. My first house, the starter home, was a $135,000 townhouse. When I sold that, I used the equity plus a couple years of great appreciation, to buy a much nicer $245,000 single-family home. And in five to ten years I’ll probably roll this house and its appreciation over into a $400,000-ish forever home. But I didn’t start in the forever home! There are mortgage calculators online, they are all free, use them to figure out what kind of housing costs you can easily afford. Don’t stretch. All-in, your housing payments (principal, interest, property taxes, and insurance) should be less than 30% of your take-home pay.
Don’t forget about maintenance. A quick rule of thumb is 1% of the cost of the house per year budgeted for maintenance. So again, a $200,000 house would require an average of $2,000 per year in maintenance costs. Most years will probably be less, but then bam, you’re hit with replacing the roof or something and you need every penny of that annual $2,000 you didn’t spend in earlier years. This is also a good time to mention having a healthy emergency fund. A house is a huge purchase, and you don’t want to default on that because your car breaks down and you can’t balance the books at the end of the month and make your mortgage payment. I’d recommend a minimum of 3-6 months of expenses in cash.
….Some of that might have been discouraging, and the earlier years will probably be a little tight, but remember that with inflation, after ten years or so your house payment will look like a joke. Your income will rise while your mortgage payment is locked in. Rent costs for everyone else will continue to go up every year while your mortgage payment is locked in. Basically the first two or three years will typically be the hardest, and then inflation catches up and housing costs will be less and less of your take-home pay every year (as your take-home pay should rise and, say it with me, your mortgage payment is locked in).
And the absolute best part is - after the mortgage is paid off, you never have another housing payment, ever (aside from property taxes of course, no one can escape those… but your renting friends will be paying property taxes too, it’s just bundled into their rent price, so they pretend they’re not paying ‘em).
I hope that helps a little. I was kind of firing into the dark as I don’t know which area you might be looking for specific help with. Feel free to hit me up again as you have other questions. Have fun and good luck! =)