Three Important Steps to Help You Buy Your First Home

Buying your first home is a significant milestone, and it can feel overwhelming if you don't know where to start. Fortunately, there are small but powerful steps you can take now to set yourself up for success in the future. I've teamed up with the National Literacy Trust and Experian to help you understand some of the language around home ownership and share valuable tips to help you on your journey to owning your first home.

Step One: Build a strong credit history

One of the first steps you can take is to get a credit card and use it for small purchases. This might seem simple, but it's a crucial part of building a strong credit history. When you pay off your credit card in full every month, you demonstrate to lenders that you are responsible with money. This can significantly improve your credit score over time, making you a more attractive candidate for a mortgage.

A strong credit history shows lenders that you can manage debt effectively. It indicates that you are likely to repay loans on time, which is essential when applying for a mortgage. By starting with small purchases and consistently paying off your credit card, you lay the foundation for a solid credit profile. (You can learn more about building a credit history in our article with Chris Grimes from last year here.)

Step Two: Talk to your bank about potential savings options

There are numerous options for saving with your bank, so make sure to talk to them directly to find the best ways you could start saving. For instance, if you're over 18, opening a Lifetime ISA (Individual Savings Account) is one of the smartest ways to start saving for your first home. A Lifetime ISA allows you to save up to £4,000 per year, and the government will add a further 25% to your savings. This means you could receive up to £1,000 in government bonuses each year, significantly boosting your savings.

The Lifetime ISA is designed to help first-time buyers save for a deposit on their home. The money you save in a Lifetime ISA can be used towards the purchase of your first home, giving you a substantial financial advantage. Additionally, the government bonus can help you reach your savings goals faster, making home ownership more attainable. You can find out more about Lifetime ISAs directly from the government here.

Step Three: Save for a bigger deposit

The size of your deposit can have a significant impact on the mortgage rates you unlock. This is referred to as your loan-to-value (LTV) ratio. The LTV ratio is the amount of your loan compared to the value of the property. The smaller your loan-to-value ratio, the lower your interest rate will be, and the smaller your monthly payments will be.

By saving for a bigger deposit, you can reduce your LTV ratio and secure better mortgage rates. This means you'll pay less in interest over the life of your loan, making your home more affordable in the long run. Additionally, a larger deposit can give you more negotiating power with lenders, potentially leading to more favorable loan terms

Taking small steps

Taking these small steps now can put you in a much better position when it comes time to buy your first home. Building a strong credit history, opening a Lifetime ISA, and saving for a bigger deposit are all strategies that can help you achieve your goal of home ownership. By being proactive and making smart financial decisions, you can turn the dream of owning your first home into a reality.

Remember, the journey to home ownership is a marathon, not a sprint. Each step you take brings you closer to your goal. With the right approach and a bit of patience, you'll be well on your way to buying your first home.