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Essential Help and Advice for First-Time Buyers

Phi Spencer

By Phil Spencer

Buying a first property is exciting, nerve-wracking and the first step to independence for many of us. But it can be fraught with difficulty if you’re not careful. Here’s some essential help and advice for first-time buyers.

It’s tough, but not impossible

The age of the average first-time buyer today is 32 (in London) and 30 for the rest of the UK.

While it’s more expensive to buy a home nowadays, it’s not impossible – and it’s getting easier than in the recent past. According to the Halifax 2017 First-Time Buyer Review 10% more first-time buyers (or 155,000 individuals and couples) picked up the keys to their new home in the first six months of 2017 than they did in 2015.

Is society to blame?

For the past couple of decades young people have been putting off buying homes until their late 20s or 30s as they focus on attending university then getting a foothold on the career ladder.

Moreover, according to research carried out by Countrywide, one in five homes today are owned by a company landlord. These non-owner/occupier landlords hold onto property and continue to rent it out year on year – slowing down the property market.

Mortgage finance

Raising enough money for a deposit is tough. And no wonder – a Halifax report in June 2017 showed the average deposit is now a whopping £33,000. That’s because most mortgage lenders like a loan to value (LTV) rate of around 80% (although some lenders have been offering 90% mortgages in recent years and their numbers are increasing).

As house prices rise so too does the amount needed for a deposit. Hamptons reports it takes around 12 years for a typical single buyer to save a 15% deposit for their first home. There are exceptions to this though, one of which is the government’s Help to Buy scheme.

Help to buy

Help to buy offers first-time buyers in England up to 20% of their property’s value to put down as a deposit (that figure rises to 40% for London due to higher property values). This means the borrower only needs to save for a 5% deposit in order to get a 75% LTV rate. Though the buyer needs to have a clean credit history, no county court judgements within three years prior to application and the property’s value is capped at £600,000.

Similar schemes exist in other parts of the UK.

Stamp duty

There's good news for first-time buyers when it comes to stamp duty. In the Autumn Budget 2017, it was announced that first-time buyers wouldn't need to pay any tax up to the first £300,000 on their home.To be eligible, you and anyone else you're buying with must be a first-time buyer.

Changing the first-time buyer mindset

Time and time again first-time buyers claim they don’t buy because they can’t afford to invest in an area they’d like to live. Instead of opting to buy further out or in an area less desirable, they choose to rent in their favoured area instead. Instead of giving them leverage to finally attain their own home in an area they want to live, this makes the chances of buying a home even less likely.

Better options for first-time buyers:

  • Move as close to your desired area as possible
  • Check out where the next up-and-coming area is going to be and move there instead
  • Buy something less expensive and renovate it

So, where to start …

Finances

  • Always have mortgage finance in place before you seriously look for a property. According to a recent Council of Mortgage Lenders (CML) report the average buyer spends around 17.7% of their income on mortgage repayments
  • The size of the property deposit affects this figure as does the length of time the mortgage is for
  • Then, there’s the added expense involved in setting up a home (ie TV packages, decorating etc.), as well as monthly outgoings. Deduct these from your salary after tax and that’s the amount you can afford to put down on a mortgage.

Location

  • If a quick online search reveals nothing much in the area you like, don’t give up. Remember, when renting you’re using your hard-earned cash to pay off someone else’s mortgage. Make it your own. House prices will rise further than inflation as time goes on because people are willing to pay as much as they can possibly afford to live somewhere they like.
  • With the help of a map look towards the outskirts of your favourite area. You’ll find there’s a lot of people have moved here because, like you, they couldn’t afford the centre of town either. This is how other desirable areas are created.
  • Even if you can’t afford your next preferred area, keep going. You will eventually find somewhere you like. Be prepared to compromise though – do you want a small flat in a preferred area or a larger flat or even house in a less desirable area? It’s your shout. Think of your choice as like a triangle with each side something that’s important for the whole – budget, space and location.

Friends’ mortgage

  • Another solution – and it’s one which makes sense to many people, especially those working in one of the UK’s larger cities – is to buy with friends (or family). It makes owning your own property more affordable (even if it is a 50% or even 25% share) and gives you that much-needed step up to the first rung.
  • It’s much easier these days to get a mortgage for this kind of shared property venture. Prior to going looking for a flat though, make sure you have a legal agreement written by a lawyer and outlining everyone’s share of the property, as well as what happens when someone moves out or wants to sell their share.

Guarantor mortgage

  • This is when a parent or close friend/family member agrees to make the mortgage repayments if the borrower can’t.
  • The deal is set until the borrower manages to get his mortgage LTV down to around 80%.
  • Some Guarantor mortgages are for 100% where the guarantor puts their own property down as security.

Family offset mortgage

  • A family member puts money into an account which is linked to the borrower’s mortgage. These savings can be offset against the mortgage so it’s more manageable for the borrower.
  • The borrower must put in 5% deposit of his or her own money.
  • Once the lender is satisfied with the LTV rate the family members receives their savings back, plus interest.

New times require new measures (as the above two new mortgages show) however, the same principle applies as it did in the 90's when the Thatcher government began encouraging people to buy their own homes – that home ownership always makes more financial sense than long-term renting.

Buying a house for the first time? Find out everything you need to know about your prospective area with a property report, with information on everything from crime rates to local schools. Get your full report here. 

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