Top Tips For First Time Buyers
Buying your first home can be a hard enough process at the best of times
, but in today's rapidly growing market it is more difficult than ever. Property prices, especially in the cities, have soared beyond expectations - leaving many first-time buyers literally out in the cold.
To make matters worse, very few mortgage products have evolved to compensate for the dramatic incompatibly between house prices and wages. Some products, such as 110 per cent loan-to-value mortgages and five times annual salaries, do exist, but they tend to mean more risk for the buyer rather than for the lender.
However, it is perhaps the sheer competition that poses the biggest problem for potential buyers. Block viewings are not uncommon, whereby perspective purchasers simply view the house as a group, and then race to be the first to put in an offer. If a member of this group is a professional developer or cash purchaser, then it is not unusual for the first-time buyer to be left behind.
Social impact
It is entirely possible that the struggle many first time buyers are experiencing to buy their first property will hit harder than first thought. Property ownership is important, whether as a secure nest egg for retirement or as a way to make a small fortune.
Not having the security of having fully paid for your own home by the time you reach retirement can have a dramatic effect - especially with pensions not performing as well as they once did.
In the somewhat nearer future, the difficulties caused by rising house prices will cause problems elsewhere too. The economy will slow down as families, now having to save more, will have less disposable income, and as they can no longer afford to educate their children how they wish, or use private healthcare, the education system and the NHS would feel the strain too.
Where will it all end?
The government has launched some new initiatives and strategies to help first time buyers and combat the consequences of rising prices. The rise of the stamp duty threshold to 175,000 and the introduction of Home Information Packs are both intended to help this group of buyers especially, and along with this are new rules governing local authority searches, drainage and water searches - which all must be carried out by the vendor. All service charges are completely transparent for leasehold properties. In addition to this, an Energy Performance Certificate (EPC) will be included with every property, meaning that buyers will be able to easily see how much it will cost to run their home.
Aimed at key workers, the Shared Ownership Scheme (see below), implemented by housing associations, is a great way for low-paid employees to get their first property, in another innovative move by the government.
Despite these strategies, the onus on first-time buyers ultimately lies with the first-time buyers themselves. Getting on the housing ladder is a difficult process, but with a little innovation, research and effort, it is not an impossible one.
Ways to get on the property ladder
Despite all of the depressing facts and figures, worry not. There are still many ways that first time buyers can get on the property ladder with a little time and thought.
1. Save! This may seem obvious and a little old fashioned, but it is often overlooked for these very reasons. Perhaps harder than it once was due to increasing rent prices, saving up enough money to buy a first property is still possible if you're willing to make a few sacrifices: ditch the studio apartment for a room in a shared house, or - even better - move back in with your parents for a while. The money you save on rent will really give you some results in your savings account, and if you're willing to take on a second part-time job as well then you'll be well on the way to your first property purchase in no time.
2. Borrow - Many lenders now offer five times your income, and some even offer tailored graduate and professional products. Increasingly, mortgages are available over longer terms, with some lenders offering loans of up to 40 years. Of course, you will be paying thousands of pounds extra in interest - but there is nothing stopping you remortgaging to a shorter term after a couple of years. Obviously, the younger you are the more eligible you will be for such a long loan. If these are still out of your range, consider stretching yourself initially with the view of taking a secured loan out on the property as soon as you have completed. Bear in mind, however, that this will land you in negative equity immediately - and if the market crashes you may remain there for some considerable time. See our Types of Mortgage Fact Sheet.
3. Bank of Mum and Dad - It might be well worth having a chat to your parents, as many will appreciate how difficult it is to get on to the property ladder and will be willing to offer some help. There are many ways that they could do this, from matching your savings to becoming guarantor on a mortgage - meaning that they would be liable if you were to miss a monthly payment, although to be eligible for this they must have at least 30 per cent equity in their own property. Another option that you might consider with them is the possibility of transferring some of their equity into your new home - on the understanding that you buy them out as soon as you can.
4. Co Buying - There are a few things to take into consideration if you are thinking about buying with a relative, friend or even a stranger. Although it can be a fantastic way to pool your resources and reduce your monthly payments, you need to make sure that legally you are fully covered. You must get a Deed of Trust to establish legally who owns what percentage of the property as well as a watertight contract, and if you have a traditional mortgage it is important that you register as Tenants in Common rather than Joint Tenants to ensure that your co buyer doesn't automatically inherit your half of the property. There are, however, mortgages available that are specifically tailored to co buyers. All things considered, however, this is a really great way to get on the property ladder as it means you'll have much more money to put down as a deposit - as well as someone to help with the DIY!
5. Buying at Auction - You can find some really great deals at auctions, and although the days of real bargains may be over when it comes to property, many homes will still be very affordable and reasonably prices. There are a few things to consider first though, and organisation is key here: strict rules state that as soon as you have won an item under the gavel, the ten per cent deposit must be paid there and then, so getting the survey done before the auction is vital. Another point worth mentioning is that you only have a further 28 days before completion, so getting an efficient solicitor is important. You can see our Buying at Auction Guide for more information.
6. Buying in a Different Area - Getting on the property ladder doesn't have to mean moving house yourself, and if you're tied to one part of the country because of work that doesn't prevent you from buying a house elsewhere and then renting it out. Property in other parts of the country - or even abroad - can be a lot cheaper, and this way you'll be able to own some property without having to pay the prices of where you're currently living - particularly good if you want to stay in London, for example!
7. Rent-a-Room - The Government's rent-a-room scheme enables you to earn up to an extra 4,250 per annum tax free if you have a lodger - which is great news if you know you're going to have trouble with monthly payments. Because the price of a property with two bedrooms is never a vast amount more than with only one, this could be a really good way to supplement your income and allow you to buy your first home.
8. Renovate - It may be a daunting prospect for many first-time buyers, but purchasing a home that needs work can be very lucrative. The cost of a kitchen or bathroom are less than you might think, therefore giving you the opportunity to add value to the property. Don't be put off by competition from developers either - in order for a developer to make a profit they need to buy the property at a bargain price due to all of the red tape involved. You, however, won't be selling your home immediately and so don't need to realise an immediate profit. Basically, renovating on a small scale can give you the look you want at a price you can afford.
9. Buy off-plan - The trick to buying a home off-plan is timing. Generally speaking, buying off-plan secures you a property for the future at today's market value. While this makes good sense, there are further advantages to be made if you buy wisely. Developers rely on cash flow, and there are key times when this is more true than others - namely as soon as the project is released and when it is nearing completion. Even if the asking price is fixed, you may be able to negotiate on fixtures and fittings, not to mention the deposit and stamp duty.
10. Avoid Stamp Duty - The current threshold for stamp duty is 175,000, so if you buy any property under this amount you won't have to pay it. In some areas of the country it will be difficult to find a property for under this amount, especially in, say, London, but there are stamp duty exempt areas - of which you can find a list on the Inland Revenues website (www.hmrc.gov.uk/so/dar/index.htm).
11. Choose Your Mortgage Carefully - There are loads to choose from, and much more to consider than just the amount you must pay back each month. If you need to cut back on initial expenses then you should look around for a mortgage that doesn't incur any arrangement or administration fees, of which there are plenty - but if you can't find the perfect product you could always ask to add the fees onto the mortgage itself. Although of course this will increase your monthly payments a little, it does mean that you won't have to raise so much cash at the beginning of the process. Have a look at our Choosing a Mortgage Fact Sheet for more information.
12. Negotiate - Being a first time buyer gives you quite a big advantage when buying your first property. Your vendor may have found their dream home and do not want to lose it, so in order to sell their property quickly they might be willing to accept a slightly lower offer. The fact that, as a first time buyer, you are not in a chain puts you in a great position and allows you to haggle a little on the price.
13. Shared Ownership Schemes - These schemes are generally run by housing associations, and work by allowing you to buy a share in a property and pay rent on the remaining balance. Over time you can buy more shares or the whole property outright as and when you can afford it, and it's a great way for those who cannot afford to get onto the property ladder to begin purchasing property. Aimed mostly at key workers such as teachers and NHS staff, it helps those who earn less to get their foot in the door. One thing worth mentioning, however, is the fact that should you decide to sell, he housing association will have first refusal.
14. Rent-to-buy - A relatively new concept in the UK, rent-to-buy enables you to rent a property with half of your monthly rent being put aside on your behalf for a deposit in a few years time. As with buying off-plan, the advantage of this is that you secure the property's price at today's market value, with the added bonus of not throwing money away on rent in the meantime.
15. Ex-local authority - Buying an ex-local authority property has numerous advantages, perhaps the most attractive one being price. Recent statistics state that previously owned council homes can be up to 20 per cent cheaper than their period counterparts simply because of their "lack of character". In addition, proportions are always generous - especially when compared to today's new-builds. Finally, outdoor space is more often than not catered for, even if it is only in the form of a balcony.
16. Compromise - Finally, perhaps the best advice is to re-think your needs and make compromises in order to get on to the property ladder. While two bedrooms may be vital, do you really need a garden? Or perhaps outdoor space is a must, in which case would it be possible to find some room for the desk in the lounge? You're more likely to find what you want for the right price if you're willing to be flexible, and after all - your first home is unlikely to be the one you'll spend the rest of your life in.
by: Jake Stevens
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