Becoming a first time Buyer

Introduction

Becoming a first time buyer can be a challenge for many people, not only is it the largest financial commitment you will have made in your life, pressures for first time buyers are bigger than ever.

Most estimates say that house prices have risen some 187% since the mid 90’s, combined with increased unemployment and risk of redundancy and increased borrowing costs the age of first time buyers is rising while the number of them is falling.

With all these factors all to much in the front of First Time Buyers minds, combined with a bewildering choice of products many give up before they have even started looking.

The key to be coming a first time buyer is planning.

Its all well and good to decide you want to get on the property ladder, much as I would like to be a billionaire! Unfortunately its is how were the difficulties arise.

Deposit

The first option for most first time buyers to consider is family assistance. For most first time buyers buying a property is impossible without the support of family or friends for deposit monies. In fact recent data suggests that most first time buyers receive in the region of £17,000 from parents and immediate blood relatives to help them onto the property ladder. Despite such assistance the average first time buyer is borrowing a 3.2 income multiple which to date is the highest figure on record, and is set to increase.

Buying With A Friend

Another option becoming popular, especially in isolated economic zones such as London, is buying with a friend (co-habitation or joint purchasing). This type of arrangement brings its own set of difficulties that must be planned around very carefully. This arrangement will cost more up front in legal fees as contractual agreements will need to be drawn up.

Joint Ownership

Joint ownership is becoming more and more popular and is now coming in a few different flavours. The basic idea is that when you purchase the property, the property developer or housing association will retain a percentage share (Usually between 75% and 25%), you therefore only need to seek mortgage borrowings to the extent of the percentage you are purchasing. We will be creating an entire section on joint ownership soon so keep checking back regularly.

Guarantors

Besides help with the deposit, you could also consider asking your parents or immediate family  to be a guarantor for your first time buyer mortgage. This is no small commitment so it should not assumed that someone will be willing to be your guarantor, after all you are asking, “  I owe a hundred grand, if I can’t pay will you cover me?” . Now that you know what your asking for you probably know how  to ask (links to interflora and Thorntons are at the bottom of this page). To explain the agreement in its formal terms, a guarantor is a protection for the mortgage holder whereby a nominated parent or guardian is responsible to pay your mortgage should you be unable to make the payments. Whilst these are one of the best options for first time buyers, because of the commitment you are asking for it is not available to everyone.

What Type Of Mortgage

Whilst you may be thinking, “whatever’s cheapest” you should consider things a little more carefully and the answer you will come up with is BUDGETABILITY. Whilst it may seem attractive to get a tracker that has a low rate, what if the bank of England decide to really combat inflation and whack interest up to 12%, its not fun re-packing as soon as you’ve unpacked!

As such most first time buyers opt for a fixed rate, allowing them to be confident that for the next 2years (or 5yrs is another common fixed period). Although the rate will be slightly more expensive than other mortgages, it provides the assurances that a tight, first time buyer budget needs. Once this fixed period is up though, you should immediately re mortgage, visit our remortgaging advice pages to find out more about what to do when your fixed term is up.

Summary

As we have explained, there are ways for first time buyers to get on first rung of the property ladder, its more a question of knowledge and planning. It is best that you seek professional advice about your first entry to the property market from one of the many reputable mortgage brokers out there.

News

Nationwide Offers First Time Buyers a Discount

Friday 16th October
The nationwide today has stepped forward with 2 new offers to help open up the market for first time buyers.

The offers are as follows; a £500 discount off any reservation fee’s or a £250 discount off reservation fee’s and no legal’s to pay.

The offers are available on The Nationwide’s 3, 4 and 5 year fixed rate deals and also on its 3 year tracker deal.

Mortgage director at Nationwide, Andy McQueen, said: "We are reducing the amount that [first time buyers] need to pay upfront and so hope we've removed a barrier which may have prevented people from buying a home ."

The move will be welcomed, however the true barrier to first time buyers at the moment is the excessive deposit amounts required by all major lending institutes, making a £500 discount as practically useful as a £5 reduction for most.

Coalition to Fight Stamp Duty Formed

Friday 16th October
The National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents have formed a coalition named “1808 Coalition” after the date Stamp Duty was introduced.

The two groups and of course the coalition they form, believe the reinstallation of Stamp Duty at its normal levels will be detrimental to First Time Buyers and Buy to Let Investors.

Stamp duty, which is normally in place for transactions on residential property above £125,000 in value has for some time sat at £175,000 in a bid to re-light the fire under the housing market, however it is due to return to 125,000 on December 31st this year.

Stamp duty is applied to the total sum paid in consideration for a property where that sum exceeds the threshold. For example on a property transaction of £190,000, £1,900 is due in stamp duty (1%), not as many believe 1% of the sum exceeding the threshold i.e. £15,000 (£190,000 - £175,000) or £150 in stamp duty.

Chief executive of the NAEA, Peter Bolton-King, said: "Stamp duty is a barrier to entry for many first-time buyers and is also prohibitive for those looking for a step up the property ladder . The time has come to re-assess Britain's most unpopular tax."

Whilst we cannot agree that it its the most unpopular tax (recent surveys show 31% of respondents take the most displeasure in paying inheritance tax, compared to a mere 23% loathing Stamp Duty) however we support their call for an extension to the raised threshold as in the current market conditions, all stops should be pulled in efforts to draw in first time buyers, life blood, into the market.