Why now is the best time to be a first-time buyer – and how you can afford to do it
NOW is the perfect time for first-time buyers to make that first step onto the property ladder thanks to cheap borrowing and slow house price growth.
Interest rates on a whopping 95 per cent of the top deals that require just a 5 per cent deposit have fallen, according to experts at financial analyst Defaqto.
A year ago the average interest rate on a two-year fixed-rate mortgage with a 5 per cent deposit was 3.95 per cent while today it is 3.23 per cent.
These mortgages are typically used by first-time buyers to get on the housing ladder because they require a small deposit with people borrowing the remaining 95 per cent.
Meanwhile, the number of properties coming onto the market has fallen for the past eight months consecutively, according to the latest figures from the Royal Institution of Chartered Surveyors (RICS).
Defaqto says this means first-time buyers with a mortgage in place and no property chain are in the prime position to snap up homes for sale.
According to Halifax, the average first-time buyer paid £212,473 in 2018.
Katie Brain, insight analyst at Defaqto also points out that the Government’s Help-to-Buy Isa scheme, which boosts first-time buyers' deposits – is ending on 30 November.
Although it has been replaced by the Government's Lifetime Isa (Lisa), which also pays first-time buyers a bonus on cash saved for a home.
'Now is as good a time as any to buy'
Mark Harris, chief executive of mortgage broker SPF Private Clients, believes it's impossible to time the property market but says now is as good a time as any to make a purchase.
He said: “There is always much debate as to when is the perfect time to get on the housing ladder.
"It is very difficult to time the market so as a general rule if you have found a property that you wish to buy, and you can afford to do so, then now is as good a time as any.”
Mr Harris flags that first-time buyers in England and Northern Ireland can benefit from no a stamp duty exemption on properties worth up to £300,000.
He adds that there is also a wide range of mortgage deals that may appeal to first-time buyers.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. There's a maximum limit of £3,000 which is paid to your solicitor when you move. Help-to-buy ISAs are available until 30 Nov 2019. If you open one before then you can continue to save into the account. You must claim your bonus before December 2030.
Help to Buy equity loan – The Government will lend you up to 20 per cent of the home's value – or 40 per cent in London – after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.
He said: “Lenders are being more innovative when it comes to schemes aimed at first-time buyers such as joint borrower, sole proprietor mortgages.
"This is where you buy with a parent who goes on the mortgage but only you go on the deeds so that you can benefit from the parent’s income to get a bigger mortgage but also don’t miss out on stamp duty exemptions.
"Or Lloyds' Lend a Hand and Barclays' Family Springboard mortgages where parents offset savings against your mortgage so you don’t need a deposit, but they get their money back at a later date.”
'First-time buyers could buy something today that is cheaper tomorrow'
But property expert Henry Pryor is highly critical of Defaqto’s sunny forecast for first-time buyers.
He said: “It is b******s. These are all flashing red lights on the economy dashboard.
“This is a really uncertain time in the housing market. The people who are most vulnerable are first-time buyers who could easily buy something today that is cheaper tomorrow."
He adds that the equity loan version of the Help to Buy scheme has in fact been pushing up house prices.
How to calculate what mortgage you should get
THE exact amount you can borrow will depend on the type of mortgage and the lender.
Government help site the Money Advice Service has a simple mortgage calculator which gives a rough guide to how much you could afford to pay each month.
Often, hopeful home buyers forget about stamp duty – but consumer group Which? has a useful stamp duty calculator
Meanwhile, for super savers comparison service MoneySuperMarket provides a helpful mortgage overpayment savings calculator
He said: “Help to Buy is like the crack cocaine of the housing market. It is something we got addicted to, it’s bad news. It jacks up house prices.
"It was a very good idea at the time – it gave lenders confidence to lend more money without demanding buyers stump up a significant deposit.
"The problem is that you end up with a new build which has a new build premium of roughly 10 per cent. Once you have slept in it, it is worth 10 per cent less.
"When you want to move on or pay off the equity loan element the Government now has, the people you will be selling to won’t have the benefit of Help to Buy – how are they going to be able to pay the price you did? They won’t.
"I think there will be many people who have taken out one of the Government’s very generous Help to Buy offers who will end up with a millstone around their neck.”
And he has a word of caution for first-time buyers taking out a mortgage with just a 5 per cent mortgages: “Mortgage lenders are getting ever more creative – or more like desperate – to find ways of lending money.
"You would think after the credit crunch 10 years ago they would have grown up but yet again we see they are back to their old tricks. Their business is selling money.
"Al Capone would blush at some of the policies.”
'Don’t fall for what lenders and your parents are telling you'
Both experts agree that first-time buyers shouldn't rush into buying without making sure their sums add up first.
How to boost your chance of getting a mortgage
FIRSTLY, check your credit score.
Noddle gives you free for life access to your score and report.
You can boost your credit score by being on the electoral roll.
Check past addresses and relationships on your file – if you’re financially linked to a former partner, for example you held a joint bank account with an old flat mate where you may have been jointly named on the utilities bills, their credit rating can impact on yours unless you’ve de-linked yourself.
Stay out of your overdraft – some lenders may not tolerate you being in your overdraft at all in the last three months before you apply for a mortgage.
Close unused credit cards – available but unused credit available can be seen as a negative, as you could borrow large amounts on a whim without passing another credit check.
Apply for a credit card if you don’t have a credit score. Be careful, though: set up a direct debit to clear the balance in full each month.
To decide what mortgage to get use websites such as Moneyfacts.co.uk and MoneySupermarket.com to find the best deals. You should also consider a free-to-use whole or market mortgage broker.
An extra £100 can secure a mortgage – putting down 0.1% per cent more than the minimum deposit can boost your acceptability, or cut the amount of documentation the lender wants to see.
Mr Harris said: “Do not overstretch yourself. Be realistic about your budget and how much money you need to live on.
"It may be tempting to put all your savings into the property and take on the biggest mortgage possible but you still need to live each month.”
Mr Pryor added: “Don’t fall for what lenders and your parents’ generation are telling you – that you must own your own home.
"The word mortgage comes from the French word for death – mort – that’s how serious this is. Nobody should be rushing into it without carefully considering what the implications are.”
Here's why MoneySavingExpert.com founder Martin Lewis reveals why now is the time to fix your mortgage and save £1000’s.
Plus, here are the 10 reasons why you might be rejected for a mortgage – and how to increase your chances of getting accepted.
And these are the £120,000 homes first-time buyers can afford WITHOUT putting down a deposit.
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