The thought of buying a first time home can be daunting, and it used to be an important milestone in someone’s life, the benchmark for the crossover into being an adult and self reliant. However, housing prices are soaring. The deposit that is needed to secure that all important mortgage is huge and this has made achieving this milestone extremely tough.
Here I have put together a handy guide with some common questions about that all important first jump onto the property ladder.
How much can I borrow?
“Most first-time buyers we have seen have probably been taking mortgages of between £200,000 and £400,000, and then whatever cash they have been able to get together as a deposit is added on to the purchase price,” says Adrian Anderson, of the mortgage broker Anderson Harris. The best mortgages with the cheapest interest rates are reserved for people with the largest deposits, so the more you have as a down payment the better. One-bedroom flats in the Hungate development in York start at £181,500 (Lendlease)
How can I increase my deposit?
“What we always hear from first-time buyers is the difficulty of saving a deposit,” says Jeremy Leaf, a north London estate agent. Mortgage brokers say most first-time buyers they help have received money from parents or grandparents, yet there are other ways to boost your deposit. These include government savings schemes such as the Help to Buy ISA and the Lifetime ISA. They enable the government to top up your savings by 25 per cent when you come to purchase your first home.
The Lifetime ISA will be available from April 2017. Although the details are awaited, it will be open to those aged between 18 and 40 and will generate up to £32,000 of additional money for those who save the maximum amount.
The Help to Buy ISA is already available. It is aimed at those aged 16 and over, and up to £200 can be saved each month. The maximum government bonus is £3,000 — and that is for each saver. A couple could claim £6,000. At present there is market-leading interest available through Help to Buy Isas, with the best interest rate from Barclays, at 2.27 per cent.
I still can’t save enough — what else can I do?
Another option is to take out a loan for the deposit from the government. This is available through its Help to Buy equity loan scheme, which runs until at least 2020. You have to save 5 per cent of the house price as a cash deposit, with the government lending you up to 20 per cent outside London, or up to 40 per cent in the capital. The scheme can be used only on new-build properties by housebuilders that offer it.
Oliver Johnson, 30, and his partner, Amelia Blake, 23, were able to buy a one-bedroom apartment in Bute Gardens, west London, costing just under £600,000, with the deposit loan scheme. They took out a 40 per cent loan from the government and used it as a down payment on the flat. It added £200,000 to their budget, plus their own 5 per cent contribution. First-time buyers do not have to pay back the 40 per cent loan until five years after they have bought their home.
How else can I get a larger mortgage?
You can also try to take out a larger mortgage with another government scheme, the Help to Buy mortgage guarantee. However, you will have to be quick because it closes on December 31. Lenders will provide mortgages worth up to 95 per cent of the value of a house, so you need only a 5 per cent deposit. The government acts as a guarantor for the loan, which means that banks are willing to lend first-time buyers more than they used to. You can buy a new-build or an existing home.
The scheme is useful if you already have a 5 per cent deposit and your salary is high enough for a lender to give you a mortgage on the rest of the property price.
What about buying with friends?
Nick Jones, 29, and Jon Hamshaw, 30, became friends at university and, after sharing a rented flat, decided to pool their resources to get on the property ladder. They are among an increasing number of friends and siblings who are using their combined salaries to make mortgage calculations work.
They found a two-bedroom apartment at the Guinness Homes Titanium Point development in Bethnal Green, east London, and each put down £20,000 as a deposit. They took out a mortgage to achieve the £590,000 needed to buy the property. They had previously been paying £800 a month each for a two-bedroom flat in nearby Whitechapel. Now they have reduced their monthly outgoings by £200 a month. “There is no way we could afford to buy a property individually, so I thought, ‘why not invest together?’,” says Jon, a software developer. “It is great that we are actually saving money each month. I am looking forward to putting my own stamp on our apartment without having to get permission.”
How can parents help?
In many cases, even if a parent can help with a deposit, it is still not enough for a first-time buyer to take out a large enough mortgage. So what are gaining popularity are joint mortgages, which combine a parent’s and child’s salaries. The child is listed as the sole proprietor on the property title deeds, avoiding the extra 3 per cent stamp duty that, since April, has been applied to those who already own a home — the parent is usually a homeowner. “The main lender to offer these mortgages is Metro Bank. It is done where the parent still has a good income,” Anderson says.
Mortgages for first-time buyers (95 per cent loan-to-value)
- Discounted variable deals
2.84 per cent, Tipton & Coseley building society, until December 31, 2019
2.94 per cent, Tipton & Coseley building society, until December 31, 2018
3.04 per cent, Hanley Economic building society, two years
- Fixed deals
3.5 per cent, Furness building society, two-year fix
3.69 per cent, Yorkshire building society, until January 31, 2019
3.99 per cent, Newcastle building society, until March 31, 2022
Are you currently in the process of buying a house? Do you have any questions I haven’t answered? If so, then please go to my contact page and get in touch!