In the past ten years Britain has experienced a property boom, a property crash and a dramatic change in the housing market, making it harder for many people to get on the first rung of the property ladder.
The days of the widely available low cost mortgage might not be with us any more, but that doesn’t mean owning property is impossible.
This blog is a short guide for prospective first time buyers who are looking to invest in bricks and mortar.
Saving a deposit
Early this year there was some sobering news for house buyers, when it was stated that an average deposit was now over £70,000.
This staggering sum is due to the introduction of the stringent new lending rules imposed by the Treasury, to ensure that borrowers can repay their loans.
If you live in Wales the situation is not quite as dire, with the average house price (calculated in April 2015) at £117,000, and a deposit of 30 percent coming to a total of £35,100.
If you are single, this will mean saving from one income. Couples, with two incomes, obviously have something of an advantage. You may be looking for answers to the question ‘How do I reduce my mortgage payments or at least spread the cost?’
This has led some groups of friends saving for properties together, and has also resulted in more people living with relatives for longer in order to afford a deposit.
You will need to take into account all the additional costs and charges that are incurred during the purchase of a house, from stamp duty to solicitors fees.
Stamp duty is a tax payable on all residential properties with a value of £125,001 or more.
The amount of stamp duty due is calculated as a percentage of the property’s value, and there are several thresholds, depending on the value of the property.
Between £125,001 and £250,000 stamp duty is two percent of the property’s value. Property value from £250,001 to £925,000 has 5% stamp duty, £925,001 to £1.5 million has 10%, over £1.5 million its 12% stamp duty.
Often mortgage lenders will include the cost of solicitors fees for conveyancing (the legal process of purchasing a property) into the mortgage itself. You should calculate the cost of this over the life of the mortgage and decide whether it is cheaper to pay the solicitors fees yourself. Another cost that often gets rolled into the mortgage is the surveyor’s fee.
Without a survey of the property, most lenders will not consider offering a mortgage, they need to know that the house is not going to start falling apart days after you move in.
Again, make sure you calculate over the long term how much this will really cost you and then make your decision accordingly.
Help to Buy
The best news for first time buyers facing exorbitant costs is the government’s Help To Buy scheme. Help to buy is not just limited to first time buyers, but they can access it to purchase any property up to the value of £600,000.
The scheme works as follows. Buyers are expected to put down five percent of the property price, so on a £200,000 house that would mean a deposit of £10,000.
This would be matched by a loan from the government of 20 percent or in this example £40,000, for which borrowers will not be charged for the first five years.
Thereafter they will pay a fee of 1.75 percent of the loan’s value. There will be a variable fee based on the rate of interest in subsequent years.
The more you pay off the actual capital of the loan, the lower the annual charges will be.
Banks may look more favourably on borrowers if they are backed up by a relative offering to stand as a guarantor.
This means that if the borrower defaults, the guarantor agrees to take on the loan repayments. Parents with equity in their own homes may well be the best people to offer this kind of guarantee.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE