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First-time buyers (FTBs) priced out of the property market are now being new opportunities to own a home – thanks to lower mortgage rates for borrowers with small deposits and a new government scheme.
Last week, Clydesdale and Yorkshire banks, part of the same group, cut rates for those with a deposit of between 5 per cent and 10 per cent, while HSBC launched fee-free mortgages for those who can afford to save only 10 per cent of a property’s purchase price.
At the same time, Nelson McCausland, the social development minister, announced that the government’s FirstBuy scheme, which provides a five-year interest free loan to help provide a deposit on a new-build home, would be extended to Northern Ireland and another £3.25m made available.
However, these are not the options for FTBs struggling to meet lenders’ strict deposit and income criteria.
Ben Thompson, managing director of Legal and General Mortgage Club has set out these top ten tips for FTBs:
1. Look at all the options available to you
When you’re looking for a property, don’t discount repossessions and properties at auction – these can sometimes be a cheaper option for FTBs. But do as much research about the area and the type of property you are interested in before the auction, because it can be a risky choice as you are usually unable to get the property surveyed before bidding.
2. Prepare thoroughly
Whether you are applying for a mortgage in person – on the phone or online – have all your details to hand when you speak to the lender. There is nothing more frustrating than having to go back and forth looking for information you could have found earlier. Also, when completing any forms, don’t leave anything blank, as this could mean having to go back and redo the application again.
3. Explore shared ownership
Shared ownership allows you to own a ‘share’ in a property with another party – usually a Housing Association – with you paying rent to them on their share of the property. You can normally increase your share in the property as time goes by if your financial situation improves. This is called ‘staircasing’ and could lead to you owning 100 per cent of the property.
4. Shop around for the best mortgage rate
Beware so-called ‘cheap’ mortgage rates on the high street and don’t be tempted to simply take a loan out with your bank manager. By simply inputting a few details about your personal circumstances and preferences into an online comparison website, you will be provided with a list of possible mortgage deals to consider. They usually allow you to compare loans by type, features, maximum loan-to-value, overall cost and, most importantly, interest rate and standard variable rate.
5. See an independent mortgage adviser/intermediary
In today’s high-tech world, there are many online comparison sites and best buy tables designed to guide you towards the right mortgage for you. In reality some or many of these headline rates won’t be suitable for you and can often lead to disappointment. It pays to seek independent mortgage advice, as this will not only provide you with the greatest levels of choice and lowest cost, it will also save you a lot of time as well, leaving you free to house hunt.
6. Look into a HomeBuy scheme
You could get help to buy a home through one of the Government’s HomeBuy schemes. They are open to households earning less than £60,000 a year who would otherwise be unable to buy.
• HomeBuy Direct: help to buy a property on certain developer sites through a loan of up to 30 per cent of the property’s value.
• New Build HomeBuy: helps people to buy a share of a newly built property and pay rent on the remainder.
• Rent to HomeBuy: allows tenants to pay 80 per cent or less of the market rent, in order to help save for a deposit.
7. Write a budget plan
There are many factors you need to consider when working out what you can really afford on a monthly basis. These include ’money in’ such as your salary, gifts, interest from savings and any other income, and your costs ‘out’, such as food and drink, rent or mortgage payments and entertainment. If you add up your personal and home costs and take the total away from your income, then you should know if you can manage, have a shortfall or have any funds left over.
8. Make sure you save
You will usually need to put a substantial deposit down on any new home – but that makes the amount you need to borrow less. You should start now and get in the habit of trying to put some money away each month. Many lenders would like you to put down at least a 15 per cent deposit of the total cost of a property. There are a few lenders offering mortgages requiring only a 5 per cent or 10 per cent deposit – but remember that, generally, the less deposit you have, the higher the rate you will pay. Over the past few years, the average deposit FTBs have put down is between 20 per cent.
9. Beware of hidden costs
There are a number of other one-off costs that you will have to budget for. These may include stamp duty, depending on the price of the house you are buying, Land Registry fees, legal fees, and property searches. Make sure you factor in all these costs when budgeting.
10. Buy with someone else
Taking out a joint mortgage (or joint ownership in Scotland) can make the buying process easier – for example, buying with parents, friends or a partner can actually ease the financial pressure. But remember relationships can change and circumstances alter, so you might want to get legal advice before deciding which type of ownership is right for you. If you do decide to buy with someone else, you might want to get a contract drawn up saying who has contributed what, and what you will do if someone wants to move out or sell up.