The profile of first-time buyers has changed. No longer just people in their early twenties or young professionals looking for a first home, many are older people with settled work commitments and possibly families of their own. ‘Generation Rent‘ - people who face the prospect of renting indefinitely – is a concept that just won’t go away. And no matter what your circumstances, buying a home for the first time can be a daunting prospect.
However, it’s not all bad news. Getting your first home can be an exciting and liberating move. And the government, mortgage lenders, house builders and sellers all have the same interest – to get you onto the housing ladder. So, if you’ve read our “Rent vs Buying Guide and decided that buying is for you, let us help you plan the way forward with this first time buyers guide.
Getting on the Housing Ladder
We have general mortgage advice in our Mortgage Guide. There are many different products and schemes available, but since the size of the deposit is a crucial aspect for first-time buyers, and generally the key to getting a good mortgage deal, here are some tips for first-time buyers to help them make the most of their financial position:
Getting the deposit: Maximise your savings potential
1. Stop renting
Recent research published by the homeless charity Shelter in 2013 suggests that the average deposit required to purchase a home can take buyers 10 years to save up. The high cost of renting can leave tenants with little left over to save towards buying a house. Consider whether you could save on rental by moving in with family for a limited period, though make sure you discuss up front what your contribution to the household budget will be. If friends have a spare room to rent, consider whether you might live with them to increase your savings potential. Of course, these options apply mainly to single people rather than families with children, although if there is an option of living with grandparents for a while, this can bring benefits all round, as long as everyone is flexible about sharing space and household responsibilities.
2. Cut household costs
It may be possible, with a landlord’s agreement, to share your living space with a lodger, if your lease permits you to do so. The Rent-a-room scheme allows homeowners and permitted tenants to take in a lodger and earn up to £4,250 a year tax-free, or £2,125 if you are letting jointly. This can be an attractive option for people in social housing who are affected by the so-called “Spare bedroom tax“. There are also now a number of websites available that allow you to advertise rooms for free.
3. Rent for less
Reducing your rental costs can rapidly improve the amount you are able to save towards a deposit each month, by downsizing, making do with a smaller home in a cheaper area for a limited period. You may be able to save on travel costs, council tax and utility bills by moving to another property, without having to leave the area altogether. Another, more unusual, option might involve moving into a property as a housekeeper, housesitter, ranger or live-in guardian of an historic property.
4. Trim your budget
The instability and cost of renting, coupled with the difficulties of getting onto the housing ladder, can encourage us to live in the moment and stop thinking long-term. But it is worth considering whether your budget can be trimmed to make more room for savings. Cutting outgoings long term can help with the cost of house buying and set up responsible attitudes towards finance that can last a lifetime. Take a long hard look at outgoings and social expenses, and use the many comparison websites to make sure that you are not paying over the odds for fuel and lighting, mobile and broadband, as well as insurance and other regular costs.
5. Get the most from savings
Consider how to grow your savings and find the right type of savings account. Making sure any savings you have are held in accounts with a good interest rate is a must, as is ensuring that you get the most from tax relief entitlement on savings. Using your full ISA allowance can mean that you retain all the interest your savings earn, helping you move as quickly as possible towards the deposit you need to buy your first home.
Key issues to consider before going ahead:
Get a mortgage in principal agreed before you go looking for your first home. There is a whole range of mortgages available and the market is very competitive, so consider whether you can find the best deal from a bank, mortgage adviser, broker or Independent Financial Adviser (IFA). Check what lenders have to offer specifically to first-time buyers and in the case of brokers, check whether they advise on products from a selection of lenders or from the whole market. Once you have a mortgage in principle agreed you will know how much you can afford to spend, and can avoid wasting time looking at homes beyond your budget.
Consider what kinds of expert advice are available, for example if you are considering alternative ownership options or buying property via auction, as well as which government schemes if any might apply to you.
Do as much research into the area as possible. Local newspapers and property portals will help you gain an insight into the local market. If property is out of your price range, consider an alternative area or maybe buying with others. As a first time buyer you may also be able to capitalise on a seller who wants a quick move, as you are not attached to a chain.
Cutting the cost of property:
Although house prices can seem beyond the scope of most first-time buyers, given the large deposits required to gain access to good mortgage deals, exploring all the options for help could succeed in reducing the financial burden significantly:
1. Homeownership schemes
There are government-sponsored schemes such as the Help To Buy Scheme available to help first-time buyers with home purchase, by providing either an equity loan an equity loan towards the house’s purchase price with no fees for five years, or allowing for shared ownership, where you buy a share of the home and you pay rent on the remaining share.
First-time buyers should be aware, however, that this may help them to buy a new-build home but may not be suitable for those looking to buy older properties. Concerns have been raised over the new schemes announced at the start of 2013 that government help is also enabling lenders to help would-be landlords (through buy-to-let mortgages) rather than first-time buyers seeking a way out of renting, putting a further squeeze on the availability of affordable properties.
2. Negotiating on the price
Now you have done your research and feel more confident about the value of housing locally, don’t be afraid to negotiate on the price when making an offer. New-build developers and other sellers can be eager to sell so it is worth looking for a bargain. Research the sales history of the area and the property itself. If sales have been sluggish, ask yourself why that might be. Remember that as a first-time buyer, you have the potential advantage of not being in a chain, which can appeal to house sellers.
3. Cheaper buying options
If you do your research, and get expert advice from someone who knows the system, buying a house at auction may be an option for a first-time buyer, though be aware that the purchase process is very different from conventional house buying. For example, it may not be possible to obtain a survey before bidding. Once you know what you are doing, however, the process can move very quickly, often an advantage for a first-time buyer who has the financing in place and no chain to hinder them from moving.
Another option to buy property at cheaper prices involves repossessed properties. Again, expert advice is important, as although such properties may have been vacant for some time and be in need of repairs to make a suitable home.
4. Ownership alternatives
There are alternatives to buying alone, including buying with parents or friends. This can make buying a first home more affordable, though it is crucial to obtain advice about what the fall-out would be from changes in circumstances of either or both parties. Ownership forms include a joint mortgage (joint ownership in Scotland), which involves buying with others and for which a contract between the parties to agree what happens if one party moves out is probably a good idea, beneficial joint tenants (joint tenants in Scotland), where property is jointly owned with no specific share for each partner, tenants in common (joint tenants in Scotland), in which joint owners have a specific share in the property, which they can give away or sell or leave to someone if they die. Another option is to buy with parents, who may help by providing financial contribution to the deposit. This does not have to mean that ownership of the property is shared. Parents can act as guarantors for a mortgage, where their income or assets are taken into account, to enable first-time buyers to borrow more or at a better rate.