First time buyers - A modern day fairytale?
Published ¤ 15/06/2011 20:30:46
For some the prospect of buying a first home can feel like a distant dream. The news is filled with stories of lenders withdrawing mortgage products, and the risk of negative equity is enough to stop anyone in their property hunting tracks. Yet, with lower house prices and property appearing like it is still the best long term investment, why not take the plunge?
There are a few points that all first time buyers should consider if, or indeed when, they embark on this wondrous journey. Firstly, and most importantly, deposits! Save, save, save (alternatively beg and borrow from loved ones, for instance the "bank of mum and dad"). With the disappearance of 100% plus mortgages, all lenders now want to see evidence of a deposit (and therefore security on the part of the borrower) before they will consider lending. In fact the highest rate available (on the market today) to first time buyers is 95%, so how would you fund the remaining 5%?
Guarantor mortgages may offer a solution to those struggling to purchase. Some lenders have become quite innovative with one lender offering the opportunity for parents to place 20% of the value of the property on deposit (with an attractive savings rate), whilst the child provides 5%. The lender then in return offers lower lending rates ordinarily available to borrowers of 75% loan to value (as opposed to 95%). These schemes do expose both the child and the parents to the risk of borrowing, so all aspects should be carefully considered.
Another option may be to consider gifted deposits. Many developers, in order to sell their current developments and help their cash flow, offer funded deposits of 10%. What a great way to help secure your first home; someone else provides the cash upfront! Buyers however, in this situation, should proceed with caution, as this could significantly reduce the number of mortgage schemes available and independent advice should always be sought.
Alternatively, share to buy (the pooling of resources with friends) has often been a successful way of securing a property. Many lenders now have the facility to consider shared purchases and it may be a way of increasing your deposit and thereby reducing the loan to value ratio. As with most circumstances it is crucial that you seek the best impartial advice on all aspects of this method of purchasing. A comprehensive legal agreement between all partners would be a wise move to ensure that all obligations under the mortgage are met, that all parties are aware of their share and stake in the property and what should happen in all eventualities such as one person wanting to move out.
Shared ownership can also provide a solution. By purchasing a house with a housing association, you can own a proportion of a property and rent the remaining share. These schemes offer limited availability and you would need to check eligibility with your local housing associations.
Finally, there are a few government backed schemes that may offer an opportunity to buy. Known as HomeBuy, the government now offers 2 schemes: Equity Loan where you get a loan towards the purchase price with no fees for the first 5 years; Shared ownership where you buy a share of your home and then pay rent on the remaining share. With both of these schemes, specialist and independent mortgage advice should be sought.
Ultimately the aspiration of owning your first home often far outweighs many of the intrinsic pitfalls. Whatever your motivation or route to owning your first home, seeking the right advice on all aspects is vital! Your solicitor or conveyancer and your mortgage adviser should become crucial allies when taking the leap. The very best of luck to you!
If you are thinking of buying your first home, call PKS now to discuss your options. We are one of Hampshire leading independent mortgage brokers, and we will help you every step of the way. Call the number at the top of the page, or click here to send us a message.
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