By Frances Traynor
9th January 2018
The challenges facing first-time buyers are twofold: supply and finance. We can't do much about increasing the availability of properties to buy, but we can help explain the different options available to first-time buyers to get a mortgage and get on the housing ladder.
If you have already found a property you want to buy – and you know you can afford both the deposit and the mortgage payments – your next step is to secure a mortgage. Most of the big lenders will allow you to check online if you fulfil their criteria, giving you an idea early on in the process how much buying will cost.
The biggest financial barrier for first-time buyers is getting the deposit together.
You will need at least 5 percent of the purchase price as a deposit – the days of 100 percent mortgages are, if not quite over, almost ancient history – but the truth is that the bigger the deposit you have, the better chance you have of securing a mortgage. Research shows that it can take a single first-time buyer more than a decade to save a 15 percent deposit, but there is some help available.
A quick Google search of "first-time buyers mortgages" produces about 18,500,000 results. That's a whoel lot of information to wade through and a lot of potentially wasted time while you figure out which lender or mortgage is right for you.
An independent financial or mortgage adviser can certainly cut through much of the extraneous information that's out there and narrow the appropriate lenders down for you. You need to make sure your adviser is genuinely independent - some are restricted to a specific lender or lenders and ideally you want to access as many lenders as possible. The Financial Conduct Authority offers advice on how to source the right independent adviser for you.
For those who cannot get together a deposit on their own, there are several options that will still get you on the housing ladder. Shared ownership is one of them. In this government-backed scheme, you buy a share of a property - between 25 and 75 percent - and pay rent on the remaining share with the option to buy the rest when you can afford it. You may be eligible if your household earns less than £80,000 per year or less than £90,000 if you live in London.
The shared ownership scheme applies to newbuilds and to existing properties being re-marketed by housing associations.
The equity loan, another element of the government's portfolio of help-to-buy schemes, will give first-time buyers up to 20 percent of the cost of a newbuild so they only need to find a 5 percent deposit with a mortgage paying for the rest. In London, the equity loan will cover 40 percent of the value, reflecting higher property prices in the capital.
The equity loan is interest free for the first five years so, if you can, it's a good idea to repay the loan within that time. After that, you will pay interest on the loan at a rate of 1.75 percent plus 1 percent, a fee that will increase annually.
Part repayments on the loan are known as "staircasing", where you gradually decrease the amount you owe to the government and gradually increase your total share of the property.
Until you repay the loan in full, the government will own a percentage of it, so when you come to sell or pay off the mortgage, you will have to pay that remaining percentage.
If you're a first-time buyer, check out Homeward Legal's comprehensive First-Time Buyers' Hub where all your questions about purchasing for the very first time are covered in detail.
Frances Traynor Conveyancing Expert
Homeward Legal has put together some handy guides to help you with your first property purchase. Let us know if there is anything we've missed, and as ever, feel free to call 0800 038 6699