Challenges facing first time buyers are not unreported and continue to be highlighted as the latest English Housing Survey has revealed there are now, for the first time, more owner occupiers that own their home outright than owner occupiers paying off a mortgage*.
What are the challenges?
The property that would be considered suitable for First time buyers also makes excellent buy-to let- investment property, particularly for entry level investors, which adds pressure to the already insufficient supply.
Tighter lending criteria
The Mortgage Market Review has meant more stringent tests for mortgage applicants, this should make for a more stable lending with less chance of defaults but it has drawn out the lending process and created more hoops to jump through and more preparation than was required in the past.
Price of Property
Properties in this area are notoriously more expensive than some other regions of the country. Property value has increased in this area by over 20% in just 21 months (GU Q3 2013 with Q3 2014 Land Registry Data). Read more about GU house price growth here.
Although employment is healthy, wages are not increasing at the same rate as property values leading to an ever increasing gap in affordability. One of the tools for assessing how much a lender will lend is application of a multiple of income. Lenders may apply different multiples to different parties in a mortgage too so there’s no clear cut rule. As a starting point 3 or 4 x earnings is a good approximate starting point for a rough calculation. E.G. If you are earning £25,000 per year and the lender applies a multiple of 4 they might lend £100,000, add to this your cash contribution e.g. £11,000 to buy a property costing £111,000. Within a 5 mile radius of Fleet this could purchase a one bedroom apartment in some areas or a slightly larger new part ownership property.
If buying with a friend or partner the lender may apply different rates to each income. For example a £25000+£15000 combined income may not entirely have a multiple of 4 applied to reach a loan of £160,000, it may be lower such as in the region of £140,000. Add to this a deposit from two parties e.g. £20,000 to increase buying power to around £160,000, though in this area you would still start with a 1 or 2 bedroom apartment.
For more information speak to a Mortgage Advisor such as Andrew Fagg from Davenport Financial Management. For a quick check try Money Saving Expert’s calculator.
Saving for a deposit
The high cost of living including rental payments for a current home can reduce anyone’s ability to save a substantial sum of money. Living at home with parents longer and frugal living are the only ways to cut down living costs and increase opportunities to save and grow savings.
20% off new First-time buyer homes
First-time buyers under the age of 40 can now register with the new starter homes scheme to benefit from the opportunity to buy new homes built on brownfield sites at 20% below ‘market price’. Find out more about the Starter home initiative.
Good fixed rate mortgages if you can get a deposit
A competitive mortgage market has led to some of the best mortgage deals available for some time. These include very low fixed rates over long or short term and lending to first time buyers up to 90% of the property value, or even more.
The Help to Buy scheme is still running with homes available with a deposit of just 5% under the Equity Loan or Mortgage Guarantee system. Read more about Help to Buy.
Register with local Estate Agents
Once you have established what you are able to afford with a mortgage provider and where you want to look, contact estate agents in the area to register your interest in buying property. Make sure you are among the first to find out when a suitable property comes to the market as there is high competition among buyers for first-time buyer property.