Are you unsure about becoming a First-Time Buyer? Research shows that the average homeowner could be better off by £352,500 over the next 30 years. This is in comparison to the average private renter! (Source: Intermediary Mortgage Lenders Association, October 2019)
That figure is comprised of the £133,700 the average homeowner could expect to save when paying for a mortgage rather than rent over that period, plus the additional £218,800 of equity gained from paying off that mortgage.
It doesn’t include any possible house price inflation over the 30-year period. Historically house prices have risen at an average of around 4.3% a year over the last 30 years. Although growth is far more subdued at the moment, at about 1.9% nationally, that will still add considerable wealth over time. (Sources: Nationwide, House Prices, to Q4 2019, and January 2020)
Getting the Deposit together
So what’s stopping renters becoming a first-time buyer? Some will prefer the flexibility renting provides at this period in their life. Others will be concerned that they may not meet the more stringent controls that are now in place for mortgage lending. Do talk to us if that’s your concern. But possibly the biggest stumbling block is the struggle to get together the deposit.
Fortunately, the government and marketplace recognise this. There are Help-to-Buy (or similar), alongside normal lender products, schemes on offer that only require a 5% deposit.
Additionally, if you have just a 5% deposit, and opt for a Help-to-Buy (or similar) scheme, generally for new-build properties, then the government would loan an extra percentage enabling you to access the better Loan-to-Value (LTV) deals on offer. Broadly, the lower the percentage of funds you require from the lender, the lower the interest rate may be.
The Bank of Mum & Dad has been increasingly used to help get the deposit together. In 2019, the average contribution from mum, dad, other family members and friends amounted to a sizeable £24,100. This assisted almost 260,000 property purchases. (Source: Legal & General, Bank of Mum & Dad, 2019 report)
Some parents might be wary of providing a deposit for a child who may be moving in with a partner, should they break up down the line. We can advise on other ways that financial support could be provided, such as acting as a guarantor, which might provide some ring-fencing.
Outside of this, options such as shared ownership might also be worth investigating, which could help reduce the upfront costs.
Our offering for the First-Time Buyer
The irony for many will be that they could be paying more on monthly rent, than they would for a mortgage, proving they can afford the payments – but unfortunately, it’s not as simple as that!
To take the first step onto the property ladder, it makes sense to have a conversation with us as early as possible in the decision-making process. We would help navigate you through the affordability, evidencing of income and credit rating hoops, and identify some of the decent deals that are available to you.
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