It’s harder than ever for young people to get on the property ladder. In some parts of the country you need as much as 13 times your salary to buy an average house in the area.
That means that it would take most 18-to-24-year-olds 22 years to save up a 10 per cent deposit to buy a home in Britain, according to Aldermore Bank.
Despite this, more first-time buyers than ever are getting on the ladder.
That’s because there is a lot of help available – if you know where to look. We’ve produced the ultimate guide to buying your first home – from Help to Buy to shared ownership and beyond.
In our six part series we’ll be looking at the best ways to save for a deposit (and get free money along the way), learn how to give those savings a handy boost, provide expert tips on how to make yourself more mortgage-friendly, and all those sneaky extra costs you need to think about.
Boost your deposit savings
Many young people are having to rely on the generosity of parents to find a deposit, and the Bank of Mum and Dad is now Britain’s sixth largest lender.
In addition to parental support there are several government schemes on offer to give first-time buyers a helping hand. Each has a different set of criteria that needs to be met.
Here is a brief introduction to the schemes – click through for a definitive rundown of how they work, when they end, and their drawbacks.
Help to Buy Isa
Wannabe homeowners saving their pennies into a Help to Buy Isa receive a 25 per cent bonus on their money from the Government. There’s a limit to how much you can put in a month, and the maximum top-up you can receive. But despite all this free money, there are downsides to it.
Alternatively, those saving for their first home could open a Lifetime Isa. You can add up to £4,000 a year into the Isa and the Government will top it up with an extra 25 per cent (so up to £1,000 a year). There is no upper limit to the amount of bonus you can receive and you can keep saving until the age of 50. However, there are restrictions to when you can withdraw the money that will cost you.
Help to Buy equity loan
Using the Help to Buy equity loan you can borrow from the Government up to 20 per cent of the cost of a new-build property. After that you’ll need a 5 per cent cash deposit and to take out a mortgage for 75 per cent of the property’s value to make up the rest.
You pay no fees on the government loan for the first five years of owning your home. In London you can borrow more: up to 40pc. But what are the drawbacks to the hugely popular scheme, and what should you know before taking the leap?
This scheme allows you to buy part of a property – between 25 and 75 per cent – then pay rent on the rest. The deposit you put down is based on the share you are buying, so someone buying 25 per cent of a home would only need to put down a deposit on that proportion.
Buyers then have the option to “staircase”, meaning that they keep purchasing a greater share of the house and gradually reduce their rent as they do. Should you use Help to Buy or shared ownership?
What about when they end?
Some of the schemes will soon be coming to an end soon, so you should learn about them sharpish.
Help to Buy is ending in 2023 (and there is no sign yet if it will be replaced). In 2021, there will also be more restrictions added to the current rules. The Help to Buy Isa is also ending this year; click here to find out more.
Amplify your savings
For years interest rates have been at historically low levels, offering savers pathetic returns on their money. Here’s how to boost your savings and make your money work harder.
Is buying the right choice?
Aside from the lifestyle benefits of having a permanent place to call your own, there are many financial upsides to buying your own home.
This year Halifax found that the average person saves £366 per year by buying rather than renting their home. In 2007 the saving for homeowners was as high as £900 per year. The average monthly cost of a mortgage on a three-bedroom home was £729 at the end of 2018 – £30 less than the average monthly rent for a similar property.
Getting your first mortgage
Unless you’re lucky enough to have a spare £300,000 or so lying about, chances are you are going to have to take out a loan to cover the cost of your home. Most first-time buyers will pay for just 5 to 10 per cent of the full value of their home in cash as a deposit, then borrow the rest.
You can either go through a broker, who will compare different deals, or direct to a lender – we’ll be looking at the pros and cons of each option in our guide to getting a first mortgage.
There are certain criteria that lenders take into account when they calculate how much you can borrow, but even if your salary isn’t enough to qualify for a loan on the house you want to buy, there are ways to make yourself more mortgage-friendly.
Don’t forget the extras
There are many added costs entailed when buying a house, aside from its outright price. Make sure to budget for things such as conveyancing, legal fees, home insurance and stamp duty if you are eligible to pay it.
First-time buyers in England or Northern Ireland pay no stamp duty on homes worth up to £300,000. For properties up to the value of £500,000, you only pay stamp duty (at a rate of 5 per cent) on the amount over £300,000. So for a £450,000 home you would pay stamp duty on £150,000, which works out to £7,500.
Those buying a property worth over £500,000 do not qualify for first-time buyer relief and pay stamp duty at the standard rate.
How to make a good investment
Once you know that you are able to buy, choosing what and where to purchase your first home can be a minefield. For such a significant investment it’s important to look for places and properties that will retain their value.
There are a number of things to bear in mind: in large new-build developments, where homes often look very similar, try to choose a property with positive features that set it apart. This could be a good view, proximity to green space or a development with an interesting history such as a conversion of an old building. Having a USP will make the property easier to sell on in the future.
“Even in a bad building there are good flats that will hold their value, and even in a good building there are bad flats,” suggests Roarie Scarisbrick, partner at Property Vision, a buying agency.
Leasehold or freehold?
Buyers should also pay attention to whether they are purchasing a leasehold or freehold property. Owning the freehold means that the building and the land it stands on is yours outright. With a leasehold property, you own it on a lease from the freeholder for a set number of years.
This puts certain restrictions on your rights as an owner and generally means having to pay maintenance fees, annual service charges and an annual ground rent. Most flats are owned on a leasehold basis while most houses are freehold.
Do you have any more questions about buying a first home that we haven’t answered in the series? Send them over to firstname.lastname@example.org.