Fascinating blog post from our client – Mark Jennings
FIRST TIME BUYERS & THE PROBLEM WITH MORTGAGES
Looking to get on the property ladder but it just seems a distant dream? Well, you are certainly not alone and with increasing deposits and stricter mortgage rules, it seems that generation rent could be here to stay for a while.
In recent years, we have seen successive Governments throw all sorts of schemes at the property market to try and help you on the ladder – help to buy, shared ownership and removal of stamp duty up to £300,000 recently. All of these however ignore the main issue and hurdle that you face as a first-time buyer – namely mortgages.
In the past, a mortgage of 4.5 times your income over a 35-year term may have worked perfectly for all those aspiring home owners. Times have changed however, and the continual rise of property prices coupled with the lack of change in mortgage products mean that the mortgage market is not in step with the property market. That in a nutshell is the problem you face as a first-time buyer.
SO, WHAT IS THE SOLUTION?
In the ideal world, we would see the mortgage market begin to shift and change it’s products to fit the property market and the people like you who want to be a part of it. However, in post credit crunch Britain, with regulation and caution the main buzz words, I wouldn’t hold your breath. Whilst longer term mortgages (after all why could someone aged 25 not have a mortgage over 50 years), more generous affordability calculations and a possible return to 100% mortgages would certainly help you, I think we are currently some way from any of those, let alone all 3, coming anytime soon.
So, let us assume that no changes are coming to the market anytime soon to provide you with a magic wand to buy your first property. What can you do to get on the property ladder now?
The first step is to sit down with a mortgage expert who has a comprehensive understanding of the market and identify where you are now and what needs to be done to make sure you are mortgage ready. If you are self-employed this is even more critical as all lenders will treat your income differently, so we need to prepare for this. Whilst internet search engines are wonderful, they are not sophisticated enough to match you to the right lender!!!
Once you are mortgage ready, we then need to establish your likely deposit. If like most people, your rent costs and living a little have meant saving is very difficult, please don’t be despondent. Not having a deposit is not necessarily the end of your hopes.
For instance, Tesco Bank will allow you to borrow up to £25,000 for the purposes of setting up home – borrow this over 10 years at a rate of 4.98% and you are looking at a monthly payment of £264.97. There are a number of lenders out there who have no objection to a personal loan being used as deposit as long as you disclose the loan as a commitment at application.
So, you now have your deposit, what next. Let us assume that you are looking at a property in the region of £150,000 you would need to raise a mortgage of £125,000. In terms of cost, if we assumed a 2-year fixed rate mortgage at a rate of 1.54% (currently available at the moment), the initial monthly payment over 35 years would be £385.18. There would also be a £999 lenders arrangement fee, but this can be added to the mortgage.
If you look at the above example, taking the monthly payment of the personal loan (£264.97) and adding that to the initial mortgage payment (£385.18), means that your combined payment before any other household costs would be £650.15 per month and most people pay much more than that in rent.
Obviously, if you do have even a small level of savings available this will help either in going towards the purchase price or covering some of the other costs (EG legal work).
Please be aware that I am not providing any specific advice with the above information or telling you what to do, I am just trying to get across the importance of looking at all options available and not believing the media hype that you are doomed for a life of generation rent. The key to all of this is to be sure you can afford the monthly payments and to be fully aware of what your payments will be when your mortgage deal ends.
A BIT MORE ABOUT ME
I have been in the property industry for 16 years from sales to mortgages and it is my aim to help first time buyers, people looking to move, first time or experienced investors secure their next property with minimal stress and reduced cost. As such, I can help you with all of the following;
- Negotiating the best price
- Securing the right mortgage
- Professional conveyancing
- Appropriate surveys
- Utilities & insurance.
For more information, please feel free to call me on 07738 121 202 or email me at firstname.lastname@example.org