6 Top Tips for First Time Buyers

Don’t like reading articles, click here to watch the video.

First Time Buyers really are the life blood of the property market. They push the whole market along from the bottom up. In 2007 181,000 first time buyers purchased a house now it is only 86,000. Unsurprisingly during the recent property boom they started to feel priced out of the market, however, lenders offered loans without them needing to put down any deposit and hence many could still make that step onto the first wrung of the property ladder. Mind you if they ended up with a 100% mortgage in 2007/8 I expect most of them would have wished that they had not bothered as they would now be unable to remortgage and most likely in negative equity.

Following the credit crunch things have changed for good and for the good. Landlords are now acting as the slightly dampened fuel for the property market, buying up houses traditionally purchased by first time buyers which in turn allows the previous owners to move up the property ladder. The combination of more people renting and record low interest rates has meant that in all areas of the UK it is now cheaper to pay a repayment mortgage than it is to rent. On top of the immediate monthly cost is the far more important factor of actually one day owning your own house meaning that you do not have to pay rent in retirement and in effect live in poverty when you should be enjoying your golden years. Finally renters often have nothing to leave on their death and hence do not help their children by allowing wealth to cascade down generations.

A recent survey entitled “Generation Rent” stated that 77% of people still aspire to buy their own home, so the demand is still there. If you are one of the 23% who are happy as a life long renter then this article is not for you. All I can say is when you are making that decision make sure you consider the long term consequences of never owning your own home rather than just the short term benefits.

The crazy thing is that 61% of first time buyers want to avoid the stress and anxiety they associate with buying yet only 9% of them were actually taking any advice. At Simplicity we will help you build a strategy that would end in home ownership perhaps years before you actually end up buying.

Enough of the prologue now to my 6 top tips...

Bank of Mum and Dad

Some say that due to your parents living through a time of unprecedented property price rises, jobs for life and decent pensions, they owe it to their children to give them a hand up. Others feel that the option of not helping your children buy a house could well mean that they end up eventually living in retirement poverty and hence if they loved you they would help. I feel that these are both sound arguments but maybe the bank of mum and dad should be approached using less emotional tactics. Your parents do not need to have £30,000 just lying about in an account entitled “Son / Daughter’s deposit”, if they do great but the chances are slim. They can help you get on the property ladder in several ways. They could put a part of their home up as security so that your lender would lend you 100%, (several lenders are now doing these innovative loans designed specifically to help first time buyers on to the property ladder). They could borrow the deposit against their own home and either gift it to their child or loan it whereby their child could pay the interest back to them every month and then when they have enough equity in their own home they could remortgage and repay their parents. Other options exist as to how parents can help their children get on to the property ladder and at Simplicity we are happy to work with you and your parents to find a solution that works for all parties.

Buying at the best possible price

Being a first time buyer means that you have nothing to sell and hence are not involved in a chain that could potentially collapse or massively delay completion. Estate Agents and vendors do not like chains. Also you are often very flexible as to how quickly or slowly you can move. It is not all about saying “I can complete in 4 weeks” when some sellers may not be in any rush to sell but may want to know that they definitely have a buyer. I believe this puts you in a position where you should look for at least 5% off the purchase price. If they are unwilling to play ball then move on, it is a buyer’s market!

Before making an offer make sure you have your finances and potential mortgage sorted. Again Simplicity will help you with this.

Beware of long term deals

If you are only putting down a 5, 10 or 15% deposit be careful to committing to a mortgage that ties you in for 4 or 5 years. Effectively you may lock yourself into a higher interest rate deal for longer than necessary. It might make sense to go for a 2 year deal and during that time to overpay your mortgage and add value to the property so that when “re mortgage time” comes in 2 or 3 years you could move from a 90% loan to value deal to a far better priced 85% or 80% deal. Again this strategy needs the involvement of a specialist adviser as for some people a longer term fixed rate deal may offer them the payment security they require.

Don’t go direct to your bank

Some banks say they like to give extra, I think the truth is that they would prefer to take extra. Banks rely on customer loyalty from current account holders to then sell a raft of overpriced mortgage and insurance products. A bank has to offer you the best mortgage or insurance product from their own limited stable of products, an independent adviser has to do the same from the whole of the market. This is not to say that you may not get lucky and by chance walk into the bank that is offering the best mortgage for your circumstances and qualify for it but it is unlikely. The very best independent advisers will search the whole of the market and if it is best for you to go and deal directly with a bank they will tell you this and often charge you a fee for doing this, but the net result is you will save thousands in interest and save a lot of time.

Consider buying with friends or renting a room

You do not have to do this alone. I live with my brother, his wife and his kids along with my wife and children. It is a very happy arrangement both personally and financially. You could also consider renting a room out to a friend to help you pay the mortgage. The government offer a “rent a room scheme” that allows you to rent out a room and receive £4,250 a year tax-free.

If you consider either of these options make sure you take decent legal advice when you structure the purchase and have an insurance policy that allows you to rent a room to a paying lodger.

Understand the incentives available

Home builders and the government offer various schemes to encourage affordable home ownership. These incentives often replace or vastly reduce the need for a deposit and can be good options for the right type of person wanting to buy in the right area in a property that qualifies. As you can imagine this does vastly reduce the number of properties available but is still well worth considering.

One such scheme is known as FirstBuy, the government and home builder will offer you a 20% deposit (repaid when you sell your home) and then you only need a 5% deposit to give you access to the very best 75% loan to value mortgage.

Finally, not really a tip just a blatant plug for business. Before you do anything you should contact Simplicity either by visiting our website or calling us directly on 08456886168.