In a recession, lender’s enthusiasm to lend to First-Time Buyers tends to wane. The upside for the first-time buyer is that property prices generally drop – yet the opposite is occurring at the moment!
That said, the government recognises that the first-time buyer is an important cog in helping to keep the property market moving. To assist this process there are various government schemes across the UK that are designed to help get the first-time buyer onto the property ladder.
When you consider that the average monthly rental price for a new tenancy in the UK stands at £985, this may motivate many to want to buy a property and possibly pay less per month in the process.
(Source: HomeLet Rental Index, August 2020)
Getting the Deposit together
So, what’s stopping all renters jumping on board? Some will prefer the flexibility renting provides, others will be worried about the stringent controls that are now in place for mortgage lending. But possibly the biggest stumbling block is getting together the deposit.
According to Moneyfacts, the average deposit for those buying their first home has risen to £47,059, equating to around a fifth of the average UK house price.
Of course, there are mortgage deals available that require a smaller deposit, but this is where the lender’s enthusiasm has waned. Back in March (the month when lockdown started) there were 1,184 mortgage products requiring a 10% deposit, or less. By September, this had reduced to 76!!
Rates have also increased. Back in March the average interest rate for a two-year fixed rate mortgage with a 10% deposit was 2.57% – it’s now 3.54%.
(Source: Moneyfacts, 7 September 2020)
However, if you consider that the average first-time buyer loan is around £176,000*, then a 3.54% rate would equate to a repayment mortgage of about £800 per month. Unlike the £985 rental payment figure mentioned earlier, this lower amount would include paying off part of the capital borrowed, as well as the interest owing.
(Source: *UK Finance, January-June 2020)
Look at alternative funding options
If you’re lucky enough, then there is the Bank of Mum & Dad to help get some, or all, of that deposit together. In fact, nearly one in four housing transactions (175,0000) will be backed by the Bank of Mum & Dad in 2020, equating to an average of around £20,000 each to help those borrowers with their deposits, and possibly gain access to better interest rates.
(Source: Legal & General, September 2020)
Alternatively, there are Guarantor Mortgages, which might be a more suitable route for family support. Or consider Shared Ownership, in which case you buy a percentage of the property now, and can purchase more into the future (see box item).
Talk to us
With so much to consider, do have a conversation with us as early as possible in the decision-making process.
We are working with these issues day-in/day-out, and fully understand the options on offer. And, as part of our offering, we would endeavour to help navigate you through the affordability, evidencing of income and credit rating hoops. Get in touch.
A new Affordable Homes scheme announced in September, will also deliver a new model for Shared Ownership for purchasing new homes, and will:
– reduce the minimum initial share you can buy in a property from 25% to 10%.
– allow people to buy additional shares in their home in 1% instalments, with heavily reduced fees.
– introduce a 10-year period for new shared owners where the landlord will cover the cost of any repairs and maintenance.
This scheme is applicable to England only, other parts of the UK will deliver different support.
Your home may be repossessed if you do not keep up repayments on your mortgage.