We are being told day in day out how hard it is to get your foot on the property ladder, I don’t need to go on about that.
Don’t let the facts put you off, we all know that the average property price in UK is £200,000, we also are all aware that interest rates are set to increase again.
One thing you do have to remember though despite all this, is that renting is dead money in the long term it is cheaper to buy than it is to rent, and at the end of the day the property is yours.
Lenders are keen to please first-time buyers, because they need fresh clients to feed the housing market, creating the demand adds to ferocious competition and that is good news to you the first time buyer as this means they have no choice but to be competitive.
Getting onto the property ladder has got much more expensive over the past year, figures released show that the average property price being considered by first time buyers was up 8.4% to almost £180000, compaired to a year ago. However the average loan being obtained was almost £40000 lower than this amount which means that the average first time buyer is requiring a deposit of £38000 -£400000.
Nationwide have calculated that the overall house price rise was at 10% during 2006, add this with the three interest rate rises and this means that over the last six months the average first time buyer is paying £120 pcm more to own their own home. Also as house prices rise more and more first time buyers are being caught out by stamp duty which starts at 1% on properties valued at £125000.
How much stamp duty will you have to pay?
The number of first time buyers actually increased in 2006 and represented 36% of all house purchase loans which was an increase of 19% up from 35% according to the Council of Mortgage Lenders (CML). Due to increased interest rates and affordability worsening this figure is expected to drop this year.
The main problems when buying your first home are affordability calculations which in days gone by where having a deposit of 5% or better still 10% and an income multiple of 3.5 times your annual salary spread over a 25 year term. In today’s market place these figures just do not work.
Lenders are now more flexible when it comes to income multiples, some lenders even go as high as five times your salary, obviously this is something that you have to look at very seriously the more you borrow the more the financial strain you are putting yourself under. Getting a deposit together also takes time, some first time buyers are saving for 5 years or more. You could opt for 100% mortgage, this is also becoming a very popular mortgage amongst first time buyers eager to get on the ladder and with this range the lender will take the arrangement fee, and in some cases the valuation fee, there is no higher lending fee. There is a broad range of fixed rates available from 5.99% to 6.19% for between 2 and 5 years fixed rate terms.
Also if 100% is not enough to fit exactly what you are hoping to buy then Northern Rock and Birmingham midshires offer up to 125% mortgages, but you should think very carefully indeed before taken out a mortgage that is more than the house is worth, not just because of the financial burden but also about the what ifs, the mortgage market is strong and house prices are increasing at the moment but what if all that changes, you may find yourself in a negative equity situation if the house prices were to fall.
If your income is not quite enough there are a few lenders out there that will allow your parents to act as guarantors, with these type of schemes the parents and the child are jointly liable for the mortgage however the deeds are held by the child.
To make the repayments more affordable there are many schemes available, such as extending the term of the mortgage beyond the 25 years standard mortgage, having an interest only mortgage, or perhaps buy with friends or rent out a room, all of these are options to anyone purchasing a home, but they should not be taken lightly, you should always seek advice and carefully consider which one suits you and your financial circumstances.
Looking at the fact that interest rates are set to rise again, the best advice would be to fix the rate, or look into a capped rate this way you will remain in control, of your monthly expenditure having the knowledge of exactly how much will be required to pay your mortgage on a monthly basis.
Extending the term may make your mortgage more affordable but be careful, Tesco’s Finance offer a 52 year term, but what you may save in a reduced payment will most definitely cost you more in the long run, your interest is calculated over the whole of the term, so you will obviously be paying more in terms of interest, look at the facts a mortgage of £132000 over a 52 year term based on an interest rate of 5.25% will cost an additional interest amount of £146,166. over the course of the term.
Remember also if you opt for the interest only method of mortgage to make the payments lower, you will be paying interest only, exactly what it says on the tin, or paper in this case. At the end of the term you will owe exactly what you have borrowed, meaning that if you do not have a repayment vehicle in place to cover the debt outstanding then at some point you may get caught out.
