Remember your first time?



Posted: Wednesday, April 20, 2005

by seanh
http://www.seanhorton.net

With house prices continuing to scale new heights, 2004 will be another very difficult year for first-time buyers. The Halifax says the prices paid by first-time buyers soared by 22.6% during the past year, rising from an average of £82,968 to £101,747. Buying your first home is not as easy as it once was and many first-timers are finding the properties they want are priced out of their budget.

This is not a sudden change but one that has been caused by soaring house prices over the past few years. Those people already on the property ladder have done very nicely thank you. However, the knock on effect could affect us all.  First time buyers are becoming an endangered species, the Council of Mortgage Lenders says first-time buyers represented only 29% of all buyers last year compared with 38% in 2002 and 50% in 2001. This shortage of first-time buyers means people higher up the housing chain will soon find it more difficult to sell properties, slowing the market. This is the natural process of supply and demand and we will see a gradual slowing of the property market over the next 12-18 months.

So how can first-time buyers take their first steps and become property owners?  Borrowing is easier than it used to be due to a rising property market and low interest rates. Nevertheless, all purchasers need some cash to buy a house.  Paying a deposit is always preferable as it not only reduces the mortgage but also opens up a much wider choice of lenders and interest rates. The larger the deposit, the wider and better the choice. There are also survey fees, mortgage fees, stamp duty, and legal fees to consider and save for.

100% mortgages are available but are offered by only a few lenders.  With a 5% deposit or more, first-time buyers have a good choice of high street lenders and attractive mortgage packages. A good Independent Mortgage Broker can sift through these selections and recommend the best scheme from those available. First-time buyers need professional advice probably more than other type of borrower and a helpful mortgage broker and solicitor can ease the house buying process considerably.

Another choice is buying jointly with a friend, this brings another salary into the mortgage calculation process and possibly more savings for deposits and fees. Guarantor mortgages have been around for a while but now parents can assist with parent-sponsored mortgages. Parents may also choose to either gift money to their offspring to help with buying a home or possibly an ‘advance’ on their eventual inheritance.

Choosing a fixed rate as a first-time buyer is generally a good idea. You are able to set a budget for the next few years and are protected from interest rate rises (which are expected). Other options to keep the monthly payments down can be to extend the mortgage term beyond 25 years or even to choose an interest only loan. This is a very dangerous option to take as the mortgage is not being repaid but merely treading water. However, with planning and discipline it could be one way of helping first-time buyers into the elusive property owners club.

Sean Horton, Director of Enhanced Wealth Ltd

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