22nd April 2016
One glance at the evening news has young people convinced that owning a home is simply inconceivable. But all this doom and gloom should be taken with a grain of salt. It is absolutely possible for younger workers to buy their first home, you just have to do a little research and know where to look. Here are a few tips to help you get on the path to home ownership.
Let’s say you are a single person or a couple and the bank will loan you 160k, enough to buy a three bed semi-detached (depending on the area you live in), so you the go out and start shopping around large three-bed semis. Do you really need a large three-bedroom house? Or would you be better off in a two-bedroom terrace? You don’t need to borrow the maximum because the bank said so. Leave yourself a buffer to protect yourself from future unexpected circumstances like a job loss, family emergencies, or an overall change in the economic climate. It is better to outgrow your home than have your mortgage outgrow your salary.
While help to buy is well intended, the measly 5 percent down payment puts your biggest asset at risk. Borrowing 95 percent gives you less equity in the house, which can be very risky when real estate values fluctuate. It will also make your monthly payment more expensive and typically carries a higher interest rate. Securing 10-15 percent deposit is better for buyers in the long run.
Not to be confused with the help to buy scheme, the help to buy ISA is a new savings scheme designed to help first-time buyers save up a deposit for their home. The government will add 25 percent to your savings, up to a maximum of £3,000 on savings of £12,000. You DON’T have to use a help to buy mortgage to take advantage of the help to buy ISA. This is a great way to get you to that 10-15 percent down payment. For more information on help to buy ISAs, click here.
It’s best to get the advice of a professional to match you with the best lender. However, some lenders only sell directly to the public, like First Direct and Tesco. To make sure you are aware of every mortgage option available to you, you should also use mortgage comparison calculators.
If you are in the process of saving up for your down payment, you are likely already trying to minimize payments and pinch every penny in the budget. This is even more vital in the months leading up to your mortgage application. When you apply for financing, the lender will stress test if your mortgage would still be affordable if rates were to reach 6-7 percent. Every cost you have will be scrutinized. A broker will even ask you hypothetical questions, like would you put down your pet if it had a costly illness. This is to predict your future spending habits. For this reason, it is advised to further reduce your monthly outgoings at least three months before your application, as your spending will be heavily analyzed.