Rising property prices and economic pressures mean first-time buyers are getting older. Zoopla estimates that the average first-time buyer needs earnings of £60,600, rising to £103,000 in London. Unsurprisingly, therefore, the average age of a first-time buyer has risen to 36 in 2022 from 32 in 2004, according to the Office for National Statistics. Meanwhile, Santander research shows that one in five first-time buyers is now over the age of 40.
Raising a deposit and being able to afford the mortgage are the main challenges facing first-time buyers. Below, we answer some of the questions you may have about buying your first home.
Question: How much deposit do I need?
Answer: Most lenders require at least a 5 per cent deposit and the more you put down, the more choice and cheaper rates you will be able to access.
Saving for a deposit is difficult, particularly with ever-rising rents. Many people have to turn to the Bank of Mum and Dad for help (ideally, it should be a gift rather than a loan, otherwise the cost of repaying it will be factored into affordability calculations). If parents can’t gift a deposit, they may still be able to let you have the benefit of their savings; Barclays Family Springboard and Lloyds Lend a Hand mortgages allow for up to 100 per cent borrowing, for example, with the parent’s savings as security. The money is saved in an account linked to the mortgage and can be returned later.
Yorkshire Building Society offers first-time buyers a mortgage which requires just a £5,000 deposit but it’s not available if you are buying a flat or a new-build house and the maximum property value is £500,000.
Question: What do I do if I don’t have a deposit?
Answer: It is possible to borrow 100 per cent loan to value (LTV), with Skipton building society, for example, offering Track Record, a mortgage for renters where you don’t need a deposit. The lender uses your record of paying rent to work out how much you can borrow but it has limited scope with a maximum loan size of £600,000, ruling out a lot of purchases in London and the southeast, and new-build flats are excluded.
Question: How can I get a bigger mortgage?
Answer: Make sure all of your income sources are taken into account so that you can boost your level of borrowing. Some lenders may limit or exclude the use of variable, non-guaranteed or no-cash bonuses. AWS Private Finance will be able to advise as to the best lender for your particular circumstances. It may also be worth exploring buying with parents via a joint borrower sole proprietor mortgage (see below).
Question: What is a joint borrower sole proprietor mortgage?
Answer: These are increasingly popular as they enable parents to buy property with their children, maximising the deposit and mortgage as the parents’ income is taken into account as well as the child’s. However, only the child goes on the deeds so there is no stamp duty surcharge to pay if the parents already own their own home. Many lenders offer JBSP mortgages and generally there is no premium to pay on the rate.
Question: What about renting out my spare room?
Answer: Some first-time buyers purchase a two-bed property with the intention of renting out the spare room to cover some of the mortgage. Under the rent-a-room scheme you can earn up to £7,500 a year tax-free from letting out furnished accommodation in your home and some lenders will even take this into consideration when calculating your mortgage affordability.
Question: How can I reduce my monthly mortgage payments?
Answer: Consider a longer mortgage term. Long-gone are the days of the 25-year standard mortgage term, as this is simply unaffordable for many. UK Finance says nearly a quarter of first-time buyers opted for a mortgage term of more than 35 years in the first quarter of this year. By increasing the term to 30, 35 or even 40 years (depending on your age, as most lenders want to see your mortgage paid off by retirement age), you can reduce the monthly payments, which may make the difference between being able to afford the mortgage and not.
However, bear in mind that you will pay more interest in the long run as you will make many more payments so it might be worth trying to overpay as, and when, you can in order to pay the mortgage back sooner.
Question: Can the government help?
Answer: There are various government schemes such as shared ownership, which may be worth a look but beware that you will still pay rent in addition to the mortgage and are still a tenant (of the landlord or typically housing association). Leases can be restrictive, as can sales processes, and while you may ‘own’ only a percentage of the property, you have to pay for the upkeep and repairs of all of it.
A Lifetime Isa is another option for those wanting to boost their savings before buying a property as a bonus is available on accumulated funds.
Question: Where can I find out more?
Answer: AWS Private Finance can advise as to the best protection for you, your family or your employees. We understand what each policy offers and can select the right cover for you and your dependents, at a competitive price. Get in touch for more information.
