What hope for first time buyers?

October 17, 2022

Help to Buy Scheme Ending

With the Help to Buy Scheme due to end on 31 October and with mortgage products being withdrawn rapidly due to the recent interest rate rises, what hope is there for first time buyers to get a foot on the property ladder?

There is still hope, but first time buyers will need to work harder to ensure they meet mortgage lending criteria. Buyers might also be tempted to wait and see if interest rates rise further, how deeply a recession bites or in the hope of property prices falling. However, with the supply of housing still low in many areas it is likely that if any of these things happen rents will also rise. The question you should ask yourself is am I ready to commit to living in a property and can I afford to keep up the repayments on a mortgage, or do I like the flexibility of renting a property, but with the uncertainty of rent rises or the lease being terminated.

Here are some of our tips to help you decide whether to put a foot on the property ladder.

1. Deposit – It’s not easy to save up a deposit when you are paying rent or when the cost of living is rising sharply and your pay check isn’t. It is essential to save as much as you can as it will help you to access more competitive deals. If you can still access the Help to Buy Scheme, the government will offer an equity loan of 20% (40% for London homes), so buyers only need to put down a minimum deposit of 5%. Lenders also like to see evidence of the deposit being saved for, so make sure you keep it in a separate savings account so you can show them the statements.
2. Credit file – check your credit file and understand what you can do to improve your score and also what behaviours might also affect it. Do not apply for any other credit while applying for your mortgage as this could affect your ability to secure it.
3. Affordability calculation – you can use any of the high street bank websites to check the affordability to help you to determine the price range of property you can afford. Typically banks will lend 4.5 times your salary. The Bank of England has now removed the ‘stress test’ which added a theoretical 3% interest rate rise to the cost of a mortgage repayment. Also consider whether having a mortgage guarantor could help you. Speak to a parent or grandparent if they are keen to help.
4. Paperwork – before applying for a mortgage make sure all your paperwork is up to date, so you can pass the identity checks. Make sure everything is spelt correctly and your address is up to date. If you are self-employed, understand what evidence of earnings is required over what period to prove you have sufficient income.
5. Don’t just go to the bank who you have an account with. There is a myriad of different deals out there and accessing the best deal could save you a significant amount of money in the long-term. Shop around, speak to a mortgage broker and read up as much as you can to help you decide what is best for you.

If you would like any advice about your finances and financial planning, please get in touch today.