TAKING that first step on to the property ladder may seen like a daunting prospect but, armed with a little information, you'll soon have the process licked. In fact, the number of first-time buyers taking this initial step has increased to its largest yearly total in five years.
According to the Council of Mortgage Lenders, a total of 216,200 first-time buyers became homeowners in 2012, the first time the annual total has exceeded 200,000 since 2007 and a year-on-year rise of 12 per cent on 2011 when 193,000 loans were advanced.
So, if you're one of the would-be homeowners, now is the time to do your homework. There's a mortgage to arrange, solicitors to instruct, surveys to consider... but before we get carried away, let's take a step back and consider how we are going to buy, how much we can borrow and at what rate.
As an example of rates, Melton Mowbray Building Society has a 95 per cent first-time buyer mortgage available at 5.49 per cent fixed until January 31, 2016.
Jayne Shepherdson, of The Nottingham, says: "You must work out how much of your income is already allocated. Don't forget the deposit. You'll usually need to put down at least five per cent of the value of the house and don't forget to add in other costs. As well as the mortgage and deposit, you'll also need to factor in solicitor's fees, mortgage arrangement fees, valuation and survey fees, stamp duty and moving in costs."
There are some great schemes for first-time buyers as well as some options that you may not have considered, as Martin Roberts explains.
As a nation we've grown up believing that buying your own home is what you are supposed to do. You leave home, get a job, find a partner, buy a house and raise a family? Of course, times have changed. But investing in a property, albeit your own or someone else's, still remains a crucial financial decision and one you shouldn't shy away from. If you think that owning your own home is too far out of your reach, then think again. There are ways…
Buy a home with mates
Many lenders will offer mortgages for up to four individuals buying together. If you've been used to renting in a shared house, the thought of doing this isn't so different. Not only is the amount of deposit you personally need to find reduced, the mortgage payments will be too. However, get a legal contract drawn up that covers what happens if any party wants to sell or stops paying their proportion of the mortgage.
Buy at auction
Auction rooms aren't just the feeding ground for property investors, they are also a good way to pick up an under-valued property for yourself. It might be a nerve-wracking way of getting your first pad, but you could grab a real bargain, especially if you're prepared to buy something and do it up. Make sure you have a proper survey carried out and you will need to get your mortgage agreed beforehand.
Buy a property to rent out
This might be a more roundabout way of owning your own home, but if you can't afford a property where you live, consider buying in more affordable parts of the country. I still come across homes that cost less than £50k and, by renting it out, you could find your costs of ownership are covered. Having a mortgage will improve your credit rating for any future purchase and, if the value rises, you'll end up with more money towards the deposit on your own place.
Buy within a scheme
There are various government schemes designed to help first-time buyers:
Rent to Buy scheme
This is offered on new-build properties for households that earn less than £60,000 a year. You rent the home at a reduced rate giving you a chance to save your deposit. After five years you can buy the property through a 'Newbuy' scheme.
NewBuy
A new government initiative offered to first-time buyers wanting to buy a new home up to £500,000. Many of the major house builders (see www.newbuy.org.uk for details) have teamed up with mortgage lenders who are able to offer mortgages of up to 95 per cent. The deposit you need is reduced to five or ten per cent.
Shared Ownership scheme
With the help of a mortgage, you buy a portion (between 25 and 75 per cent) of the property and a Housing Association owns the remainder. You pay rent on the portion that you don't own at a maximum rate of three per cent of the share's value. So, if you rent 25 per cent of a £100k property the rent would be £750 per year (three per cent of £25,000) or £62.50 a month. You can buy more of the home as and when you can afford to until you own the lot. You can sell your home but must notify the Housing Association if it still has a share.
Shared Equity Scheme
Rather than another party owning a share of your home, you take out a loan on the remaining portion. You therefore own the property outright. The loan is an equity loan as its value changes as the value of the property does. After five years, you pay a fee based on the amount of the loan's value which then increases each year (starting at 1.75 per cent). You can 'staircase' ie. pay back parts of the loan over time.
Buy with parental help
Many young people have benefited from the Bank of Mum and Dad. If you have to go it alone, your parents can still help by acting as a 'guarantor' for the mortgage. You can borrow as much as 100 per cent of the property (so no deposit needed) but they'd be liable if the property was repossessed and sold for less than the mortgage or if you got into trouble.
There are also new mortgages available where parents pay 10 per cent of the price of the property for three years into a savings account with the bank lending the mortgage. The borrower must put down five per cent deposit and the interest rate is fixed. After three years, the parents get their money back.
There are also specialist savings accounts where your parents would forgo interest to offset the cost of your mortgage. Search online for Family Offset mortgages.
For more property news, visit www.martinroberts.co.uk or e-mail askmartin@martinroberts.co.uk.