Guest Blog by Robert Panyiotou, Chartwell Mortgage Solutions
With the demand for housing on the rise throughout the UK, younger buyers are an increasingly strong position to kick-start that exciting journey up the property ladder.
At Chartwell Mortgage Services, we’ve noticed a healthy flow of first time buyers in the last couple of years. Many of which have taken advantage of initiatives like Help to Buy – a scheme designed to ensure that first time buyers have a fighting chance in a competitive market.
So how has Help to Buy benefitted our clients? If a buyer wishes to purchase a home with a 5% deposit then they would need to secure a 95% mortgage, which significantly narrows down their mortgage options. Help to Buy on the other hand provides a 20% government loan, to top up a 5% deposit, meaning the buyer only needs to secure a 75% mortgage.
The rising cost of rental properties has also been a huge drive in first time buyer activity; more young buyers want to see their money going towards their own future, rather than someone else’s. Help to Buy has gone a long way in breaking that chain up here in the North by enabling affordable mortgage payments.
So for example, if a buyer purchases a new-build home worth £150,000 through Help to Buy, then they are looking at initial monthly payments of around £500 – over £150 less than the average UK rent (excluding London)*.
Whilst not all first time buyers need to use Help to Buy to get onto the property ladder, it’s worth considering that the quality of new builds is of a higher standard and are therefore less likely to experience issues associated with older homes. When you take the cost of repairs and maintenance of an older property into consideration, a buyer could potentially afford a larger new build home for the same price.
Help to Buy has provided a lifeline for young buyers, but it’s also important to remember that the initiative does have an expiry date – so what happens after the scheme ends in 2020? If it doesn’t get replaced, then it is likely to slow down first time buyer activity and drive up the average age of first time buyers – less young professionals and families would be in a position to save for a 25% deposit without assistance. This suggests that the next three and a half years are crucial for first time buyers.
So what about those who have already bought their homes? As a financial advisor, the best advice I can give to first time homeowners is to budget. Whilst the government loan may come with five year’s interest free, it’s important that they are also in a position to pay it off to avoid paying more in interest later on. Carefully budgeting and continuing with their saving habits will ensure that their dream homes remains just that, whilst providing them with security for their own future and that of their family’s.
*HomeLet Rental Index April 2016