When you are looking at buying your first home, it’s a huge step and although exciting is also very nerve wracking!
I know, the first property I bought was back in 1993. The property market was well and truly in recession and many people I knew were in negative equity having bought since the last crash of 1989. Sound familiar circumstances?
The next bit will probably sound familiar to, albeit for different reasons. I couldn’t afford to buy on my own – despite a good job with Unilever and living in Croydon. The area at the time certainly wasn’t considered highly desirable either or particularly ‘unaffordable’ by London standards.
The reason for the affordability problem was not the saving for the deposit – I had been saving hard for several years and had not gone out, not gone on holidays etc and saved money from gifts to help. The more difficult thing for me at that time, was there were strict lending policies on three times your income and the price of a property was double what I earned plus the real problem was mortgage rates in double digits – heading to 15% at one time!
So, although I understand it’s tough to buy in today’s market, especially with some areas still not seeing price growth, it’s hard for different reasons, mainly the deposit, even with the Help to Buy Scheme (link to checklists) but the mortgage rates and payments are pretty much half to a third of what I had to pay, so the on-going mortgage is more affordable as long as you can get the deposit together.
So what is my advice to you if you are thinking of buying?
1 Know that to buy now, you need to make sure you can afford the property on-going, whatever happens. That might mean becoming sick, splitting up with a partner, losing your job. Being able to afford the mortgage on-going is essential, so have a back-up plan if things go wrong.
2 With the new mortgage rules, be very clear on your outgoings before you go to a broker. Make sure you go through your bank statements and have a list of what you spend monthly, quarterly and annually on different things.
It’s a good idea to put down ‘essentials’ versus ‘nice to haves’ so the lender or broker knows what you can cut out if required.
3 Hopefully the lender/broker will be checking what your mortgage payments will be if interest rates increase (currently they are at an historic low). Use a mortgage calculator like the BBC one to ‘stress test’ what your payments would be.
4 Look at what your options are for buying. You don’t have to buy outright or with friends, consider things like shared ownership, see if you are eligible.
5 If you do buy with a friend or someone else, make sure you know whether you should buy as ‘tenants in common’ or ‘joint tenancy’. Normally the latter is reserved for the home a married couple have only.
6 Where can you actually afford to buy? Many first time buyers seem to get caught up in buying a property that is their ‘dream home’, but it took me and many others 4-5 property purchases before we could afford the one we really wanted. So it’s about compromise. Find out where you can afford to buy that makes sense for your work commute and visiting friends/family. That may mean you wanting to buy in London, but finding somewhere like Enfield or even Peterborough may be affordable now and only 30 minutes to an hour away from where you need to be during the week and at weekends.
7 Check what the costs are of renting versus buying, you may be surprised to find out it costs more to buy than rent when you take into consideration the cost of maintenance, insurance etc. And do you still need flexibility to move when required? If so, is buying now the right thing to do, or should you wait until things are a bit more settled?
8 Don’t worry too much about buying and getting every room ready in one go. I’ve pretty much finished the inside of the farmhouse I bought 10 years ago, but I am now looking at adding to it with a garage and conservatory. Take your time, it’ll make it much easier financially.
9 Do make sure you understand the ups and downs of property ownership. Plumbers can take a week or more to get to you unless you pay emergency rates. Boiler breakdowns can take two weeks or more to fix and cost £3,000 just when you didn’t expect it. Prices go up and go down too, which is why it’s always important to have a back-up plan as you don’t want to ever be ‘forced’ to sell your property in a bad market and lose money.
10 Think through the pros and cons of different property types. A character property may look attractive, but I have lived in many and they can drain your finances quickly! New builds may look perfectly finished in the show home, but what state will your property be in when you actually buy it? Here’s more about Different Property Types to help.
For more help with buying your first home, visit our FTB checklists.
And don’t forget the First Time Buyer Show Saturday 10th May 2014.
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