Looking for your first home?
Although there has been a withdrawal of many high loan-to-value mortgages, this shouldn’t prevent you from buying your first home. There are still ways to make home ownership a reality.
Until recently there were 95% loan to value mortgage deals available which meant that you could save 5% of the property value to be able to apply for a mortgage. However, the pandemic resulted in many banks pulling these deals meaning that buyers require a larger deposit to purchase a home. This, combined with a sharp rise in property prices, has meant that those wanting to purchase a home have delayed their plans of buying a first-time-buyers.
Existing homeowners are currently dominating the market but if you are a first-time-buyer, there are still ways you can buy a home with limited savings.
Finding a high loan to value mortgage
Although most lenders have pulled high loan to value lending there are still some 5% deals to be had. However, these tend to be guarantor deals which requires parents or grandparents to secure their child’s mortgage against their home or put their money into a fixed-term account. Be aware that your family member’s cash, or property is at risk. Talk to a mortgage broker to find out what these deals involved and whether you are eligible.
Stamp duty holiday
At present there is no stamp duty on homes costing £250,000 or less which means you could save money if purchasing a new home. It’s important to act now as the deadline at present has been set to March 2021 although there is pressure on the Chancellor to extend this.
Help to Buy (Scotland) enables you to purchase a home with a 5% deposit with the Government offering an interest free loan for up to 20% of the purchase price which means you can obtain a 25% loan to value mortgage. The pandemic has meant that this scheme has been extended. In addition, the First Home Fund is a shared equity scheme to provide first-time buyers with up to £25,000 to help them buy a property that meets their needs and is located in the area where they want to live. The scheme is open to all first-time buyers in Scotland who are taking out a mortgage. You will not be able to apply to the scheme if you are a cash buyer or if you have previously owned a property in the UK or abroad at any time (as either a sole or a joint owner). Although the applications closed in October 2020 this is a temporary hold and applications are due to reopen in February 2021.
House builders often have incentives such as free fixtures and fittings, stamp duty bills and legal fees.
Pool resources with friends or family
One of the most common ways to purchase a property is to pool resources with friends, a partner or family. The ‘bank of mum and dad’ is increasingly popular but whoever you are committing to buying a home with, you need to think about what will happen if one party wants to sell or if they are unable to meet their share of the mortgage repayments. If you borrow you as borrowers are ‘jointly and severally liable,’ the lender can chase either of you for missed payments.
Buy at a fixed price
With house prices rising since the housing market reopened at the end of June at an unprecedented rate – due to the stamp duty holiday and a re-evaluation of buyers’ priorities – buying at a fixed price means you aren’t being priced out of the market. The price you see is the price you pay with no closing dates, offers over or paying over the odds due to high competition for the same property.
Reassess your wish-list
Lenders are becoming increasingly tough on what they will lend, resulting in stricter criteria for calculating what you can borrow, based on your income and expenditure. Some lenders are offering 4.5 times your salary instead of 5.5 previously which impacts what you can afford to buy. With this in mind it may be worth reconsidering where you want to live and the sort of home you want to buy. Do you need to live near public transport and travel links, could you purchase a new build home to make it more cost efficient and do you need an extra bedroom?
It’s important that you have a good credit score in order to obtain a good rate on your mortgage – the lower the score the lower risk you are considered to be by the lender. Check your credit score before you look to buy a property to give you time to improve this.
A larger deposit
If you can cobble together a little more savings to put towards the cost of your mortgage it will keep your outgoings down and open up more mortgage options. Some lenders are offering 10% mortgages aimed at borrowers in the local area and for those in particular professions. Ideally you want to have 15% deposit.
Talk to us at Urban Union if you’re looking for your first home. Our properties can be reserved with a small reservation fee and are available at a fixed price in our Perth, Glasgow and Edinburgh developments.