What You Need To Know About Getting On The Property Ladder
Author Richard T Lishman, Managing Director of money4dentists, a firm of specialist Independent Financial Advisers who help dentists across the UK manage their money and achieve their financial and lifestyle goals.
Purchasing a new home is considered to be one of life's biggest milestone events, alongside graduation, getting married and having children. Unfortunately, however, it is getting harder and harder to get on to the property ladder, with the average age of first time buyers reaching 30 in the UK as a whole and 32 in London.
According to experts, the price of homes bought by first time buyers across the UK rose by 12 per cent from 2015 to 2016, averaging at £200,000 in the UK, £385,000 in London and £257,000 in the South East.i Yet, with the economy ever changing, there is no telling what these numbers will be going forward, which could leave prospective property owners unsure about their place in the market and chances of owning their own home.
Brexit, for instance, is set to have a huge impact on sales and house prices. Though with the treasury predicting that house prices could drop by up to 18 per cent over the next two years as a result of leaving the EU, these changes might actually prove to be advantageous to first time buyers.
Other sources have similar forecasts, with many believing that buyers may be in a good position to demand discounts given the economic uncertainty that surrounds the UK. Yet, with a poll showing that 13 per cent of 1,200 people involved in a housing transaction pulled out because of the referendum vote, Brexit could produce its fair share of pitfalls for first time buyers too. The availability of housing as a result of the UK's increasing population is also likely to be a contributing factor to the state of the market. For that reason, first time buyers should remain open minded to where they look for properties.
The other aspect that will impact those looking to get on the property ladder is the changes to UK interest rates. Having stood at 0.5 per cent since 2009, the base rate was cut to a record low of 0.25 per cent in August 2016 to counteract the after effects of Brexit and help stimulate the UK economy. While for savers these changes will mean a poor return on savings investments – which in turn will trigger the need for dentists to consider rebalancing their portfolios – it is good news for first time buyers looking to borrow money from the bank.
With fixed rate mortgages at an all time low, now is a great time to lock into a 10-year low price fixed rate deal. Plus, as the economy stabilises and base rates begin to increase, this type of loan will ensure that one is protected against rising prices of mortgage repayments. The other option is a tracker mortgage, which is linked to the Bank of England base rate. When the rate changes so does the monthly payments, so although it might be an ideal loan right now, with households expected to have a reduction in the amount owed each month, it is important to consider the financial effects long-term. The main thing is to find a deal that is suitable for you and your future plans and goals. If your priorities change over the years, for example you would like to have children or change jobs, it is crucial that you can afford to make your payments – after all, buying a home is a huge financial commitment and it is not to be taken lightly.
Still, owning a property provides security and is a much more stable investment than ploughing money into renting. So whether you have just graduated or have a few years experience under your belt, it is worth saving for a deposit, if you haven't started doing so already.
While doing so, it can be prudent to consider government schemes that are available to you as a first time buyer. The Help to Buy: Equity Loan, for instance, lends up to 20 per cent of the cost of a newly built home, which means you would only need to save a 5 per cent cash deposit and secure a 75 per cent mortgage. Available to first time buyers under 40 on homes less than £250,000 outside London and £450,000 inside the capital, there is a five-year period before you start getting charged loan fees. There is also a Help to Buy: Mortgage Guarantee scheme, which offers lenders the option to purchase a guarantee from the government on mortgages as long as the borrower has a deposit of at least 5 per cent and no more than 20 per cent. Other opportunities include a Help to Buy ISA as well as a Shared Ownership scheme.
Because of all the different factors that can alter the market and the financial help that is available to first time buyers, it can be prudent to enlist the services of an Independent Financial Adviser, such as those at money4dentists. Buying your first property can be complex to say the least, but with the appropriate help, you can secure a mortgage and find a property that is both suitable and affordable.
For more information please call 0845 345 5060 or 0754 DENTIST email info@money4dentists.com or visit www.money4dentists.com
Homes and Property. Average age of first time buyers rises to 30 in the UK – and 32 in London. Published online July 2016. Accessed online August 2016 at www.homesandproperty.co.uk/property-news/buying/first-time-buyers
The Week. House Prices: Survey points to post-Brexit sales slowdown. Posted August 2016. Accessed online August 2016 at www.theweek.co.uk/house-prices/61987/house-prices-survey-points-to-post-brexit-sales-slowdown