First time buying tips

By Shane Shallow

There’s no denying it’s been really rough seas for newcomers to the property market. but, things may be looking up. We take stock of the current trends.

Since the financial crisis back in 2008, the plight of the first-time buyer has been a turbulent one. Five years ago, there were over 800 different 95% mortgages available for those looking to take their first step onto the housing ladder, and – until recently – the unavailability, and the unattainability of 10%, 20%, 30% deposits has left many homeowner-hopefuls branded with the nickname ‘generation rent’.

But times are changing, and while the UK is yet to witness the buoyancy of the housing market pre-crash, hope is on the horizon – especially in light of Lloyds TSB’s £6.5billion pledge to help people onto the ladder.

Buy or rent?

The number of first-time home buyers is at its highest since 2007. But, of course, it hasn’t always been this way, and a combination of factors are thought to be behind this all-time high – with the cost of rent pinpointed as a significant driver towards a buying market.

Currently, buying is, on average, 16% cheaper than renting, according to research from Halifax bank: a dramatic turnaround from the state of play in 2008, where buying was nearly 30% more expensive!

Of course the buy versus rent quandary is one that consistently impacts upon the quantity of first- time buyers. But recent research has lifted the lid on the life-long value of purchasing a property over renting: a report from Barclays bank claims that those who buy will save £194,000 over a 50-year period. And while being a tenant may be cheaper at first, rents inflate, which makes mortgage repayments more affordable.

The return of the 95% mortgage

Often, it’s not the prospect of mortgage repayments that’s the inhibiting factor for those looking to take the plunge – it’s the prospect of having to save up a lump-sum deposit, which of course becomes all the more difficult when you’re already forking out monthly rent.

But over the past 18 months, a growing number of lenders have started offering 95% mortgages, meaning that on a £200,000 property, a would-be buyer would only need to stump up £10,000. This can be partly indebted to the government’s NewBuy scheme (www.newbuy.org.uk) which aims to help tackle the UK mortgage ‘gap’, offering 5%-10% mortgages on newly built homes from six main lenders. (Although, remember that the greater the deposit you put down, the better rate of interest for you.)

A family affair

Barclays is the latest high-street bank to reach out to first-time buyers with the lure of a 5% deposit, however, its new Family Springboard mortgage requires a helping hand from doting parents. The buyer takes out the mortgage, and a family member – usually mum or dad – opens a Barclays Helpful Start savings account linked to the loan and deposits 10% of the property price (which currently pays 2% interest). Then, after three years, the helper receives their 10% back, plus their gross interest. There are other banks that have similar relative-related mortgage deals. Lloyds TSB’s Lend a Hand, for instance, works on the same principle as Barclays’, but the helper must put up 20% of the property value (so that the combined total adds up to 25% of the overall price).

And the Bath Building Society and National Counties Building Society both offer 95% mortgages, but require a charge over the parents’ home if the loan-to-value (also known as LTV) is higher than 80% and 75% respectively.

For those homeowners-to-be wanting to be independent and go it alone, Nationwide offers a Save To Buy regular savings account. By holding the account (opening it with £50, and paying a minimum monthly standing order of £50 for six months) you can apply for the building society’s 95% mortgage.

Buying by numbers

Halifax bank reveals the latest first-time buyer market statistics and facts…

  • The average first-time buyer deposit in 2012 was £27,984, slightly higher than in 2011 (£27,239) and £10,502 higher than in 2007 (when it was a mere £17,482).
  • The average age of a first-time buyer is 30, up from 29 in 2011.
  • The average house price paid by a first-time buyer in 2012 was £139,921, an increase of 3% on 2011.
  • The average price paid by a first-time buyer is highest in Greater London at £251,096, more than two and a half times that in the north of England (£99,506), where the average price paid by a first-time buyer is the lowest.

Breaking down the figures

As well as saving up for a deposit, you’ll need to be able to afford the monthly mortgage repayments and all the added extras, too. This means, that after your current outgoings – whether that be your gym membership, phone bill or monthly train ticket – try to determine a repayment figure that is realistic and that can be met.

Over one million people in the UK have come up against extra expense that they hadn’t prepared for, according to a survey by the Money Advice Service (www.moneyadviceservice.org.uk).

Poor planning, inadequate research and budgeting less rather than more, have been revealed as causes of this surprise. Twenty per cent of those surveyed admitted to incurring costs they had overlooked or not expected, so take heed of these potential added extras.

Valuation £200+

All lenders will require a valuation of the property you’re looking to buy, to confirm it is worth the price being paid. While this is commissioned by the bank or building society, typically you will be expected to cover the cost (some lenders may not charge as an incentive, so do check with your lender). Valuation fees vary depending upon the value of the property – but this will usually cost upwards of £200.

Homebuyers’ report £250

While only an estimated 20% of homebuyers have a professional property survey carried out prior to buying a home, according to the Royal Institution of Chartered Surveyors (RICS – www.rics.org), it is vital you have one completed. Valuation surveys focus on whether the price of the home is appropriate, whereas with the homebuyers report, the state and health of the building is determined. If a significant structural problem is discovered, for instance, you may not wish to go ahead with buying your property. The price of this additional survey is usually somewhere between £250 and £500, but it is worth it for peace of mind in the long-run.

Legal fees £1,000

The cost of your solicitor – or conveyancing as it is often known – is another fee many people overlook. When searching for a solicitor, it’s worth getting someone who’s been recommended to you rather than opting for the cheapest option. Also, shop around to see which solicitors will give you a fixed rate (so that any surprises are covered in the cost). Conveyancing fees typically cost between £800 to £1,500, obviously depending upon the cost of your home.

Estate agent’s commission £3,000

The fee you will pay to your estate agent – unless you are selling yourself – is given as a percentage of your overall house price, rather than a fixed figure. A recent survey of UK estate agencies found that the majority of agents quoted 1.5% commission (although 15% did quote 1%). For a £200,000 house then, you would pay on average £3,000 in commission.

Stamp duty £2,000

This charge won’t apply to all first-time buyers – but the majority will have to pay at least the lower stamp-duty threshold. Stamp duty is a tax charged on all land and property transactions. For properties over £125,000, this is 1% of the property price – and for houses between £250,000 and £500,000 you will need to pay 3% (this rises to 4% for properties over £500,000). So again, using the £200,000 example: you would pay £2,000 in stamp duty.

Land registry fee £190

While minimal and a once-only charge, this cost is still one to be aware of. It ensures that every property owner is documented as such, and registers the ownership of said property. It begins at £40 (for properties under £50,000) and steadily increases; so for a property priced between £200,000 and £500,000 you will pay £270 (for our hypothetical £200,000 house, this would be £190).

GRAND TOTAL £6,640


Don’t forget the finer details

With the hectic nature of moving and remembering to sort out various things, a few vital details may fall by the wayside. Watch out for the following…

Home insurance

One-fifth of homeowners are uninsured, according to a study by Co-operative Financial Services, putting them at severe risk in the event of a burglary or fire. So, it’s critical to get home insurance quotes a few weeks before you move in. Companies such as A+ Insurance Services (www.myinsurances.co.uk) offer a range of policies that cover the key areas relating to your property. It even combines buildings and contents insurance, making it cheaper. Buildings insurance is almost always required for your mortgage. Before getting quotes on your contents insurance, you should carry out a detailed inventory.

Remember: In the incident of an emergency – such as if a pipe explodes – you will need cover for this; many buildings insurers offer add-ons for these or, you could take out home emergency cover under a stand alone policy.

Removal plans

Nearly three million home-movers are surprised by the cost of moving home, according to the Money Advice Service (www.moneyadviceservice.org.uk). So, don’t let the cost of hiring a removal company be one of those. Of course, as a first-time buyer, you may have less to move than a current property owner, but it’s still important to begin getting quotes a month or so before your moving date. And if you’re going to get friends and family to help instead, you’ll need to get them available for the whole day. When it comes to getting professional help, it’s worth choosing a removal company that is a member of the British Association of Removers (BAR – www.bar.co.uk); this ensures they meet the minimum standards and are reputable, professional and safe. It also offers practical and expert advice on how to prepare for your move.

Remember: If you can, try to move during the week as you’ll get more time with a removal company and you’re likely to make a decent saving compared to weekends. Van and car hire is always more expensive at weekends.

Change your details

As well as obviously informing friends and family of your move, you’ll need to let the necessary service providers – such as your bank, phone company, and your employer – know of your change of address. Don’t forget your driving licence, too: there’s no charge for changing the address on your driving licence (although if you wish to update your photo at the same time this will cost £20, and be classed as a renewal). A recent study found that 19% of all driving licences are thought to carry incorrect address details, meaning that around 7.9 million drivers could be facing fines of up to £1,000 if caught.

Remember: Not updating your details could have wider consequences, as RAC Foundation director, Professor Stephen Glaister, explains: ‘Drivers should also be aware that incorrect paperwork might invalidate their insurance.’

Sarah says… ‘As a first-time buyer, it’s important to make sure you don’t take on more than you can manage. Be cautious of massive discounts on properties: take them with a pinch of salt.’

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Picture: Shutterstock

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