If you are looking to buy your first home or help somebody close to you buy theirs, it is an exciting time, but not one without challenges. Most first-time buyers have spent some time saving for a deposit or have access to the bank of mum and dad, but the journey does not end there. When the time comes to step onto the housing ladder there is plenty to consider, not least of these considerations is the type of property that the buyer can expect to afford.
The purchase price of your first home will depend on how much you can afford to borrow, which in turn depends on a combination of the size of your deposit, your credit rating and your ability to afford monthly repayments. According to data from MoneySupermarket collected between 2016 and 2018, the average deposit for a first time buyer is £43,433 and the average purchase price of a house for first time buyers is £217,199. The average borrowing amount for first time mortgage loans is £173,766.
The same data showed that the average monthly mortgage payment amount for first time buyers comes in at £760, so it is important to make sure that those costs are factored in to any long term outgoings.
Mortgage providers usually set a maximum loan-to-value ratio, known as an LTV, that they are prepared to offer you. If you were offered a mortgage of £170,000 on a property valued at £200,000 that would be an LTV of 85%. This means that your deposit would need to cover the other 15% at a value of £30,000.
The average LTV for first-time buyers is 82%, however, there are a variety of options available for those with smaller deposits, with most deposits generally being between 5% and 20%. The Government Help to Buy schemes offer a few opportunities to aid buyers in getting on the property ladder. Shared ownership schemes offer the chance to buy a portion of a house, between 25% and 75%, and pay rent on the remaining portion. You can purchase a bigger share down the line, when you can afford to.
The Help to Buy Equity Loan, although only available on newly built homes purchased from registered homebuilders, offers up to 20% of the full purchase price to first-time buyers, with no interest for the first five years. There are property price caps depending on your region, and if the market value of your home rises, so does the amount you owe on your equity loan. It is important to understand the terms you are accepting when taking out any kind of loan, so do your research and seek professional advice before acting.
Rishi Sunak’s Spring 2021 budget outlined the mortgage guarantee scheme, designed to give mortgage lenders confidence in providing higher LTV offerings. This is set to increase the availability of 95% LTV mortgages, allowing would-be first time buyers with smaller deposits to make that first step onto the ladder.
Securing a first mortgage is a complex undertaking. MoneySavingExpert has compiled a complete First-Time Buyers Guide that you may find useful which can be found at www.moneysavingexpert.com/mortgages/mortgage-guide/ however, it is always advisable that you seek professional advice on financial matters before acting and Choice Mortgage Solutions regularly work with First Time Buyers to help them every step of the way.
Remember, a mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.