New advice on mortgages for first time buyers and buying a home
In the first half of 2023, home mover completions with a mortgage were 33 per cent lower than 2019 levels, whilst first-time buyer numbers were around 25 per cent down. The building society calculates that a first-time buyer earning the average wage and buying a typical first-time buyer property with a 20 per cent deposit would now see their monthly mortgage payment absorb over 40 per cent of their take-home pay if they had a mortgage rate of six per cent, which is well above the long run average. The average interest on a two year fixed rate mortgage is now 6.72 per cent compared to 2.34 per cent in 2021.
This has led to some would-be first time buyers to hold off from buying a home. However, others are keen to take advantage of falling house prices. Andrew Milnes, business principle at the Mortgage Advice Bureau, Bingley, says: “We are still seeing plenty of first time buyers and our advice to them is to get a two or three year fixed rate deal but definitely not a five-year fix. A two year fix would take you through into 2025 when inflation is forecast to have fallen and you can find another fixed rate deal at a lower interest rate.”
Andrew adds that for those looking for a 95 per cent mortgage, Skipton Building Society is offering a two year fixed rate of 6.39 per cent and if you have a ten per cent deposit and are looking for a 90 per cent mortgage, Newcastle Building Society has a two year fixed rate at 5.85 per cent.
Another way of bringing down payments is to borrow for longer. “Previously a first time buyer might have had a 25 to 30 year mortgage but we are now seeing more of them opting for 35 to 40 year terms but, of course, you can reduce that term later if you like,” says Andrew.
Here is some more advice for those who want to get on the first rung of the property ladder: *Do the sums. If you are renting then it still may make sense to buy even with higher interest rates but take stamp duty into account. First time buyers do not pay stamp duty on the first £250,000 but on the portion from £250,001 to £925,000, they pay five per cent.
*House prices have also fallen. Nationwide report that house prices fell by 0.8 per cent in August and are 5.3 per cent down year on year, which is helpful for first-time buyers as is the fact that some people in family-size homes are downsizing to cut their energy bills. There could well be room for negotiation when buying a property so don’t forget to politely haggle and polite is the keyword here.
*Buy new and strike a deal. You will generally pay more for a newly-built home but it will usually be much more energy efficient than an older property and that should save you a considerable amount of money each year. Plus the property should need no or little maintenance and will be under warranty.
As the market is slower, there are more incentives. At its Mortimer Park site in Driffield, Barratt Homes is offering a Move in package available on selected homes with up to £975 per month towards your mortgage for 12 months or up to £11,750 towards your deposit, along with a kitchen upgrade with integrated appliances and flooring. A two-bedroom terraced Kenley home is £162, 000 and comes with £8,100 towards your deposit or mortgage, free flooring worth up to £1,620 and kitchen and bathroom upgrades.
*Buy a do’er upper or a property that is tired and dated but perfectly habitable. It does not have to be perfect and it will pay to sacrifice perfection for location.
*Look to the fringes of your preferred search area or possibly to an entirely different area. This is a good tactic that can work if you do your research on amenities, transport links and all the things that are important to you. If you have children or are planning on having them then look at schools, both primary and high schools, and check they are well-regarded.
*Buy a smaller property with scope to extend when you have saved the money to do the work. Look at whether you can create rooms in the roof, extend to the side or convert an attached garage.
*Get a helping hand from family. Barclays has a Family Springboard Mortgage, which means you can use family or a friend’s savings to buy your own house with your own mortgage and those supporting you will get their money back, with interest. Also check out Generation Home’s innovative mortgages, which have been a success thanks to using a fresh approach that also allows family and friends to help you.