Can you still be a first time buyer?

The fact that house prices seem to be falling comes as depressing news for those who have grown used to watching the value of their investment in bricks and mortar reach ever higher values.

But there is one group of people who are celebrating falling house prices. Those who have yet to put their feet on the first rung of the housing ladder.

But these are uncertain times. So whether it is for yourself, your children or grandchildren, at Continuum we are asking whether you can still be a first time buyer – and how can you do it?

Prices may be falling- but interest rates are going up

The problem is that falling house prices – which are starting to be reported across the country are mainly the result of a rising Bank of England base rate, and consequent dramatic increases in mortgage repayments.

Borrowers have gone from the historic low of a 0.1% base rate to a more realistic 3% in a matter of months, meaning that monthly repayments have shot up dramatically.

But even if the first-time buyer felt they could afford a 60% increase in monthly mortgage payments, they may not even be offered such a large loan. Lenders’ affordability stress tests mean borrowers have to be able to prove that they can afford even higher payments. This slashes their maximum loan size.

But there may be some solutions for first time buyers

Millions of homeowners will grapple with soaring interest rates in the coming year, but a generation of first-time buyers will face the biggest challenges. 

Fortunately, there may be some ways to overcome them.

Tracker mortgages

The tracker mortgage, where the interest rate you pay is pegged to the Bank of England base rate has gone out of fashion in recent years, as most borrowers recognised the wisdom of tying themselves in to a historically low repayment for as long as possible.

However, tracker mortgages have enjoyed a resurgence as borrowers gamble that interest rates will peak sooner than expected. 

The most obvious is that you will be at the mercy of future rate rises, which are an unknown quantity. So, for example a tracker mortgage at say 3% may be more attractive than a fixed rate of 6%, in the short run and if bank rate does not go sky-high could be the better solution in the long run too.

Shared ownership 

Shared ownership is a government backed scheme that allows you to purchase between 25 to 75% of a property while paying rent for the remainder, which is usually owned by a housing association.

Homeowners then have the option to gradually increase their level of ownership by buying more shares, in some cases as low as 1% at a time, in a process known as “staircasing”.

It could help you get on the property ladder – although you should look closely at the costs to see how real the savings are.

The First Homes Scheme 

The First Homes Scheme allows first-time buyers to buy selected new build properties at 30 to 50% less than the open market value.

There’s a minimum 5% deposit requirement and currently the homes available to buy through the scheme cannot cost more than £420,000 in London or £250,000 anywhere else in England, after the discount.

The mortgage guarantee scheme 

The mortgage guarantee scheme is another government initiative which is designed to help would-be homeowners with smaller deposits to get on the property ladder.

This means you only need to save up a 5% deposit to buy a home and you can borrow the remaining 95% of the property’s value.

The Lifetime ISA

The lifetime ISA is a savings account designed to encourage people to either save for their first home or for retirement. Like other ISAs it allows tax-free savings – but unlike the others, it attracts a 25% bonus from the government on your savings. (You could incur a charge of 25% if you make an unauthorised withdrawal or if you transfer your Lifetime ISA to another type of ISA before the age of 60).

It’s available to anyone aged 18 to 39 and you can save up to £4,000 each tax year with the Government providing up to £1,000 a year.

It could be a big help in building up the deposit you need.

Getting some help

The falling property market may mean some exciting opportunities for first time buyers – if you have the deposit and mortgage you need. At Continuum we can help you plan the best way to build your deposit, take full advantage of the schemes available – and even find the very best mortgage deal.

For the help you need to get on the housing ladder, even in times like these, simply call us today.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.

The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested. 

As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment.

Property valuation is a matter of judgement by an independent Valuer therefore it is generally a matter of opinion rather than fact.

By incurring a Lifetime ISA Government withdrawal charge you may get back less than you paid in.

By saving in a Lifetime ISA instead of qualifying pension scheme you could lose contributions by your employer, if any.

Saving in a Lifetime ISA may affect your entitlement to current and future means tested benefits.

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