Is there good news for first-time buyers?

For you, your children or your grandchildren, getting on the housing ladder means a feeling of security, knowing our hard earned money is buying an investment for ourselves rather than a landlord, and even the freedom to paint the walls the colour we choose.

Getting on the housing ladder has always been difficult. Rocketing house prices and now rocketing interest rates have made things even worse.

But there could be good news for first time buyers.

First-timers are back

Overall mortgage applications are down – but despite high costs and worries about the future, first-time buyers made up the largest proportion of property purchasers last year.

According to figures from Yorkshire Building Society, buyers climbing onto the property ladder for the first time accounted for 53% of mortgaged purchases. This was up from 50% in 2021 and 41% a decade ago. 

So why – and how – are first time buyers buying?

Demand from first-time buyers remains strong, even with house prices at historic highs for much of the year and the country experiencing political and economic uncertainty.

But buying beats renting on an emotional level – and it may make better use of money, even when it is short. If you can build up a deposit and secure a mortgage even with increasing rates and daunting affordability criteria and stress tests, buying can still cost less than renting.

So how are they doing it?

The first hurdle is of course the deposit. Average prospective buyers will be 37 years old by the time they have enough saved for a deposit, according to recent research from First Direct.

However, help from the bank of Mum and Dad (and often Grandma and Grandpa) may make it easier to reach the 10% required for a standard mortgage. Those who can’t may be able to secure a home loan with 5% deposit  and the government mortgage guarantee scheme. 

This is designed to increase the number of deals available to homebuyers with a low deposit or limited equity and has been extended to the end of 2023. The scheme guarantees that the Government will shoulder some of the lenders cost if a borrower fails to keep up the repayments. This gives want-to-be homeowners access to 95% mortgages.

The second hurdle is the high cost of property, which coupled with increasing interest rates means mortgage repayments are much higher than they have been for years.

But there is a solution for this, too. 

Many first-time buyers are taking out mortgages over more than 30 years to cut repayment costs as interest rates soar.

A longer term means easier monthly repayments, but at a substantial long term cost.

This need not be the problem that it first appears. Very few people stay in their first home for life. They build up equity for a year or two, and then move up the housing ladder, perhaps to a family home when children come along.

The chances are that they will change their mortgage arrangements at the same time, letting them switch to a shorter term. 

Working out a first-time buyer solution.

If you are a first time buyer, you may need some expert help to secure the mortgage you need. At Continuum we can provide the expertise you need to get on the property ladder – or to make your next move up it.

Call us for the help you need.

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.

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

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