first time buyer
In today’s budget the Chancellor announced more support for people wishing to buy their own homes, but will it make things easier for you and how can you go about saving up a deposit of your own?
The additional support for would-be home owners comes in two forms. Firstly the New Buy scheme is being expanded. This scheme helps buyers secure a mortgage by reducing the level of deposit that you have to raise on your own.
It’s effectively an interest free loan from the Government which you can put towards your deposit and pay back when you sell the house. This scheme will be available to anyone buying a new home under £600,000. The second support mechanism will be launched in 2014 nd will be a guarantee provided to banks against mortgages, effectively allowing banks to reduce deposits to 5% without taking on so much risk. Think of it as an insurance policy for banks.
So where does this leave you?
If you are thinking about buying a house you will likely still have to raise some kind of deposit – whether it’s 5% or 25% – so how do you go about saving this?
One way is to get an ISA in each tax year so you can put your savings into an interest free savings account.
For 2013/14 the annual ISA investment allowance will be £11,520, of which £5,760 can be saved in a cash ISA and the remainder can be invested in a stocks and shares ISA. If you do not use your ISA allowance for a given year then you lose it, so it can be prudent to use your allowance each year to maximise your tax free savings.
The Government’s New Buy Scheme was launched in March amidst a great fanfare and hopes that the plans would give the property market a much needed boost. Six months on however, the first set of purchase figures have indicated a slow start to the scheme.
In the four months from the launch of the initiative, only 250 homes were sold through the scheme. Overall, the coalition were looking to help 100,000 people move by the end of 2015. Writing in his newspaper column in January, the then Housing Minister Grant Shapps underlined his hopes for the new buy project.
“At the heart of the (government) Strategy is a new-build indemnity scheme, which will offer a useful alternative to the Bank of Mum and Dad for those people struggling to get deposits together and take a step on the housing ladder,” Shapps wrote.
“Due to be launched this Spring, under this new industry-led scheme house builders and we in Government will provide security for the loan, enabling homebuyers to secure mortgages on newly-built homes with just a five per cent deposit”
The headlines surrounding the news suggest that this is a big blow for the government’s plans but as a spokesman for the Department for Communities and Local Government pointed out, the average house purchase takes around six months to go through and a significant proportion of reservations aren’t shown in those initial figures.
“As the Home Builders Federation have recently reported, 1,500 reservations have been made through NewBuy and at least 25,000 additional new homes will be built as a direct result of the scheme,” the Spokesman said.
The Home Builders Federation are also standing behind the scheme and they indicate greater interest from lenders and property developers since the launch back in March. At that stage, only seven builders and four lenders had expressed an interest but this has risen to six lenders along with thirty developers.
“People weren’t aware of it – it’s a completely new scheme,” said Steve Turner, spokesman for the HBF.
“Take-up in the past few weeks has markedly increased, to about 100 reservations a week.” He said take-up had been similar to the previous government’s FirstBuy scheme, which was regarded as a success.”
Predictably however, the opposition government has criticised the initiative in the wake of the new figures and is suggesting that the planned target for 100,000 purchasers by 2015 is way off course.
“The government needs to drop the hype and change course by implementing a real plan for homes, jobs and growth,” said Shadow Housing Minister Jack Dromey.
“If it fails to do so, at this rate, it will take 200 years for NewBuy to help 100,000 homebuyers buy their own home.”
Whoever is right or wrong in this argument, it seems that it’s far too soon to be judging the New Buy Scheme after just four months.
With Santander set to increase their Standard Variable Rate (SVR) Mortgage next month, it may already be too late to take advantage of the lender’s lower option but, according to industry experts, there are some attractive alternatives on the market.
The levels at which the banks lend to one another (swap rates) are very low and in turn, this has led to a number of impressive remortgage deals. Providing the financial penalties for transferring your mortgage are either low or non-existent, these deals could be well worth considering.
“Swap rates are very low, which has led to fixed-rate mortgages improving significantly in recent months,” said David Hollingworth of London and Country Mortgage Brokers.
Mt Hollingworth went on to advise anyone facing an increase in their SVR to consider a transfer as soon as possible.
“Getting a mortgage offer can take at least a couple of weeks, and often more for those lenders with the best rates as they deal with higher volumes of business,” he added. “It therefore makes sense to get the ball rolling sooner rather than later and to be sure to provide any supporting documentation promptly to ease the process.”
New boys Tesco Bank are offering a 3.39% fixed rate while HSBC have a tempting tracker which as set of 2.14% above the Bank of England base rate for the life of the mortgage. Fees and minimum deposits are naturally involved and it is always advisable to check these but for anyone in a position to remortgage there are plenty of options around.
As far as new mortgage lending is concerned, figures released at the end of August showed an increase in approvals of around 44,000 from June to July amidst claims that the market remains subdued.
“The month-on-month numbers jump up and down but the overall trend is one of extremely low borrowing levels and a market that’s flatlining,” said Ashley Brown of mortgage broker Moneysprite.
With swap rates continuing at low levels, perhaps those month-on-month numbers may start to reveal a steady increase from this point onwards.
Figures relating to mortgage lending and the property market as a whole have been affected by a number of unusual factors this year. Firstly, there was a late rush to beat the stamp duty ‘holiday’ on properties priced up to £250,000 and the subsequent summer lull was exaggerated by major public events – namely the Queen’s Jubilee and the Olympics.
However, figures released today by the Council of Mortgage Lenders (CML) suggest that lending in June 2012 was boosted by the return of many first time buyers to the market but does this mean we can expect a settled period for the remainder of 2012?
The CML confirmed that lending to First Time Buyers (FTB’s) stood at its highest point since July 2010 – excluding the solitary month of March 2010 when the property market saw a late rush to beat the stamp duty reintroduction.
Paul Smee, Director General of the CML welcomed the news but said that he expected further fluctuations in the market. Concern over the Eurozone crisis continues and the statistics have yet to see any impact from this year’s Olympics.
“Lending figures have see-sawed in the first half of the year and we may see more fluctuations in the coming months,” Mr Smee said.
Many property professionals are pleased to see FTB’s return to the market in such numbers but insist that more has to be done to make first time property purchases more accessible.
“It’s good news that ending the stamp duty concession appears not to have held first-time buyers back permanently, but they still need as much support as possible,” said Charles Haresnape, managing director at Aldermore Residential Mortgages.
“It will be good to see more lenders participating in NewBuy and offering schemes to help borrowers who are struggling to find a deposit.”
The Mortgage Advice Bureau confirmed that their own figures were largely in line with those released by the CML but they also predicted an uncertain period ahead.
“MAB’s own figures for May reflect those released by the CML,” said Brian Murphy, head of lending at the Mortgage Advice Bureau.
“However, we expect external factors to play a major part in activity levels in the next few months, with activity levels to continue to fluctuate.”
Overall, it’s impossible to identify any pattern in the figures released by the CML but it has to be a positive aspect to see FTB’s returning to this level. The future may be uncertain in the short term but longer term benefits should be attained by making it easier to make that first step onto the property ladder.
Everyone has heard about the bank of Mum and Dad but there are fears that first time home buyers are skipping a generation and looking to their Grandparents for help with funding their purchase.
These concerns have arisen after reports that the sale of Equity Release products has soared in the six months from January to June of this year. The increase equates to a rise of over 10% from the same period in 2011.
During the first half of 2012, the Equity Release Council report that some £424 million was freed up with 31% of those surveyed stating that the money was to be distributed among their loved ones. With young first time buyers struggling to raise a deposit in order to get onto the property ladder, much of this money is being utilised in this way.
Dr Ros Altman, Saga’s Director General put the issue in blunt terms when she stated that the elderly are living longer and their grandchildren are having to wait longer for their inheritance as a result.
‘The last thing you want as a grandparent is for your children and grandchildren to be thinking, “When is granny going to pop off so I can get my hands on the house?” She said.
Among the concerns expressed by some observers is the theory that many who enter into the schemes are not fully aware of the process and how it works. While the debt involved is only repaid upon death, the outstanding amount can double every eleven years.
With that in mind, the Consumer Credit Counselling Service has advised the elderly to consider their own futures and the potential issues involved before entering into any Equity Release scheme.
‘While equity release to help children or grandchildren get on the property ladder or pay for their education can be gratifying for many, it can be a huge burden for others,’ a spokesman said.
‘There are a lot of costs associated with getting older, and it is crucial that these are factored in to any decisions about equity release.’
Andrea Rozario, director general of the Equity Release Council concludes by asking anyone currently considering an Equity Release product to take independent advice before making the final decision.
‘Advisors are incredibly important when it comes to equity release as not only will they help the consumer to decide if equity release is right for them, but also make sure that they are getting the benefits they are entitled to,’ she said.
A recent survey carried out by RightMove on behalf of the Guardian has underlined just what First Time Buyers (FTB’s) currently need in order to take that vital first step onto the property ladder. Essentially, it’s claimed that those requirements amount to three key ingredients – a degree, a partner to share the costs and benevolent relatives who are prepared to help.
Over 5,000 FTB’s took part in the survey which found that one in four would be seeking assistance from their parents in order to fund a deposit. However, 53% of those surveyed claimed that they would be funding their purchase alone.
Overall, 38% of those surveyed were educated up to degree level and 30% held some form of postgraduate qualification. While the survey took in respondents of all ages, it was found that, of those between the ages of 25 – 34, 41% held a degree.
The findings were intended to underline just how difficult it is to get on the property ladder as house prices have risen beyond income increases in recent years. In addition, the perception is that lending criteria has made it increasingly difficult to obtain a mortgage but do these results really back those claims up?
You could reverse the headline to suggest that three in four respondents weren’t seeking financial assistance from their parents and for some, the fact that over half of FTB’s surveyed are buying a property alone is a significantly high figure.
Earlier this month, RightMove produced another survey of FTB’s which they claimed had provided some positive results as those buyers came to terms with the economic downturn. The findings revealed that of those looking to purchase a property within twelve months, three in ten were FTB’s and this was the highest level for almost three years.
Reacting to the news, Rightmove’s Miles Shipside said,
“The results come as a welcome surprise, hopefully this three year high in intending first-time buyers will come to fruition.”
“The property market needs this upward trend in first-time buyer activity to continue as first-time buyers perform an essential role at the bottom of the property market food chain. “
Mr Shipside also added a warning that the future for FTB’s was far from certain but, on the face of things, there are two sets of conflicting reports from the same source in the same month. Alternatively, perhaps this just emphasises that there are times when statistics can be viewed in two separate ways.
The Governments Affordable Homes campaign, launched in 2011, was designed to get Britain’s home builders moving to provide the supply to meet a considerable demand. However, reports released by the National Audit Office (NAO), suggest that the scheme may fall some 50% below its intended target.
The plan had looked to deliver 80,000 new properties by the end of 2015 but the NAO are not only suggesting that the numbers may be nearer 40,000, they also suggest that due to financial issues, providers may not be able to keep to their agreement and charge 80% of market rent.
The plans, announced in 2010, left little room for negotiation and manoeuvre at the time,
“There are key risks including the fact that more than half of the homes are planned for the final year, with no room for slippage,” said Amyas Morse, Comptroller and Auditor General.
“The final judgment on the success of the programme will depend on how well these risks can be managed between now and 2015.”
Under the programme, different organisations had set themselves up as housing providers and these included local housing associations, local authorities and private companies. The main problem, as identified by the NAO seems to lie with those providers struggling to raise adequate finance to fund the project.
“Some have had to offer additional collateral, generally in the form of assets rather than cash, to lenders because of using financial derivatives to reduce their interest rate risk,” the report claims.
“A survey by Baker Tilly in 2012 found that 63% of registered providers who responded are now considering alternative funding other than traditional banking sources, the most popular being corporate bonds.”
Margaret Hodge will chair the public accounts committee that will examine the report and she indicates that the government will not explain at this stage as to just how many tenants are likely to be affected.
“The department has scrapped the target rent guidelines for this programme, leaving vulnerable tenants increasingly dependent on housing benefits and increasing the welfare bill by £1.4bn,” she said.
“The department has refused to be transparent about just how many tenants will be affected and by how much.”
Margaret Hodge went on to suggest that the scheme would have to be more transparent if there was any hope of it being completed on time.
“My committee will want officials to regularly and transparently update their assessment of the costs and benefits of the programme so that we can hold them to account for the social and financial consequences of their decisions, particularly in light of changes to the welfare system,” she concluded.
In recent weeks we’ve looked at many surveys in different parts of the property sector and one of the common themes is the difficulty young people face in buying a property. Organisations such as Shelter have called on more efforts by the government to address issues within the rental market while it’s also being suggested that young people are being forced to stay home for much longer than they would prefer.
Figures released by the Bank of Scotland this week are now stating that the majority of parents are now fully aware that they will need to provide assistance if their children are to stand any chance of getting onto the property ladder.
The findings show that 55% of those surveyed believe it to be essential that they offer a financial hand in this type of situation but the numbers of prospective property purchasers seeking that help has risen dramatically.
The survey concentrated on those between the ages of 18 and 34 and it found that while around 61% were looking for home buying aid from their parents in the 1980’s, that figure had shot up to 84% in the present day. Additionally, it was also found that 30% of young people were receiving aid from their parents to pay rent as opposed to 8% some thirty years ago.
“Much has been said about the bank of mum and dad in relation to the cost of getting on the housing ladder, but it is clear Scottish young adults rely on financial support from their parents for a lot more than this,” said Greg Coughlan, head of savings at Bank of Scotland.
While that quote may mention Scotland specifically, the survey took in 1500 young adults from across the UK so it’s clear that this is a nationwide issue. Aside from buying a first property, those surveyed said that they were also looking for parental aid to pay for other essentials such as a car and university fees.
A separate poll carried out by Post Office Mortgages looked to underline how keen young people were to get onto the property ladder. The survey said that 36% of males and 32% of females aged between 18 and 34 were hopeful of buying a property in the near future.
“All first-time buyers need to make sure they don’t compromise on getting the right mortgage to help them get on the property ladder,” said Mike Cook head of mortgages at the post office.
Mr Cook also went on to suggest that FTB’s should also look at saving a 10% deposit but that is precisely the problem that is seeing those prospective purchasers look to their parents for financial aid in the first place.
Earlier in the week we saw the reaction of Shelter, the housing and homelessness charity to a survey claiming that property rental could soon become a permanent way of life for many. The organisation suggested that the government had to wake up to the reality that only a quarter of the UK population may be owning their own home by the year 2025 and to ensure that improvements were made in all areas.
“It’s time government woke up to the fact that ‘rental Britain’ is here to stay,” said Shelter’s Chief Executive Campbell Robb.
While these are apt comments, some observers were surprised that the organisation didn’t take the opportunity to suggest that home ownership needs to be more affordable. To be fair however, Shelter have been vocal on this subject in the past but for the time being, this particular challenge has been taken up by another charity – the Joseph Rowntree Foundation.
The organisation focuses on potential buyers between the ages of 18 and 24: At present it claims that 2.4 million of them live in private rented accommodation but as they attempt to save for home ownership, ‘inflated’ house prices mean that they face an uncertain future.
The foundation then calls for major reforms in order to avoid a permanent rental trap by the start of the next decade. By 2020 it claims that young people will be staying with their parents for longer and they will subsequently need to call on those parents to help them purchase their own home.
Those that decide that staying at home has run its course face the prospect of a long period of private rental.
“The challenges facing young people by 2020 will require fundamental changes to the UK housing system. Young people are particularly vulnerable in a badly functioning housing system due to their lack of resources and opportunities,” the report states.
It goes on to echo the comments made by Shelter in suggesting that huge reforms are needed in the private rental sector.
“There is a particular need to reform the private rental sector, balancing the interests of both landlords and tenants. The growing number of families living in the private rental sector will create a need for more stability in the sector,” the report concludes.
While Shelter and the Joseph Rowntree Foundation may be approaching things from slightly different angles, they both agree that home ownership may become just a distant dream unless more positive steps are taken to address the issue.
An economist from one of the country’s biggest mortgage lenders has spoken this week about the need for first time buyers (FTB’s) to think carefully about the location of their intended purchase. In particular, it has been suggested that those prospective purchasers are being priced out of moves to certain parts of the UK, particularly London.
“The average Londoner trying to save for their first home has to spend around three-quarters of their income on rent, leaving precious little for savings. This compares to around half [of their income] for the rest of the UK,” said Fionnuala Earley of RBS Group.
In addition, it is claimed that while it takes an FTB 37 months to save a 10% deposit in some parts of the country, that period is extended to 51 months for deposits in London.
If you’re concerned about the variations in cost, depending on postcodes, there are many ways in which you can research any area for prices and suitability of property and they aren’t just exclusive to London.
As far as pricing is concerned, we’ve seen comments from some property experts suggesting that there is a huge discrepancy in some cases between property asking prices and the realistic selling price that a vendor can hope to achieve.
There are, fortunately, many websites where you can find out exactly how much homes have sold for in the area. Zoopla.co.uk for example, have prices going back to 1995 and while the earliest of those might not be exactly relevant, more recent examples should give you an accurate picture of sales figures in that postcode.
As far as suitability is concerned, there are many useful tips that have been expounded by property experts for ages but they remain powerful ideas to help you make up your mind.
Firstly, park the car somewhere and take a walk around the area. Look out for noise while you look at present housing and consider its condition, all of which should give you an idea of the neighbourhood. Remember to take this action at all times of the day and night to get a real feel for where you’re thinking of moving to.
If you’re looking for an affluent area with good schools and shops, it is said that there are key names on the high street that only set up in a town when extensive research has told them that the local clientele are financially disposed to their wares. Those names include Waitrose, Starbucks, Pizza Express and others.
The research involved here may not help you reach that 10% deposit any quicker but it could save you money on your property initially before giving you the opportunity to gauge the area and make sure you’ve made the right choice.