One of the most common questions on aspiring home-owners’ minds is “why do I want to buy a home instead of renting?”
When you add up the costs of paying back a mortgage over two or three decades, it does look extremely expensive. Yet, when the mortgage loan and interest are paid off and the property is owned outright, there will be no monthly mortgage repayments left once the borrower comes to retire, making it the number one reason to buy rather than rent.
The other main question from first-timer buyers is “when do I buy?”
Following years of heady growth in property prices, it’s hard for new property owners not to worry about their new home going down in value.
Nevertheless, even today we see property prices on the rise again. Negative equity need only be a problem if the home owners have to sell up for reasons outside their control and it helps to remind first-time buyers that property ownership is a long-term investment.
It’s a difficult environment for first-time buyers right now. Uncertainty about employment and the economy is coupled with the requirement for a significant deposit and the reluctance of mortgage lenders to lend.
Lenders are still reeling from the credit crunch. They are building up capital and paying out to help keep defaulters in their homes; they have a lot to contend with but now should be the time when they are in a position to start lending responsibly.
The trouble is, without first-time buyers, the whole market slows significantly and all mortgage and property transactions suffer.
As things stand at the moment, there are a lot more people who want to buy their first home than there are people purchasing and aspirations far outweigh the reality.
While there are now some lenders who will lend up to 90% of the property purchase price, they will typically make higher charges. Otherwise, it’s very hard for first-time buyers to come up with a significant deposit, especially without help from mum and dad.
Team support
High property prices in the UK have lead to the growth of joint ownership, shared ownership and shared equity. None of these solutions are ideal and can often lead to complex arrangements or smaller mortgages.
With the prospect of their first major financial and legal purchase, first-time buyers need a lot of support along the way. It can seem that they simply take and take and take advice from brokers with little or no return, but I believe it is worth it long-term.
First-time buyers will almost certainly want to rely on mortgage advisers to guide them through such options as joint ownership or shared equity, and use their knowledge of local Homebuy schemes, agents and nearby new housing deals and offers.
If they are buying with friends or family, first-time buyers will not only need to understand the legal difference between tenants in common and joint tenancy, they need to understand the joint liability in regard to mortgage payments.
With shared ownership, which is often attractive to those who can’t borrow very much and don’t have much of a deposit, the questions will centre on rights and responsibilities, increasing their share and how to sell on.
The Homebuy Direct shared equity scheme has been great for keeping new house builders afloat. The scheme is currently due to end at the end of September (though let’s see what happens) and is a slightly more complex lending scenario, but can at least offer larger loan values.
Bank of Mum and Dad
Up to almost half of all first-time buyers will turn to their parents for help with the deposit and maybe even their mortgage too.
In these instances, parents might remortgage or release equity in order to help conjure up a gift or loan of a deposit.
Brokers can provide information and support to parents through the first-time buyer or a better solution is to work directly with the parents to discuss the financial and legal implications, and possibilities. This can provide a more complex yet fulfilling solution for many.
In essence, whilst the mortgage market is still so tough, first-time buyers will need a lot of hand-holding and help though the process.
It is not necessarily a good short-term return on investment for advisers, but it does help keep the market turning over and will hopefully lead to a long-term relationship between borrower and adviser that will reap rewards down the road.
There are options available for first-time buyers. They are not straightforward by any means and need a good deal of patience on the brokers part, but I do believe they are worth the investment in the long run or even sooner, if the mortgage offering, particularly though intermediaries, improves.
Helen Adams is from FirstRungNow.com
