More than two fifths (43%) of current working-age renters believe that they will not own their own home by the age of 70, according to research from Aegon.
Further figures from the Department of Work and Pensions show that, over the decade between 2007 and 2017, the number of working-age people living in private rented accommodation has increased.
Why is buying a house so hard?
Getting onto the property ladder is difficult for a lot of first-time buyers. For anyone who isn’t an heir to a large fortune, the process of saving for a deposit is the first, and often the largest, hurdle.
As house prices continue to rise overall, so too, does the amount needed to secure a mortgage. Unfortunately, the average income has not grown in line with the cost of a home deposit, which means that first-time buyers of all ages need to save for longer before being able to buy.
Furthermore, the need to save for a deposit must be balanced with both the changing financial needs of families and the need to save for retirement. Unfortunately, it is not always possible to put off starting a family or retirement planning for long enough to afford a first home.
How can you make the process easier?
There is no magic button to make your first home more affordable (or to convince your boss to increase your salary!), but there are steps you can take to make the process less difficult, and potentially help you to buy your first home sooner. These include:
1. Looking after your credit score
Your credit score is one of the biggest factors affecting the mortgage rates you can access; and whether you are accepted for a mortgage at all.
To improve the options available to you, you will need to increase your credit score as much as possible before applying for a mortgage. There are several ways to do this:
- Make sure you are on the electoral register
- Check your credit report often and keep your details up to date
- Repay credit on time and in full
- Avoid risky credit, including payday lenders
2. Saving wisely
The way you save money for your deposit will affect how quickly you have enough to buy your first home. For example, if you are under the age of 40, you may want to consider using a Lifetime ISA (Individual Saving Account). These are available for anyone aged 18 to 39 and have a maximum annual deposit limit of £4,000. Designed to help first-time buyers save toward their first home, the Lifetime ISA is government-backed and each year, a bonus equal to 25% of the previous years’ deposits is added to the total.
Money saved in a Lifetime ISA can be used as a deposit on a first home, or as retirement income when you turn 60, without incurring penalties. However, withdrawing funds for any other reason will incur a 25% penalty, which will remove the bonus and eat into the original contributions.
If you are over the age of 40, you will not be able to open a Lifetime ISA, but there are still many options available. To discuss them in more detail and to find the savings method which is best suited to your needs, please get in touch.
3. Mortgage options
The size of the first-time buyer market, and the problems currently facing them has led to mortgage providers beginning to offer more innovative products which are tailored to the needs of someone looking to buy their first home. These include low-deposit mortgages, sometimes known as ‘Springboard mortgages’, which require either a lower deposit than normal mortgages, or no deposit at all. However, these mortgages do require a guarantor to make a deposit into an account. This money is not used as part of the mortgage, it is simply held for several years as security on the mortgage, before being returned to the guarantor.
4. Buying options
There are a number of schemes available to help first-time buyers get onto the housing ladder, including:
- Help to Buy Equity Loans: This scheme breaks the cost of buying a house into three segments: A 5% deposit, provided by the buyer, the remaining 20% deposit in the form of a government loan, and a 75% mortgage, from a mortgage provider. The 20% loan is interest-free for five years and means that first-time buyers can access the property market without saving the full 25% deposit.
- Shared Ownership: This scheme allows you to buy a part-share in your home. Usually between 25% and 75%, from there you pay rent on the remaining share, which will continue to be held by the housing association, and you are able to increase your share, or buy the property outright in a timeframe to suit your needs.
Can financial advice help?
We can help you to develop a financial plan which fits with you and your family’s needs, especially if you are an older first-time buyer who maybe has children to think about. We can also make sure that your plan allows you to save for both a home deposit and prepare for retirement.
For more information, or to get started, please get in touch with Sarah or Bev on 0115 933 8433.
Your home maybe repossessed if you do not keep up repayment on your mortgage