Getting Your Foot In The Door

The plight of first-time buyers has been making headlines for a long time now – along with the importance of the “bank of mum and dad”. Young adults who want to move away from the parental home for study or work (or just so they can have their independence) face the challenge of saving for a deposit, while paying rent. Given that owning a home is an ambition shared by many people, it’s worth looking at ways to make it easier.

Putting together the deposit Those four little words may represent one of the biggest financial challenges any individual will ever face. It’s long been understood that even in the heady days of the housing market, long before the Mortgage Market Review, when it came to deposit bigger was better. These days 100% mortgages, while theoretically still available, are very much a niche market and even 95% mortgages are challenging to obtain. The government attempted to address this issue with the introduction of the Help to Buy ISA in December 2015. Under this scheme, buyers can save up to £12K, which will be topped up with a 25% bonus, i.e. a possible maximum of £3K. This scheme has, however, come in for serious criticism as the funds saved can only be used after the sale is complete rather than put towards the deposit, which is typically paid upon exchange of contracts. In theory, mortgage lenders could look for ways to work around this, but since the Help to Buy ISA is due to come to close in November 2019, there is very little time for them to do so. In addition to this, April 2017 will see the launch of the Lifetime ISA, which is available to savers between 18 and 39 and which addresses this complaint by making it possible for savers to access their funds on exchange rather than having to wait for completion. In other words, it makes it possible for savers to use their funds for a deposit rather than forming part of the purchase price. The Lifetime ISA also offers a 25% bonus and there are conditions attached to its use, so potential home buyers should do their research and make sure it is a suitable product for their situation before deciding whether to use it.

Reducing the level of the mortgage you require The government’s equity loan scheme, effectively increases a buyer’s deposit by up to 20% of the purchase price of their new home (this is increased to 40% in Greater London). The purchasers need to put up a 5% deposit themselves, which means the mortgage lender only needs to advance 75% of the price (55% in Greater London). The property must be a new build and the maximum price is £600K (this also applies in Greater London). The buyer must have a repayment mortgage as opposed to an interest-only one. The loan is without charge for the first five years and after that fees are payable until it is repaid.

Making yourself more attractive to a mortgage lender Unless you can actually afford to buy a house outright, you’re going to need a mortgage, which means that you’re going to need to be able to convince a mortgage lender that you’re a good prospect. First and foremost this means convincing them that you meet the affordability criteria set out in the Mortgage Market Review. With this in mind, it helps to start getting your financial ducks in a row as early as possible. Healthy financial habits such as budgeting, saving and keeping your financial paperwork (physical or digital) in order, will all stand you in good stead when it comes to getting a mortgage, as will having a gleaming credit record.