Is it getting easier for first-time buyers to get on the property ladder?
For many years, we have listened to tales of woe from first-time buyers, forced to rent for eternity due to their inability to convince a mortgage provider to lend them some money for 25 years or more. The stumbling block that many first-time buyers struggle to overcome is not the monthly mortgage repayments, but the fact they are expected to pay 20% of a property’s asking price up front.
The government is attempting to solve this problem by making it possible to purchase a new-build or an existing house with as little as a 5% deposit. Much has been written and said about schemes like Help to Buy, but how effective have they actually been?
A key component of the government’s long-term economic plan is building more houses for first-time buyers. Building levels have risen to somewhere near the levels we saw before the recession, and sales of new-builds have been increasing across the country.
With the government’s New Buy scheme, it is possible to purchase a newly-built house with a 5% deposit. To qualify, you just need to be a UK citizen, wanting to buy a newly-built home priced £500,000 or less, and that house must have been built as part of the scheme.
If you have modern tastes and are looking for a new property to buy, this may be the ideal option for you.
A mortgage under the government’s new strategy works the same as any other home loan, the only difference is that the government offers lenders the option to purchase a guarantee on mortgage loans.
Due to this added security, lenders taking part have the option to offer first-time buyers more high-loan-to-value mortgages (80-95%). However, as you will still be responsible for repaying your own mortgage, you will need to fully pay back a 95% mortgage.
According to government research, 15,000 people all over the country have purchased a home through the Mortgage Guarantee. The average house price of a home bought in this way is £153,000.
A Help to Buy equity loan gives first-time buyers the chance to purchase a brand new home sooner than they might have anticipated. As 33,911 homes have been purchased in Britain using this scheme so far, it seems as though this is the most popular for first-time buyers.
The scheme states that the government can lend you up to 20% of the cost of a newly-built home. This means you’ll only need a 5% deposit with a 75% mortgage to make up the rest and you won’t be charged interest on the 20% loan for the first 5 years.
What’s the verdict?
As of October 30th 2014, the government confirmed that Help to Buy schemes have helped to create more than 54,000 homeowners in England, which is encouraging. That being said, we at Newton & Co feel that for these initiatives to truly pay dividends, people need to be more aware of them. You still get plenty of first-time buyers who are resigned to the fact that they’ll have to save until their late 30s or early 40s at least before they can afford their own home.