Britain has enjoyed a number of property booms over the past 20 years. And despite the fact that property prices have also tumbled on a number of occasions, the average house price has risen significantly.
According to the Nationwide House Price Index, the average UK house price went up from £54,008 at the end of Q3 1996 to £206,346 at the end of Q3 2016 – a whopping 282 per cent increase.
Unfortunately, rising house prices has meant that it has become harder for first-time buyers to get a foot onto the property ladder. Using the average house price as a guide, even if a mortgage has a 95 per cent loan-to-value, buyers would still need to find a deposit of over £10,000. Add in solicitor and estate agent fees and the initial layout can seem daunting.
In 2014 getting a mortgage was made more difficult with the introduction of mortgage affordability rules, which take a closer look at your finances, as well as ‘stress-testing’ your ability to pay should interest rates rise, which is looking more likely as the months go by.
So taking into account the current climate of house prices and rules and regulations, what steps can you take to make sure you stand the best chance of fulfilling your property-buying dream?
Get your house in order. The most sensible first step is to get your finances in order. The mortgage affordability rules mean that lenders will check your monthly outgoings, as well as your income, so you should look at what you are spending. Can you reduce discretionary spending on things such as coffee and eating out, as well as regular payments such as an unused gym membership?
Check your credit report. Lenders will use the information on your credit report, along with other information such as your application details to calculate a credit score for your application which helps them decide whether to give you a mortgage or not. Are there steps you can take to improve your score, such as paying down some debt and making sure all your details are correct and up to date? The better your credit score, the more chance you could have of getting the best deal on a mortgage, with a lower interest rate, for instance. This can mean paying significantly less in the long term.
Set a realistic timeline. When house prices are rising, the temptation is to buy a property as soon as you can. But this can mean overstretching yourself or taking out a loan to put together the deposit and fees. This isn’t necessarily a good idea and could even put your home at risk down the line. Take a realistic look at how long it will take you to get your finances in order and your credit report up to scratch, as well as how long it will take to put together the money you need, and then plan accordingly.
Save where you can. You’ve set your heart on buying property, so just how can you put the money together? By reducing outgoings and debts you may be able to put money aside each month towards a deposit. However, if the amount is not significant enough, then you might want to consider moving back in with your parents. It might not be ideal, but by not paying monthly rent you can put much more money aside each month. Alternatively, could you take on extra work to increase your income?
Consider shared ownership. Shared ownership schemes allow you to part-buy and part-rent your home. You buy a share of your chosen property (typically between 25 and 75 per cent), which you pay for with a mortgage. You then pay rent to a housing association on the bit that you don’t own. Again, you’ll need to get advice on such schemes to make sure they’re right for you.
(updated post, original version 7 Aug 2015)