The home ownership dream can seem just that for many of us – a dream. New mortgage affordability rules – where mortgage lenders require more current financial information as well as examining your ability to pay in the future – have made the home-buying process more complicated. Add to this, booming house prices and it means that many hopeful homeowners have to find larger deposits than before.
According to the Nationwide House Price Index, the average UK property price in October 2015 was £196,807 – up from £173,678 in October 2013 (a rise of 13.3 per cent). On a mortgage that offers 90 per cent loan-to-value (LTV), this means finding a deposit of nearly £20,000, with estate agent and legal fees on top of that too.
On 1 December 2015, as trailed in the Chancellor’s March 2015 budget, the Help to Buy ISA will be launched, in which the government will make a contribution towards the deposit on a house purchase.
The scheme allows first-time or existing buyers to get onto, or move up, the housing ladder with as little as a 5 per cent deposit. Depending on your circumstances and the property you are trying to buy, such as a new build, the Help to Buy scheme can help you with an equity loan or mortgage guarantee.
Here’s how it works:
- If you’re a first-time buyer and save up to £200 a month with a Help to Buy ISA, the government will boost your savings by 25 per cent. That’s a £50 bonus for every £200 you save.
- The maximum bonus you can receive is £3,000. So if you save £12,000, the government will boost your total savings to £15,000.
- New accounts will be available for four years, but once you’ve opened an account there’s no limit on how you long you can save for.
- There’s no minimum monthly deposit – but you can save up to £200 a month (and make an initial deposit of £1,000 when you open the account).
- Accounts are limited to one per person rather than one per home – so if you’re buying with someone, you can both receive a bonus.
- The Help to Buy ISA is only available to individuals who are 16 and over, and the bonus is available to first-time buyers purchasing UK properties
- The bonus will be available on home purchases of up to £450,000 in London and up to £250,000 outside London, and will be paid when you buy your first home.
Getting the best mortgage
If interest rates rise as expected, then mortgage rates are likely to do the same, and none of know what kind of LTV mortgages will be available.
It’s likely though that the better deals will be available to those people who have the best credit reports.
When you do make an application for a mortgage, potential lenders, as part of the mortgage affordability rules, will look at your credit report and see what credit you already have, as well as how you have managed repayments in the past.
The Experian Credit Report details your personal credit history, including mortgages, credit cards, mobile phone contracts and more, and contains information that helps lenders confirm your identity and assess whether you’re a reliable borrower. It’s likely that the better deals are going to be available for those with the best credit reports.
So while you are saving for your deposit, it makes perfect sense to get your credit report in order, by keeping up to date with repayments, paying down some debt if necessary and not making additional applications for credit if you can avoid it.