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Is now the time to buy your first home?

By Lana Clements 21.06.12

Buying a home will save you nearly 200k in rent over 50 years, but where do first-time buyers start when it comes to getting on the property ladder?

Even though the weak economy has taken its toll on personal finances, eight out of ten people have said they aspire to own a home in the next ten years. Considering recent research from Barclays showed owning a property could save people an average of £194,000 in rent over a 50-year period, it’s little wonder Brits want a house to their name.

But while it’s no doubt difficult for first-time buyers to get on the property ladder at the moment, circumstances are somewhat better than they have been. There are two reasons for this:

Reason 1: Mortgage availability for first-time buyers has increased

Mortgages for those with a deposit of only 5% – typically first-time buyers – have doubled over the past year, and more than quadrupled since 2010, according to moneyfacts.co.uk. There are now around 60 mortgage products available at 95% loan-to-value (LTV) – suitable for those with a deposit of 5%. There is also more than double the number of 90% LTV mortgages compared with two years ago.

Figures from the Council of Mortgage Lenders say the average first-time buyer pays £130,000 for a home – although this obviously varies depending on where in the country you live. But this means first-time buyers could be getting on the ladder with a deposit of around £6,500 if they get a mortgage at 95% LTV.

Reason 2: Property prices have fallen

Depending on which analysis you look at, property prices have also dipped or at least remained stagnant in recent months – the exception being London - putting a home within easier reach of first-time buyers. Properties are also taking longer to sell, meaning in many areas it’s a buyer’s market. First-time buyers are chain-free, making them more attractive to sellers and therefore they are able to haggle on property prices.

Getting a deposit together

But the biggest hurdle for first-time buyers continues to be scraping together enough of a deposit to get a mortgage. However, with grit, determination and improvisation it can be achieved.

First of all you need to cut the costs of your outgoings. Unfortunately, as  first-time buyers have been locked out of the property market, demand for rental properties has soared, pushing the cost of renting sky-high. As the cost of renting increases, it becomes even more difficult to save a deposit, creating a vicious circle for those trying to get on the property ladder. 

Move in with your parents

While many people dread the thought of moving back in with parents, it can be an efficient way to slash outgoings – especially rent. Alice Kelleher, 27, is in the process of buying her first home and moved in with her Dad last year to save on rent. She says: "My partner and I decided to move back in with my parents to save some cash for a mortgage... I have been lucky enough to have a huge loft conversion to myself with a shower and toilet up there, and we live by the tube, so it’s almost like a self-contained flat."

According to the Office for National Statistics (ONS), in 2011 the number of young adults between 20 and 34 living with their parents had increased by one fifth since 1997 to three million. Of course, it’s not always easy living back with your parents, but having a set time-scale for saving can help.

Alice says: "By the time we move in to our new flat we would have lived at home for around eight months. I could have done longer there, but it’s a huge pressure on my father, his wife, me and my partner to all live under the same roof."

If you are considering living back with your parents, consider how you can make home life work for both sides. Alice says: "I think I’m very lucky to live in such a great place for free so I do all I can to show my appreciation by doing everything the way he likes it, it is his house after all!"

Cut the cost of renting

There are other ways to cut the cost of renting besides living with your parents. For instance, London charity Cross Roads Care runs a scheme called Homeshare that allows younger people to benefit from reduced rents by living with an older or disabled person. It aims to offer security and help around the house to older people who feel isolated or vulnerable living alone. Homesharers simply commit to ten hours a week of help around the house and in return get rent that’s up to half the market rate. 

Compromising on the type of house or area you live in can also cut rental costs considerably. If you draw up a budget and time-scale, it can help make living in a less-than desirable home worthwhile.

Set saving goals

Most importantly, prospective first-time buyers need to draw up a savings plan. Consider how much money you will need to buy a home – don’t forget you need to factor in stamp duty, survey fees and solicitor fees, alongside the money for a deposit. And then work out how much you can save a month, and how long it will take you to reach your savings goal.

Emma Newman, 28, bought her first home with her now-husband in 2010. To save a deposit, she set strict saving aims and cut back on unnecessary purchases. She says: "We aimed to put away at least £200 a month over three years. We shopped in cheaper supermarkets, made our own lunches, and when we did go out, we went to budget restaurants - it all helped to save a little each month."

If you put together a budget, you are more likely to stick to your saving plan. Make sure you save with an account that pays the most competitive rate of interest, as money earned will help you achieve your target sooner. Go to our sister site savings.co.uk for more information.

  1. Quick tips

  2. Saving a small amount each month soon adds up
  3. The bigger your deposit, the better the mortgage rate will be
  4. Haggle on the price of a house to get an even better deal
First-time buyers should search for the most competitive mortgage rates available for a smaller deposit

Top tips for building up a deposit

Set yourself a goal

Draw up a budget and decide how much you want to save up and by when – make this realistic.

Budget for extras

Don’t forget to factor in the cost of stamp duty, solicitor fees, mortgage fees and survey fees

Get the best rate

Shop around to compare interest rates on savings accounts so you get more for your money

Make cutbacks

Small things like taking a packed lunch to work or cancelling your gym membership can soon add up and the leftover cash can be put towards your savings

 

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