Research just published by Halifax shows that first time buyers would be £110 a month better off if they bought a property and paid a mortgage and other costs compared to renting the same property. This is in stark contrast to the position in 2008 when the average cost of buying was 29% more than renting. The reduction in costs for first time buyers is as a result of lower mortgage rates and house prices.
In addition to this, affordability, which is the proportion of disposable earnings devoted to mortgage payments, is at its most favourable for 12 years. These are two compelling reasons why buyers should be motivated to get onto the housing ladder now.
The issue facing first time buyers, however, is finding the deposit to buy a home. With other household costs such as fuel and food escalating, it is little wonder first time buyers find it difficult to save for the down payment in the current climate. So what can they do to overcome this problem?
Many will need to turn to family for assistance. Parents may be in a position to gift a deposit from savings or alternatively raise this sum through remortgage of their existing property. With mortgage rates at historic lows, this is also a much more affordable option now.
A new Assisted First Time Buyer scheme has been announced by the Principality Building Society today. This requires just a minimum 5 per cent deposit from the first time buyer and in addition the Principality will take a legal charge over the savings of a family member until 31 August 2015. The deposit plus savings must make up 25% of the property value and the savings will attract an interest rate of 3.75% AER fixed during the scheme period.
New innovative schemes like this one from the Principality are essential in giving first time buyers choices. However, the reality is that people just need to start saving sooner and more rigorously if they want to realise the dream of home ownership.