Being a first time house buyer is a daunting prospect. There’s a mine of information to get your head around, lots of financial terminology, and most crucially - a lot of saving to do. As it’s your first time, it’s all new to you, of course. But everyone has to start somewhere, right? And hopefully, it’ll lead to the home of your dreams, so it’s well worth the budgeting and planning.
How much am I likely to need?One thing that’s for certain is that you will need to put down a deposit of some sort – at least 5% of the value of the property you hope to buy. Once you’ve got the minimum deposit needed, the more you can put down above that, amount the better in terms of getting a mortgage. The bigger your deposit relative to the property value, the lower your Loan to Value or LTV – for example a 15% deposit means you need a mortgage at 85% LTV. A lower LTV gives you a wider choice of mortgage deals at lower rates as lenders will see you as lower risk. Plus it means your mortgage repayments are likely to be cheaper.
You can use our mortgage calculator to help you visualise what you will need to borrow based on your individual circumstances, and what you will then need to pay back.
While a bigger deposit is better, remember that you also need to budget for additional costs when buying a house – and to have cash set aside once you’ve moved in. For specific information on deposits and additional costs to keep in mind, see our guide to deposits for first time buyers.
To buy or not to buy factors:There are a range of issues which can have a impact on your decision whether or not to buy now. Common factors include:
- Being in a stronger financial position to save more, faster: If you have a well-paid job, or no bills and debts to pay out monthly, then you’re probably in more of a position to buy a house sooner compared to those who’ll take longer to save a deposit. However, if you make regular repayments on bank loans or other debts, you will need to factor this into your savings plan.
- Living at home with parents: Continuing to stay living with your parents while you save for your deposit is something a lot more first time buyers are doing nowadays. Not only does it reduce your outgoings; allowing for you to save a bigger deposit, but it also means you are more flexible in deciding on the right time as to when you move out.
- Renting a property: If you rent a property, then the likelihood is that you’re less likely to be able to save as much for your deposit than if you live with your parents, simply due to the higher outgoings you will have. So this will ultimately play a factor in your decision to buy or not.
- Government schemes such as Help to Buy scheme: According to Government figures, there were 32,268 properties bought with the support of the Help to Buy: equity loan scheme in its first 17 months (to end August 2014). And in the first 9 months of the more recent Help to Buy: mortgage guarantee scheme, 18,564 mortgages were completed with its support. Of these, 79% were purchases by first time buyers and many of them are likely to have found it difficult to buy a home without the support of Help to Buy. The availability of these schemes and others like them in the future will have an impact on whether people can buy a new home and how much deposit they would need.
- Cash boost from family: Another factor which can have a huge impact on how soon you decide whether to buy or not, is if you are lucky enough to receive a loan from family to provide you with the deposit to enable you to buy a home sooner – or even the gift of a deposit.
But what about the rising mortgage rates?At the Bank of England's monthly rate-setting meeting in August, two of the nine committee members voted for a rate rise of 0.25% - the first time in three years that there's been a vote for a rise. The latest September meeting saw the same result. This had caused further speculation on when interest rates will eventually rise and many people are already looking round for another mortgage deal prior to any change. If interest rates rose to 1% (from their current level of 0.5%), that would add an additional £750 each year onto a £150,000 mortgage (on interest only) so the impact could be substantial for a lot of borrowers.
So, those with existing mortgages are being advised to start looking around to see if they can find a cheaper deal for themselves, but for first time buyers, it’s not as easy to choose your timing. While leaving it much longer to buy might mean higher mortgage rates, it is equally not something you should rush into if you’re not ready.
Not everyone is in a position to go out and buy a house tomorrow, and everybody's circumstances are different. But if you’re serious about buying your first home, it is definitely a good idea to put whatever you can afford aside each month, after outgoings – even if only a small amount. As the saying goes – every little helps, and it’ll all help you to be in a stronger position when it comes to getting on the property ladder.