How first time buyers can still buy a home as ownership ‘gets harder’
FIRST-TIME buyers face a tougher road to getting on the property ladder.
But what can you do if you still want to buy a home? We take a look.
Earlier this week think tank The Resolution Foundation said in its latest Housing Outlook report that homeownership is likely to get harder for young people due to incomes taking a hit and lenders tightening mortgage criteria as a result of the coronavirus crisis.
Even the possibility of falling house prices, which could happen as a result of the recession, “won’t make things any easier” for those that don’t have either a large deposit or can borrow from family, the report continued.
Lindsay Judge, principal research and policy analyst at Resolution Foundation, said: “Although prices are projected to fall – perhaps dramatically – in the wake of the pandemic-induced recession, this drop won’t make things any easier for typical young first-time buyers looking to purchase their first home.
“Only those who already had high levels of savings before the pandemic started, or those who are able to borrow from their family, will truly benefit from the house price fall.”
Will a payment holiday affect your chances of getting a new mortgage?
IT'S up to individual lenders to decide whether or not they take into account a coronavirus payment holiday when considering a mortgage application.
Although they can't see a payment break on your credit score, they may use other methods such as Open Banking where it will show up.
Here's what the banks have said they will do, according to MoneySavingExpert:
- Barclays
Barclays has said that it won't necessarily use information of a payment holiday due to the pandemic when assessing a new mortgage application.
For example, a payment holiday with another lender won't have an impact on your mortgage application.
- Bank of Scotland, Halifax and Lloyds
All three banks are owned by Lloyds Banking Group. They've said that it will take payment breaks into consideration when deciding whether to lend to you, even if you took it out due to the coronavirus crisis.
- NatWest and RBS
Both are part of the same banking group, Royal Bank of Scotland. The policy here is that a coronavirus payment break would be considered but having one itself wouldn't prevent someone from being approved a new mortgage.
Three reasons it’s harder to get onto the property ladder
There are three key reasons why homeownership is set to become harder, according to the Resolution Foundation.
Borrowers need a larger deposit
The first is that first-time buyers typically have less upfront cash to save for a deposit, but now those deposits will need to be even larger.
Most lenders have withdrawn mortgages for 5% deposits, while 10% deals are also becoming scarce. Lenders are instead often looking for deposits of at least 15%.
The average UK house price is £231,855, according to the Land Registry Data as of March 2020. So a 15% deposit would be £35,000.
But according to Resolution Foundation’s analysis, by 2024 it would take a young couple putting away 5% of their income each year, 27 years to save for a deposit of that size.
Savings eaten up over lockdown
Going into lockdown, only 13% of private renters aged 24 to 35 had £10,000 in savings, according to the Resolution Foundation.
But a quarter of those renters have been forced to dig into their savings since the pandemic began.
Couple this with rising unemployment and fewer jobs on the market, and it could make it even harder for young workers to save.
They may be forced to relocate for work and extra travel costs or steeper housing costs in cities will increase expenses and further hit savings.
Stamp duty holiday pushes up prices
The government’s stamp duty holiday won’t help first-time buyers, according to the Resolution Foundation.
And according to some commentators, it’s even responsible for what could be a short-term hike in prices.
The problem is, first-time buyer properties of up to £300,000 were already stamp duty free before the crisis, and most won’t be buying purchases up to the revised £500,000 threshold.
Some of the other advantages such as a speedier process and being a preferred buyer have also disappeared as competition hots up.
How to still get on the ladder
Despite the doom and gloom there are still a number of schemes and incentives out there to help first-times buyers get on to the property ladders.
Here are some of the key ones.
No deposit mortgages
Mortgages which do not require you to pay a deposit upfront are rare, but Barclays and TSB are among the few still offering them to first-time buyers.
Lloyds has temporarily suspended its "Lend a Hand" scheme.
With 100% mortgages, first-time buyers will need a guarantor to provide security through their own personal savings or property.
Low deposit mortgages
While 5% and 10% mortgages are scarce, they are making a comeback.
Plus, the record low base rate, which mortgages are linked to may mean it is cheaper to take out a mortgage right now.
Government schemes
There are a number of government schemes that offer saving incentives for first-time buyers.
The Help to Buy ISA is a tax-free savings account, which is now closed to new applicants, but those who already have one, have until November 2029 to use it.
For every £200 you save, the government will add an extra £50. However, there’s a maximum limit of £3,000 which is paid to your solicitor when you move.
The Lifetime ISA is another tax-free savings account and is open to anyone aged 18 to 39.
First-time buyers can get a bonus of up to £32, 000 towards their first home. You can save up to £4,000 a year and the government will add 25% on top.
Through the Help to Buy equity loan, the government will lend buyers up to 20% of the home’s value - 40% in London - after you’ve put down a 5% deposit.
This loan is in addition to a normal mortgage and can only be used to buy a new build property.
Be warned though, research seen by The Sun recently revealed that first-time buyers in some cities, such as Cambridge and Northampton, will not be able to use this scheme to buy new-build homes.
Shared ownership is another scheme which allows you to buy part of a property and pay rent on the remaining amount.
More on mortgages
You will co-own the property with a housing association. You can buy anything from 25% to 75% of the property, but you’re restricted to specific ones.
READ MORE SUN STORIES
London Mayor Sadiq Khan is working on a "first dibs" in London scheme, which will restrict the sale of new build homes in the capital up to £350,000 to UK buyers for three months, before any overseas marketing can take place.
However, first-time buyers looking for property in rural areas, could find themselves a bargain with some homes costing under £200,000.