The importance of first time buyers to the housing market

First time buyers remain a key constituent of the UK housing market. Without them the market would stagnate as the chains cannot be formed that enable everyone to move along the property ladder.

At the current time a lot of property can seem over-priced. Property location and subsequent land costs are a key constituent of the price. First time buyers should search for value wherever they can. Local knowledge is key with a need to be aware of planning and developments in an area and planned improvements to transport links. 

There is a chronic undersupply of new property which has grown larger over many decades and aggravated by the collapse in house building following the 2007 financial crisis. House building has been continuing at historic lows since 2009-10. There is also likely to be a further correction perhaps triggered by Brexit or inflation and leading to increasing and higher interest rates – who knows? Even with these potential head winds the property market will remain underpinned by continued undersupply in a country where development land is limited and there is a growing population and demand.

Most of us are faced with a choice to pay rent or if we can get a deposit together and earn enough, to buy a property. If you have decided that you want to buy you should get yourself “mortgage ready”.

Some simple steps that help you look a safe bet for a prospective mortgage lender:

• Make sure you are on the electoral register
• Get a credit card and use it modestly. Enough to show you show that you can responsibly manage credit but not so much that it affects the amount you can borrow
• A lot of mobile phone contracts now include a credit agreement for the phone which can help your credit rating
• If you have a personal loan make it sustainable one because large loan repayments may affect the affordability of any mortgage
• There are a lot of attractive (on the face of it) new car lease contract deals, but these can be expensive and the monthly commitment may affect the amount you can borrow
• You may be thinking of starting a family – it makes good sense to sort out your housing and finance arrangements first
• Some may use the services of credit references agencies, which can be free of charge
• Help to buy ISA can add thousands of tax free cash to help with your deposit.

You will need a deposit and possibly 5% will be enough. Mortgages of 95% of the purchase price tend to work for those with higher salaries as they need to borrow a smaller multiple of their salary and consequently they can have a higher disposable income. Our basic cost of living can be the same whether we earn £20,000 or £50,000. The difference is what we can and choose to do with our money once our basic needs are covered.

A typical deposit of 5% or 10% will allow you access to competitively priced mortgage products. If you are lucky enough there may be some support from parents or grandparents. This can open the door to even more mortgage options. 

Borrowers will also be limited by how much they earn. A basic rule of thumb is 4 1/2x your gross annual salary. However, this can be tweaked a little higher, if the lender chooses to assess on an affordability basis. If you have other forms of income or family support then this can also help.

A standard mortgage today (July 2018) of £100,000 5 year fixed at 1.9% repayable over 35 years is £326 per month. A similar mortgage of 90% at 3.2%.gives repayments of £396 per month and 95% is seeing pricing around 3.3% and repayments of £402 per month.

Today we are lucky enough (by historical standards) to enjoy rock bottom mortgage interest rates. This will not always be the case so please read your mortgage literature carefully and make sure you are prepared for any future increases. 

The above communication is correct as at July 2018 and is intended for information only and should not be relied on for advice or recommendations. To get more information for your particular circumstances please contact the Dentons Wealth Mortgage Consultant on 01483 521528 or email: Jonathan.Gall@dentonswealth.co.uk.

Dentons Wealth is a trading name of Dentons Investment Services Limited which is authorised and regulated by the Financial Conduct Authority, with the FCA register number 194538.