For the first time in history, the average house price is now more than £250,000 meaning that in combination with a cautious lending market, it's no mean feat to get onto the property ladder. In many cases, (23%) The Bank of Mum and Dad (BoMaD) is giving a helping hand to First Time Buyers and with prices so high compared to earnings, unsurprisingly Boris’ tease of 95% mortgages has piqued interest.
Whilst in principle, it would be great for purchasing a property to become far more accessible to the masses, it is unlikely for the time being that lenders will rush back to high Loan To Value (LTV) mortgages given the turbulent year we've had to date. You only have to look back to the Financial Crisis in 2008 to see the negative impact of lenders overstretching and over-lending themselves on high LTVs. This time, I believe a loosening in mortgage regulation won’t happen as freely as it has in the past.
Where does this leave First Time Buyers?
If you are a FTB you may have to wait longer to get onto the property ladder or need to reassess your budget given most lenders are currently only offering a maximum of 80-85% LTV. On a property of £300,000, a 5% deposit of £15,000 might have felt achievable for FTB's but circumstances now mean that they need to find a deposit of 15%, leaving them £30,000 short.
Often, the greatest frustration for First Time Buyers is the struggle to save a deposit whilst paying high rent that may even be more expensive that the mortgage payment. As a Financial Planner who concentrates on mortgage advice, it might be the expectation that I would always say renting is a waste of money and the best, only option people should look into is buying a property as soon as possible. However, this is far from the case and there are many reasons as to why renting isn’t wasting money:
- Living costs money, you are paying for a place to live, which is anything but wasteful.
- Arguably, the biggest positive to renting is the flexibility it affords the renters. Unexpected life changes such as a new job, starting a family or relationship breakdowns may be trickier to navigate if you have bought somewhere. This flexibility has been highlighted by Covid-19 this year with many moving due to the newfound importance of outdoor space and room in which to work.
- Upkeep and maintenance costs are kept to a minimum; the need to replace the boiler if it goes wrong, the bath starts leaking or you need a new carpet are all covered by the landlord.
- Cities especially, can be unbelievably expensive when buying and although renting in those same locations is far from cheap, it does make it much more affordable whilst you save towards that opportunity in the future.
- The UK does have an obsession with getting onto the property ladder as it is often seen as a natural step in the life cycle but most of these life stages are now happening later in life. It is important not to judge yourself against others and buy a property just because it's the done thing; many across the continent are more than happy to rent for their lifetime. In Berlin, for example, a city of three million people, only 18% of residents own their homes.
- Saving for a deposit can be done but you don’t want to sacrifice enjoying life in the now to save every penny to do so. What you must avoid is having regrets further down the line that you tried to save too hard at the expense of all enjoyment, that time can’t be bought back and is of greater significance than purchasing a property a few years earlier.
- When you are buying a property to live in it, you should not see it as an investment but as a home to make memories, have friends round and seeing it as your home for the future. Yes, the value may go up over time and historically, house prices have increased significantly but if you buy a property for the right reasons, it does not matter. It is a home not an investment.
If you are a First Time Buyer weighing up all your options and feel ready to start planning for your first mortgage, do get in touch as we'd be so happy to help you with advice and guidance and let you know which products are available to suit your financial needs.