MortgagesMar 18 2016

Advising first-time buyers

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      CPD
      Approx.40min
      Advising first-time buyers

      Britain’s love affair with property is never-ending. Getting onto the housing ladder is an aspiration for many but the constant increase in house prices across the UK means a growing challenge for first-time buyers.

      While a number of changes may have made it easier for first-time buyers to become homeowners, gathering a deposit still remains one of the biggest challenges according to many mortgage advisers. Add to that growing house prices across the UK and it is all the more difficult for those looking to buy a new property.

      Several research reports have pointed out the growing uncertainty among first-time buyers when looking to enter the property market. According to rplan, a London-based investment platform, nearly one in 10 millennials (defined as those born between 1980 and 2000) do not expect to ever buy their own home. Around 40 per cent expect to do so by the time they are 30 and another 20 per cent by the time they are 35. Nearly 17 per cent believe it will not happen until they are 36 to 50 years old. In reality, the average age of a first-time buyer is 35 years, according to research from Post Office Mortgages.

      The research further states that three in 10 millennials still at home with their parents or caregivers, including 54 per cent of 18-24 year olds and 21 per cent of 25-34 year olds. Chart 1 shows the proportion of adults by age who consider getting a mortgage to be a serious problem in the UK.

      However, while the report might point to a negative state of affairs, some advisers suggest the situation is generally positive. Recent changes to the mortgage market such as the introduction of help to buy schemes and help to buy Isa has enabled a number of first-time buyers to get on to the housing ladder and the newly rolled out lifetime Isa should offer an additional option.

      The help to buy government scheme is for small deposits. Buyers can use the scheme through equity loans in which they pay 5 per cent deposit, the government gives a loan of 20 per cent of the price and the buyer arranges a mortgage to cover the remaining 75 per cent. Under mortgage guarantees, the government provides a guarantee to your mortgage lender. In this case too a deposit of 5 per cent is required.

      Chart 2 shows gross advances for new house purchase residential loans in the UK. With data from the FCA and the BoE, it is worth noting that first-time buyer loans have been consistent in volume through the first quarter of 2014 to third quarter of 2015.

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