House prices in the East of England have rocketed 13.3% in the last year, with the UK as a whole experiencing a healthy 8.4% increase. Furthermore, interest rates are remaining historically low; attractive for some with certain types of mortgage but making it more difficult for first-time buyers to save larger deposits.
The recent stamp duty (SDLT) changes saw Buy-To-Let investors rush to complete purchases before April 2016, sucking stock from the property markets in many areas. In some cases this drove prices upwards and out of the budgets of many first time buyers looking for their starter homes meaning that for many people, the nightmare of renting for life is becoming a harsh reality.
Here are 5 helpful pointers that could mean you are able to beat rising house prices, making your dream home happen. As always, all cases are individual and your personal circumstances could mean you situation is very different. Consult a professional mortgage broker to understand the best options for you.
Put simply, the larger deposit you have for a property, the smaller the mortgage loan that you have to repay.That could mean either:
Smaller monthly repayments over the same period of time, meaning it’s more affordable each month
Reducing the term of the mortgage, meaning you make repayments for a shorter period of time
Either way, the less you borrow from a lender, the less interest you’ll need to repay over the term of the mortgage. A larger deposit can also mean that you have access to lower rates in the mortgage market – although this does depend on your specific circumstances. You could save a larger deposit by:
Be savvier with your money and being sure you know every purchase is worthwhile could see your deposit grow more quickly. Some first time buyers find that shopping around could mean you get the same item cheaper elsewhere. This applies to everything from your Wi-Fi package to the weekly grocery shop to your phone contracts to energy providers. Do you really need that designer tag or will the high-street equivalent look just as good? Making little changes here and there could lead to one large deposit.
Put money aside as soon as you get paid! To do this, simply budget like crazy for everything you need to pay for this month plus some extra for emergencies, and then transfer the remaining funds to your savings account. Mortgage lenders will consider how affordable mortgage repayments are for you when reviewing your application. If you can already demonstrate that you have a lifestyle that allows you to save monthly then this could potentially be beneficial to your application; especially if the amount you save is comparable to the repayments you will be making.
In summary, whilst building a deposit might not reduce the cost of the property, it can certainly help make paying the mortgage more affordable in the future and could reduce the total amount of interest that you pay over the term.
Properties in the North of the UK and in Scotland tend to be cheaper than in London and the South.
Data from the UK house price index summary: August 2016.
|Region||Average Price August 2016|
|East of England||£276,952|
|Yorkshire and The Humber||£152,394|
As you can see, the price of buying a property tends to be cheaper the further North you venture by the savings don’t necessarily stop there. Living costs can be cheaper up North too: water bills average £489 across the UK, but households in the South West pay almost double that, with an average of £811 before one-off rebates.
We aren’t suggesting a mass migration “up” but the savings could be significant enough for a move to be considered. Take a look at what you can afford and what this buys you in different parts of the country. You may even find that an accurate idea of your budget could mean you don’t have to move too far away from your ideal location to find an affordable property. There have been some cases where home buyers who could afford a 1 bedroom property in their ideal location, but purchased a 2 bedroom house of the same quality just two towns away for the same amount. When relocation, be sure to check the costs of commuting London (or whichever city in which you work) each day. You could find that it might work out cheaper to move further away from the city centre and pay a little more to commute each day. This might not be ideal for everyone, but for those who don’t mind a slightly longer commute, this could make your dreams of owning a property a reality.
Your first house and even, in some cases, your second and third homes are just rungs on the property ladder. With each one you take and each short-term compromise you make, you’re one step closer to one day moving to you ultimate forever home.
The idea of building your own home is an exciting one, but for most people it remains a far off fantasy. If you’re struggling to find a property that measures up to your expectations within your budget and your target location, this could be an option for you.
Typically a housebuilder will look to secure a rule-of-thumb profit of 30% on top of the cost of buying and building a property to sell which means that potentially you could save a third on the cost of building rather than buying. Once the build is complete, the value of self-built properties has been known to be worth more than the cost to build giving you instant equity against the market valuation.
Self-building a home also gives you the opportunity to make it perfect… in a money saving sense! You could add solar panels, energy efficient fittings and up-to-date technology in the property that makes running costs cheaper.
Another advantage of self-build is that you don’t have to build more than you need. With existing properties, there’s always going to be something that you just don’t need: a garden that’s a bit too big, room for 2 cars when you only need 1 space or a study/spare room that you’ll never use. A self-build however fits around your lifestyle meaning that wastage is minimised; potentially saving money at the point of purchase and ongoing costs.
Do, however, be aware; self-building requires a lot of commitment. You can find out about what self-building entails in another article here.
If you’re a first time buyer requiring some assistance to get on to the housing ladder, the Government has several Help-to-Buy schemes:
Help to Buy ISA: by saving money in an ISA for the purpose of purchasing a property, the Government will boost your savings by 25% up to a maximum of £3,000. The bonus cannot be used as part of your deposit or to pay associated fees (Solicitors, Estate Agents etc.) but it can help with furnishings and things like that. New savers have until 30 November 2019 to open their ISA and must claim their bonus by 1 December 2030.
Equity Loan: this scheme means the government will lend you up to 20% of cost of a new build home. Through this scheme you’ll be able to get a mortgage with a 5% cash deposit and a 75% mortgage to make up the rest of the property price. Bear in mind that you won’t be charged loan fees for the first 5 years of owning your home.
Shared Ownership: allows you to purchase a share of your home (between 25% and 75%) that you pay a mortgage on, and then pay a rent on the remaining share. If you want to and can afford it, you can increase the share of your property and reduce the rent. Shared ownership properties are always leasehold though so be sure to understand the costs associated with your specific property.
Mortgage Guarantee: the Mortgage Guarantee Scheme under Help-to-Buy will cease to accept new applications from December 2016. Under this scheme, your mortgage is being supported by the Help-to-Buy scheme. The government offers lenders a guarantee on mortgage loans, allowing lenders the option to offer higher loan-to-value mortgages potentially meaning you could find a home with only 5% deposit.
This Is Money pulled together some great figures on how much improvements can add to your property. Renovating a property can be a good way to help make your current property better suit your needs – meaning there’s no need to move home at all, in addition to the added benefit that renovations and home improvements help to increase the value of your current property. If you were to improve the property, it could mean that your home sells for much more, allowing you to find the dream home with a bigger deposit.
|Home Improvement||Average Cost||Added Value|
|Loft conversion||£15,000 – £40,000||10%|
|Extra bathroom||£2,500 – £6,000||6.1%|
|Conservatory||£4,000 – £10,000||5%|
Your home may be repossessed if you do not keep up repayments on your mortgage. This information is intended solely to provide guidance and is not financial advice.
UK House Price Index summary: August 2016 (published 18th October 2016)
Daily Mail: It really is cheaper up North (accessed 26/10/2016)