The Problem First Time Buyers face

Since we have come out of Lockdown in early 2021, we have seen a boom in the housing market. This was caused by a freeze in stamp duty holiday extension and the new mortgage guarantee. This has made it daunting for first time buyers who feel that it’s harder than ever to buy a house. But is it harder to buy a house since the pandemic?

The Rising House Prices

In November 2021 house prices rose 10% and it’s expected to continue to rise next year. It is estimated that by January 2022 the average house price will rise to be over £342,000.

London has seen the highest increase in house prices with properties in Kensington and Chelsea alone rising £863,000. Other places that have seen a sharp increase in house prices are Stoke on Trent, Corby, Manchester, and Salford.

According to Nationwide growth has exceeded earning growth in the past 12 months. This means that a 20% deposit for a house is now equivalent to 110% of average income. This has risen a whopping 102% since the start of the pandemic in March 2020. To simply put it this makes affording a house more difficult because whilst house prices have increased, wages haven’t.

What is There to Help First Time Buyers?

In recent years the government has introduced new schemes that are meant to make it easier for first time buyers. Below we will list off each of these schemes, explain what they do and how they help.

The First Home Scheme

This scheme is essentially new homes that are discounted by a minimum of 30% when put on the market. Once the discount has been applied the first sale of the house must be no higher then £250,000, or £420,000 in London.

In order to qualify for this scheme, you have to meet a set criteria. The first is you obviously must be a first-time buyer, but you must also earn less then £80,000 in the tax year before hand. This wage cap applies to whether you are buying a house by yourself or as part of a shared ownership. The final piece of criteria is the buyer should have a mortgage plan to fund at least 50% of the discounted purchase price.

Lifetime ISA

ISA stands for Individual Savings Account, and it offers tax free interest payments. In order to set up a lifetime ISA you must be aged 18-40 and you can put a maximum of £4000 a year in this account until you’re 50. On top of this the government will add on a 25% bonus up to £1000 per year. You can also decide whether you will just put cash in the account or stocks, or a combination of both.

In order to use the money in your ISA towards buying your first home you must meet the criteria. Firstly, you can only use the account if you are buying a mortgage and if the property costs less then £450,000. You need to have a conveyancer or a solicitor to act for you in the purchase. This is because the ISA provider will pay the funds directly to them. Finally, you can only buy the property 12 months after making your first ISA payment.

Help to Buy: Equity Loan

This loan helps first time buyers towards the cost of buying a new build home. In order to apply for this loan, you must be above 18, a first-time buyer and able to afford all the fees and interest payments. However, you can only buy a new build home with this loan. The property must also have been sold by a help to buy registered home builder. Finally, it must not have been lived in before you buy it

There is a maximum property purchase price limit on the property depending on the region of the country.

  • North East- £186,100
  • North West- £224,400
  • Yorkshire and the Humber- £228,100
  • East Midlands- £261,900
  • West Midlands- £255,600
  • East of England- £407,400
  • London- £600,000
  • South East- £437,600
  • South West- £349,000

With this you will pay at least a minimum deposit of 5% of the property purchase price. You then arrange a repayment mortgage of a minimum of 255 of the property price. The loan allows you to borrow anywhere from 5% to 20% of the property purchase price. However, in London you can borrow up to 40%. The percentage you borrow is used to calculate how much your interest and loan repayments. In terms of interest you won’t pay any for the first five years however, on the sixth year you pay an interest rate of 1.75%.

Like with any loan there is a set timetable of when to pay back the loan by. It must be paid by the end of the loan term which is 25 years, when you sell your home and once you’ve paid off your repayment mortgage. When it comes to paying back your loan, you can only pay a minimum price of 10% of market value.

Conclusion

In conclusion, these new schemes do help out younger people and first time buyers buying their first home. However, as we can see that it is estimated that house prices will continue to rise into 2022. This along with a lack of rise in wages will mean it will take longer to save for a deposit. Which in effect will make it more difficult for younger people to buy their first home.

Credibble offers two fabulous solutions.

If you’re preparing to take a mortgage, never apply until you’ve tried our unique and FREE Credibble Home app. Our smart technology will tell you what you need to fix so you avoid rejection. The app predicts when you will be able to buy, for how much and tracks your month-by-month progress to mortgage success. We’ve even added your own mortgage broker, so you get the best deals available.

More focused on your credit rating? Well, get started for free with Credibble’s 24- Factor Credit Check to truly help you improve your creditworthiness and how lenders view you. (Remember: lenders don’t use your credit score! We’ll show you what lenders look for and how to get your credit report in the best shape possible).

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