Cracking the Ladder: A Guide for First-Time Buyers in the UK

Jul 7, 2024

The dream of homeownership burns bright for many, but navigating the UK property market can feel like a daunting climb. At Advantage FS many of our first time buyer clients start their journey believing or being told the mountain is too steep. However, with the right eyes and lender choice, it can become a reality much sooner than you think. This guide explores the current landscape for first-time buyers, offering insights and resources to help you get your foot on the property ladder.
 

Is the Climb Getting Steeper?

Yes and no. While high house prices and rising interest rates pose a challenge, a record number of first-time buyers entered the market in 2023. The key lies in adaptation. Many first-timers are getting creative, utilising:

Family gifts: The “Bank of Mum and Dad” plays a significant role for many. A gift as small as 5% of the property value could open up viable mortgage options and properties within your price bracket

Family support: Joint borrower sole proprietor: this allows you to add someone else like a family member and their income to boost your borrowing. Whilst these have been around a while they are being marketed most heavily by the likes of Generation Home. Generation Home are on limited distribution, meaning not all brokers can access them. Advantage FS has been an official Generation Home partner since their early days. https://www.generationhome.com/income-booster

Family Support: cross charging: Some lenders like Bucks, Tipton and other small building societies allow you to borrow 100% of the new property. Yes, 100%, no deposit. https://www.thetipton.co.uk/our-mortgages/family-assist-mortgages/family-assist-mortgage/

However, the lender demands a ‘charge’ against one of your parents properties, normally by an amount of 20% of the equity. Some lenders can place the charge against a buy to let property, meaning this risk is not held against the parents’ main residence. Many parents are understandably hesitant to do this, as their ability to stay in their own home, depends on their kids’ reliability to pay the mortgage! Instead, some parents choose to…

Family remortgage: Quite simply, your parents remortgage their own property and use the funds to gift a deposit to you as a first time buyer (however much you would reasonably need given your own affordability). The property your parents use for this could be a residence or a buy to let. Many lenders such as Perenna and Livemore don’t have a maximum age. Couple with their ability to lend up to 6 or even 7 times income. This can be much more realistic than people initially think, particularly when many high street lenders won’t offer a mortgage beyond the age of 70 or 75 at the end of the term.

Government schemes: Explore initiatives like shared ownership (https://www.gov.uk/shared-ownership-scheme), First Homes Scheme (https://www.gov.uk/first-homes-scheme) are all aimed at obtaining a property that would otherwise be out of reach. There are even rumours that the Help to Buy scheme may make a come-back. Tread carefully with government schemes such as help to buy, however. The element you do not own grows in line with house prices, so typically faster than your wages tend to. By that logic, your ability to increase your mortgage and ‘buy out’ that element could get worse over time, not better. These schemes have arguably turned some buyers into ‘prisoners’, unable to remortgage.

https://moneyweek.com/463740/help-to-buys-mortgage-prisoners

Longer mortgages: Spreading the cost over a longer term eases the monthly burden. It also allows you to borrow the most possible with lenders, unless you try to take the mortgage beyond your stated retirement age.

High loan-to-value (LTV) products: Put down a smaller deposit with these mortgages (be mindful of higher interest rates).

Location flexibility: Be open to areas with more affordable housing options.

Downsizing expectations: Don’t be afraid to consider a smaller property initially.
 

Affordability: A Moving Target

While house prices remain high, there have been slight dips compared to 2022. However, mortgage costs have risen, impacting affordability. Here’s the good news:

Joint applications: Many first-time buyers benefit from applying with a partner.

Renting vs. Buying: In some regions, owning a home remains cheaper than renting, despite rising mortgage costs.

Help is available: Free resources and professional guidance from mortgage intermediaries like Advantage FS can empower you to make informed decisions.

Buying once with higher income multiples: Certain lenders such as Perenna can lend up to 6 times income. This is not something to do without considering in depth as these mortgages often have higher interest rates. However, it may allow you to buy your dream home as your first home, rather than buying and upsizing (possibly a few times) to get there. This saves you the cost of multiple purchases and sales (legals and stamp duty) so it could be a ‘win’ all things considered.
 

At what cost?

Many of the above scenarios are actually achievable at the best rates in the market. However some come at a higher rate as they are more specialist. A common consideration is waiting instead of using a more specialist arrangement like those above. This is certainly a wise consideration and buyers shouldn’t just jump head first into the first solution that comes along. That said, buyers should also consider what the cost of waiting is.

Renting: If you are renting, every month that passes you are paying someone else’s mortgage rather than your own.

House prices: It isn’t a given that house prices will come down, it might be they slow instead of actually drop.. Even if they do, it’s a question of measure. Let’s say you can borrow £180,000 and have a £20,000 deposit and could buy at £200,000, but house prices in your area are 300,000. That would require property prices to come down 33%. If that were a bet, it would be a hail Mary.
 

Is a Brighter Housing Market on the Horizon?

Halifax predicts a potential for house price falls and easing interest rates in 2024, which could improve affordability.
 

Taking the First Step to Owning Your First Home

Feeling overwhelmed? Don’t worry! Many first-time buyers lack knowledge of the buying process and affordability options. Advantage FS is here to help.

The shortfall preventing you from being able to buy is always due to a lack of deposit or borrowing-power. As above, there are tools that mortgage brokers use all the time which aren’t all that obvious online. By using just one or even multiple, we can help you bridge that gap sooner than you think. 

Our expert mortgage intermediaries can guide you through every step, from understanding your affordability to securing the right mortgage for your needs.

Contact Advantage FS today and let’s turn your dream of homeownership into a reality!

Please note: This information is designed for general guidance only and does not constitute financial advice.

Steven Morris – Advising Director

CeMAP CeRER

 

Steve loves a complex mortgage. Most recently he has used his technical geekery to work his way up through Which? Mortgage Advisers, progressing to Senior Adviser and then Onboarding Manager. There, he was responsible for hiring, training and managing new advisers.

He also ran the monthly new starter inductions and wrote and maintained the telephony advice standards of the company. Outside of work Steve can be found coaching and being run ragged by his local under 10’s rugby team, Bristol Harlequins RFC.

Meet the rest of the Advantage Team

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