Suzanne Nolan talks about being a first-time buyer, and the problems of a mortgage vs deposit.
We are being labelled as ‘generation rent’, forced to keep renting rather than buying due to a shortfall of affordable homes and good finance options for the new wave of first-time buyers. The number of first-time buyers fell by 0.5% in 2015 from 2014, the first decline since 2011. At the same time, UK house prices rose by 9.5%, the greatest increase since 2006 (note: before the recession). By December 2015, house prices reached an average of £208,286.
As a result, first-time buyers need higher deposits than ever before (around £32,927, a 13% increase from 2014), and more than a quarter opted for a 35 year mortgage in 2015 (a rise from 16% in 2007). As I read the news stories this morning, I realised… wow. This is me.
I recently bought my first house, paid a little over the new average and took out a 35 year mortgage, all, as Halifax have indicated, to afford the monthly repayments. I made the decision last year, despite a spate of articles glamorising the freedom of avoiding (or being unable to get onto) the housing ladder, to take my first tentative steps onto the property ladder. Why? Because buying was cheaper than renting.
In 2014, buying was £1,300 cheaper a year than renting a house, and last year buying was cheaper than renting everywhere in the UK. Rents are also increasing dramatically, with the Royal Institution of Chartered Surveyors predicting a 3% increase in the cost of rents in 2016. When I rented my first flat after University back in 2009, I paid £600 a month; an equivalent flat today would cost £800 (at least). My mortgage a month? Less than what I was paying for rent in 2009 (and with a good deal on interest rates).
So what’s holding people back?
Unsurprisingly, the deposit.
Newspapers and websites predominantly lead with a headline about mortgages and overall house prices, but it’s the small matter of the upfront cost that is really hurting first-time buyers. Increased house prices and a perceived lack of appropriate housing is not the issue – it is an inability to save the £33,000 needed to get a decent house and a decent mortgage. The growth in annual salary slowed to 2% between July and October in 2015, whereas by July, rents had increased by 4.6%. While the cost of living outstrips the increase in wages, no one will be in a position to save the ever-growing deposit needed to purchase a first home. And there is a growing trend of the older renter that proves it’s not just the younger and new-to-the-game that are suffering.
More needs to be done for the UK economy as a whole, to increase national minimum wage to ensure that it falls in line with the accredited living wage (£7.20 NMW compared to £8.25 ALW). Unfortunately, with reports suggesting that wages are not likely to rise as necessary in 2016, many would-be first-time buyers are stuck overspending on rents without hope of getting on the property ladder – despite earnings that could easily cope with mortgage repayments.
Some top tips for first-time buyers (from someone who’s just done it):
- Get a mortgage adviser and not just someone from your bank. You’ll have to pay a couple of hundred extra in fees, but it will be worth it.
- Shop around. Your bank won’t be the only option, and is probably not the best. Some will look more expensive on paper, but offer cash-back schemes that might make them viable.
- Don’t buy alone. Just as you probably won’t rent alone, find someone you like and trust to share the costs and mortgage with. It’s not too different from long-term renting with someone.
- Work out your options. Take the time to work out what is the most cost efficient option for you: 2, 3, or 5 years fixed term.
- Ask questions. Lots of questions. My adviser was surprised (and pleased) when I asked questions like ‘so after three years fixed term, how much of my actual mortgage will I have paid off, and how much interest?’