When we got married and bought our first home many years ago, everything seemed much simpler that it is today. Money was harder to come by back then though and this presented problems for us.
There was a housing boom back then, and house prices rocketed very quickly. We were able to get a one hundred percent mortgage which obviously needed no deposit, but it left our finances under considerable strain for many years.
So, for a young couple just starting out, how easy is it to get on the housing ladder right now? Here's some things to think about.
The House Buying Process
As a first time buyer, you are going to feel a little apprehensive about committing yourself to a huge debt that will not be paid back until you are well into your middle aged years. House prices are staggeringly high at the moment, and they are not likely to ever come down, so there is good cause for your apprehension.
The first step to buying a home is to secure a mortgage, in theory anyway. There are a vast array of mortgages out there which seem over complicated to me. How many ways can there be to borrow money and arrange to pay it back?
There are companies, such as http://homestart.net.au that will maximize your chance of owning your own home. They will build the new home for you and guide you through the process of securing the funding needed in the form of mortgages or government grants.
If, however, you decide to buy an existing house you will need to acquire a loan. Before you will be offered a mortgage, the lender will delve into your personal finances to find out if you are trustworthy and whether you can afford the repayments. The first step they will take is to contact credit reference agencies to see if there are any bad debts or missed payments on your file. If the mortgage is to be in both names, then your partner will be checked too. Often, if there is the slightest problem with either partner's credit history, the application fails at this point.
If your credit history is good, the lenders will look at your income and decide, provisionally, how much they are willing to lend. They will write to your employers to confirm the details of your salaries and job security, but this shouldn’t bring up any surprises to you. You will need to complete a personal income and expenditure statement of your own. You can expect to be questioned in all aspects of expenditure such as food bills, clothing, utility bills, transport costs; anything that will give the lender a clear idea how much money you have left for repaying a mortgage. Lenders were criticised in the past for lending too freely to people who would struggle to meet the repayments, and these are all ways in which they are trying to clean up their act.
The simplest form of mortgage is the variable rate repayment. You borrow the money and pay it back at the interest rate in place at the time. For the first ten years or so, most of your payments will go to service the interest on the loan and less to reduce the loan itself. After some time, when the capital borrowed reduces, the interest charged on it is less, and the balance begins to shift in your favour. Towards the end of the mortgage, most of your payments are to reduce the capital and very little interest is paid. Other, more complicated mortgages often offset payments for a number of years to attract people,
but it seems that they always end up paying more in the long run. I firmly believe in keeping things simple and clear so everyone knows where they stand. The scandal of endowment mortgages that were sold unfairly back in the 1980’s must not be repeated. It left people with massive shortfalls on their mortgages when the time came for the endowment to pay for the house.
You are going to need to put down a sizable deposit on any house purchase. The normal rate at the moment stands at around twenty five percent of the loan. That would work out to be twenty five thousand pounds out of every hundred thousand pounds borrowed. I think you will agree; this is the make or break point for most people who simply can’t raise that amount of cash.
The help to buy scheme is currently in operation to give a lift to those that are unlikely to be able to raise a deposit any other way. If the buyer is able to raise only a five percent deposit, help to buy will provide the other twenty percent in the form of an interest free loan for five years. After this period, a low interest rate applies that is currently below two percent. This interest rate rises each year from then onwards. This scheme sounds too good to be true, and in some ways it is. The buyers has effectively lost twenty percent of the value of their homes to the government who will not expect only their money back if you sell, they want twenty percent of the sale price. Some people think this is a price worth paying; I believe the scheme was designed for the wealthy to buy second, or even third, homes.
Once you have a figure in mind that you can borrow you are able to look around for properties that you would like to buy. Soon enough you will find your ideal home and make an offer on it. Hopefully, the offer will be accepted, and the ball will start rolling. You will now be faced with the cost of solicitors and surveyors, all who are there to protect you.
By the time someone moves into the home it is a wonder they have enough money left for a slice of bread. The first five years are tough, but as wages rise the burden gets a little lighter. That is until they decide to move to a bigger home.
I have come to my own conclusion, and that is; it is harder to get on the housing ladder now than it was thirty years ago. Prices are unreasonably high, and lending is hard to source. I don’t think we could have done it if we were just starting out now.