How to Become a First Time Buyer

It has long been the case that in the UK there is an enormous desire to own the roof over your own head, and to be a first time buyer. Unlike European continentals who are happy to wait until their middle age, we in the UK want to become a first time buyer usually pretty soon after we leave college! It’s always been the case and just as we struggle now to afford homes for first time buyers, so did our parents before us.

The trouble is that we have seen property prices treble in the ten years to 2007 with average property prices in the UK now in excess of two hundred thousand pounds. Not so long ago the average age amongst first time buyers was 34, and hope was lost. But more recently we’ve seen the average age come down to 28, not because house prices have come down or because those in their late twenties have suddenly become wealthier but primarily because of first time buyer mortgages.

Although a plethora of first time buyer mortgages has been the main innovation in the market place we have also seen other new trends and services emerge meaning that today’s first time buyer is finding new ways. All the time. Typically today’s financial solutions for first time buyers lie in co-ownership, co-financing or generous lending.

For those first time buyers who are considered by their local HomeBuy agent to be a key worker or in housing need, the Government has launched its New Build HomeBuy shared ownership scheme, its Open Market HomeBuy shared appreciation scheme and its equity loans. The shared ownership and shared equity schemes are essentially new types of first time buyer mortgages.

With shared ownership, the first time buyer buys a part of the property in conjunction with such as a Housing Association. He then pays back his mortgage and at the same time pays rent for the part of the property still owned by the 2nd party. This is an increasingly popular way of providing homes for first time buyers. Whilst there is an up-front fee payable, this route to home-ownership can be one of the most affordable. You can combine shared ownership with joint ownership so you can buy with a friend or partner, though they might have to qualify for the scheme too.

Shared Equity, again, is designed primarily as a way of providing homes for first time buyers who are either key workers or in housing need. In addition to shared equity first time buyer mortgages from specific lenders, top up loans are available from the Government and the same lender together. In exchange for the extra loans, the lender requires an appropriate share of the increase in equity of the property when the first time buyer comes to sell up. With this scheme first time buyers need to raise a mortgage of 75% of the property value so it can still be quite a stretch financially. Recently announced equity loans from the government of 17% make things easier to administer and open up the mortgages market and will be very popular.

Another big force in today’s market for first time buyers is parent power. With property prices now so high, parents are often in a position of having enormous values of equity in their own properties. Looking forward, many are extremely keen to help their offspring out of the rental trap and contribute towards for first time buyers. This can mean a simple cash gift to be used as a deposit on a first home, or to help with expenses. It can make a big difference. Other ways that parents can help are though first time buyer mortgages. Parents can act as guarantors, making sure the mortgage payments are paid, or they can become joint owners. They can even have a joint mortgage with the first time buyer, yet not be on the title deeds.

As we’ve already mentioned, there are a number of creative mortgages on the market designed to help the first time buyer. They usually effect how much the lender will lend or how they want it paid back. We have seen lending criteria based on how much rent has been paid, lending on potential earnings – up to 5 times an annual salary, lending which takes into account family savings, longer pay-back periods, mortgages worth more than the property value – all sorts of first time buyer mortgages.

The last sort of innovation we’ve seen to market homes for first time buyers are private services. Firstly it is now possible – through the right channels – to access the sorts of deals historically confined to property investors. first time buyers, through gifted deposit schemes can now apply for the house of their dreams. With thousands of perfect homes for first time buyers which are often harder to sell because of a price premium over previously-owned properties, the house-builders are having to be a little more generous. Whilst new build properties are more expensive, the blank canvas is very appealing, as the NHBC guarantee and this way of purchasing one can just make that new home more affordable.

Another innovation in the market place for first time buyers is ‘rent to buy’ or ‘lease option’. This involves renting a property and taking out an option to buy it at a predetermined value. The advantage of this is that it gives the first time buyer a chance to ‘buy before he buys’ and most importantly the price is pegged to eliminate the effect of market price increases in properties.

Summing up, there are a number of options to consider - lots of first time buyer mortgages, lots of companies wanting to sell homes for first time buyers, vested interests in the form of parents and those aiming to come up with innovative schemes.