Finance

A worry shared…

Buying your first home is inevitably a nerve-racking experience – but doing your research and planning ahead can put to rest some of the worst of the worries, says Kay Hill

It’s normal to be a bit nervous about any

major life decision – but first time buyers have more on their minds than most. The mortgage experts at money.co.uk surveyed 1,501 first time buyers to find out their worst worries – and here at First Time Buyer we hope we can address these and make it all a bit less stressful.

NEGATIVE EQUITY

The number one worry listed by 31% of respondents was that the value of their house might drop – especially falling into negative equity, where the value drops lower than the outstanding mortgage.

It is true that house prices can go down as well as up – Office for National Statistics figures show, for example, that between February 2008 and February 2009, prices dropped by 15.5%, and didn’t fully recover until 2012. However, the circumstances at the time were extreme, and today there seems to be a consensus that despite all the challenges of Brexit and Covid-19, house prices are likely to slow rather than crash.

If you are still concerned, then there are things you can do to mitigate the risk: • Put down as big a deposit as possible.

Not only will this give you access to lower mortgage interest rates, but it also makes negative equity far less likely • Take out a longer term fixed rate mortgage so you won’t need to remortgage in the near future (remortgaging is impossible in negative equity, so you end up on the very expensive standard variable rate)

EXPERT COMMENT

In May, double-digit house price rises hit the dizzying heights we last saw just before the onset of the nancial crisis. We’re not expecting precipitous falls, but rises are unlikely to be as steep in the coming months. It usually takes a shock to the system to upset the housing market: like interest rates rises, unemployment or recession. None of these are forecast to be a major problem for the next few years. Anyone currently saving to buy a house will be desperately hoping the market pauses for breath. First time buyers have spent months running to stand still when saving for a deposit, as their target moved further out of reach each month. If price rises slow, it will give them an opportunity to catch up. If you’re saving for your rst home, and expect to buy at least a year down the line, it’s worth considering a Lifetime ISA for the rst £4,000 of your savings each year. The Government will top it up by 25% – so every year you could get £1,000 of free money from the Government. So much of buying a property feels like endless striving with little reward that it’s a welcome change to get something for nothing.

Sarah Coles, Sarah Coles, Personal Finance Analyst, Finance Analyst, Hargreaves Hargreaves Lansdown

• Choose your home carefully. Dips in value, however scary, are only a problem if you need to move or remortgage, so if you think you might start a family or move jobs in the next couple of years, try to buy a home that would cope with these life changes.

SAVING A DEPOSIT

For more than a quarter (26%) of buyers, saving a deposit while prices are rising is the biggest concern, while the fourth most-cited worry was post-Covid price spikes (13%) – and when the Land Registry estimates that house prices have risen 10% in a year, while interest on savings languishes, it’s easy to get despondent.

First of all, consider how you might save more quickly (move in with parents, get a second job, walk to work etc), then ensure that your savings are in the best possible account. Rates have begun to creep up, so make sure you keep moving your money to get the best deal. At the time of writing, for example, a number of instant access accounts were offering 0.5%.

Look at a more affordable area – property website Zoopla notes that homes in Shildon, near Durham, cost an average of £59,468, the equivalent of just 1.1 times local household earnings, making it the most affordable town in Britain. Cleator Moor, near the Lake District, took the second-place spot, with properties averaging £96,269, or 1.16 times local household earnings. For buyers who need to stay close to London, homes in a handful of areas, such as Erith, Thamesmead and Harold Hill are the most affordable.

Consider a Government-backed scheme – these include Help to Buy: Equity Loan which offers first time buyers an interestfree 20% loan (40% in London); shared ownership, which enables you to buy a percentage of a property and pay rent on the rest; and First Homes which offers a discount of up to 50% for qualifying first time buyers.

If you really can’t save quickly enough not to risk homeownership going out of reach then it might be time to take the plunge. You might consider a 95% mortgage, or a family or guarantor mortgage where your parents can help you on to the ladder. These options can be expensive, so ask a mortgage broker for advice.

LONG-TERM AFFORDABILITY

The third biggest worry, keeping 22% of first time buyers awake at night, is not being able to afford to pay your mortgage. The good news is that today’s careful mortgage checks, and the fact that mortgage offers are “stress tested” to ensure that buyers can cope with a rise in payments, mean that it is far less likely than it was in the past that you will get into trouble if interest rates go up or personal circumstances change.

If you are concerned, however, one of the best ways to protect yourself against interest rate rises is to opt for a longer fixed rate mortgage. Short, two-year fixes have good headline figures – the cheapest at the time of writing was 1.97% (£950 a month) with a £1,034 fee, on a £250,000 home with a 10% deposit (Barclays); but for £1,026 a month you could fix for five years at 2.65% with Barclays, and for £1,101 you could fix for the full 25-year term of the mortgage at 3.29% with First Direct – locking in low interest rates and avoiding remortgage fees or problems remortgaging if your circumstances have changed. If you find it hard to crunch the numbers (and let’s face it, who doesn’t?) a mortgage broker or financial adviser can help you make the best choice.

BREAKING UP IS HARD TO DO…

Finally, fifth on the worry list at 11%, is breaking up with the person you have bought a home with. Relationship counselling is out of our remit, but remember that co-owners are equally liable for the mortgage payments – if your house-mate defaults you will have to pay the full amount, so only buy with someone you trust!

Consider owning the home as “tenants in common” rather than jointly, as this means you can leave your share to whoever you like in your Will rather than it going to the joint owner, and it is more straightforward to sell your share. Having a legally binding Declaration of Trust formalises what happens if one of you wants to move out, reducing problems down the line.

EXPERT COMMENT

Getting on the property ladder can be a nerve-racking experience for rst time buyers, as being misinformed can cost greatly – whether it’s losing out on a dream home or losing a lot of money in the process. However, the best thing rst time buyers can do is do their homework thoroughly before embarking on this journey. Being equipped with the right information will cut the risk of encountering unpleasant scenarios that many rst time buyers fear, such as experiencing negative equity or being unable to afford a mortgage long-term. Once you are con dent in your knowledge, the process should be less risky and more exciting. There are a few things you should keep in mind if you want to avoid negative equity. Firstly, it’s important to make sure you pay the market value for the property, so don’t shy away from negotiating on the asking price. Secondly, the larger your deposit, the more equity you will have in the property. So, if you are able to save enough, putting down a bigger deposit is a good idea. By setting a budget, you’ll be able to plan out your savings targets and start saving for your ideal home.

Nisha Vaidya, Nisha Vaidya, Mortgage Mortgage Expert, money.co.uk money.co.uk