First-time buyer guide

HousekeysFirst-time buyers have struggled for a long time now to get a foot on the bottom rung of the property ladder. Some are held back by high prices, stringent credit checks and the large deposit required by mortgage providers, while others simply can't find a place to buy due to a dearth of available homes.

The average age of a first-time buyer now stands at 32, according to the Council of Mortgage Lenders. That said, despite the ongoing economic gloom and weak housing market, it's not all bad news for those starting out. Here's our guide to taking the first step.


Shared ownership and shared equity

Shared ownership is a government-funded scheme designed to help first timers. Initially, you buy a share of a property - between 25% and 75% - with the remainder owned by the housing association that runs the particular scheme. When you can afford to pay more, you can opt to increase your share in stages, gradually moving up to 100%.

The advantage of this type of scheme is that deposit requirements are much lower than with a conventional house purchase.

A host of lenders offer mortgages on these schemes, including Halifax, Santander, Leeds building society and Kent Reliance - but choice can be limited.

While shared equity is similar, the difference is you buy all of a property, but with an equity share loan from a developer making up the difference between the mortgage and purchase price. Put simply, this shared equity loan acts as your deposit.

The latest version of this was the government's FirstBuy scheme, available only on new homes. This requires borrowers to put together 80% of the purchase price by combining a mortgage with a small deposit, set by the lender. The government and a house builder then provide an equity loan to cover the remaining 20%.


Government guarantees and NewBuy

A range of lenders now offer deals under NewBuy, a scheme launched in March 2012 with the aim of helping 100,000 buyers purchase new-build homes costing up to £500,000 with a deposit of just 5%.

Lenders are able to offer loans with deposits at this level, as the government and house-builders will be providing security. This means a first timer will be able to buy with a deposit of only £10,000 on a £200,000 property, rather than £40,000. In theory, at least, this should allow the lenders to offer cheaper rates.

Lenders offering these government-backed deals include NatWest, Nationwide, Barclays, Halifax and Santander.

You can get more information about government-backed schemes on the DirectGov website.


Deals with small deposits

If you don't want to be restricted to buying a new-build property, a host of lenders are currently offering decent deals available up to 90% of the property's value - referred to as 90% loan-to-value (LTV). This means you only need to amass a deposit of 10% to benefit from some very competitive rates.

A number of lenders do have mortgages available to those with just a 5% deposit, although your choice will be limited and the interest rates are higher than on 90% mortgages.

When it comes to mortgages it pays to have as large a deposit as possible. You will have a greater choice of product and the interest rate will be lower. The most competitive rates available at the moment require a deposit of 40%.

This is obviously more than the average first-time buyer has to put down, but it is worth aiming to save at least 10% and if you can get to 25%, even better.


Family options

An option for families who want to help a first-time buyer is Lend-a-Hand from Lloyds TSB. Lloyds will accept a 5% deposit (and the sort of rates available to those able to put down much more), if the homebuyer has someone willing to put the equivalent of 20% of the purchase price in a Lloyds savings account as additional security.

This scheme has been very popular as parents don't actually have to pump their savings into the child's property purchase.

A further alternative if your family can't afford to give you a large sum for your deposit is an offset scheme, offered by lenders such as Yorkshire building society.

With this type of scheme, the parents forgo interest on their savings, so that your mortgage costs will be lower.

Elsewhere, Barclays offers the Family Affordability Plan, which enables parents and children to pool their resources to secure a larger mortgage to buy their first home.


Buy with siblings or friends

One way to share the burden of the cost of getting on to the property ladder is by buying together with siblings or friends.

Several lenders are happy to offer a mortgage to groups of up to four borrowers buying together, including HSBC, Santander, Halifax and Clydesdale.

But if you enter into this kind of agreement, you need to plan ahead as to what will happen if you fall out, or if one person wants to move on before another. It's worth getting your solicitor drawing up a legal agreement which your solicitor will be able to do along with the rest of the conveyancing.


Save as hard as you can

While there are a number of schemes available to struggling first-time buyers, the key for anyone trying to take the first step is to work hard at amassing the biggest deposit you possibly can.

Saving money can seem like a challenge, but with the average deposit standing at almost £30,000 you need to get serious about squirreling money away.

Whether you are going it alone or as a couple, you need to start early and maintain the savings discipline for a long period.

Make sure you use your full individual savings account (ISA) allowance as the interest you earn is tax-free. The current annual limit for a cash ISA is £5,640.

Crucially, you need to shop around to ensure you are getting the best rates you possibly can on your hard-earned cash.

You also need to keep an eye on your savings, to ensure the rate remains competitive.


Dedicated savings accounts

Some lenders offer savings accounts specifically aimed at first-time buyers, such as Nationwide's Save to Buy. This deal also offers you the chance to earn a cashback reward if you successfully complete a Save to Buy mortgage.


Moving back home

If you're struggling to make savings in your day-to-day life, you could take the decision to move home to your parents for a while and save on rent. Or, if you're the parent and can see your son or daughter struggling to build up a nest egg, you could invite them to move back in with you.

This might mean everyone making some compromises, but it could be a small price to pay in the long run.

By amassing a sizeable deposit, you will get access to some of the most competitive rates available. The other benefit is that a bigger deposit will provide something of a buffer against any fall in house prices.


Factor in the costs of moving

When thinking about buying your first home, you need to factor in all the associated costs - and not just the upfront deposit and ongoing monthly mortgage costs.

When budgeting, you need to include the cost of the survey, legal fees, stamp duty - and then removal costs when the big day eventually arrives. Finally, don't forget about the cost of furnishing your new home.


Last updated: 1 day ago