Property News

Avoiding first-time buyer regrets

Deciding to take the plunge and buy your first property is rarely a decision that's taken lightly. Aside from the very practical need to save for a deposit, many buyers spend considerable time debating where (and, sometimes also, when) to buy - and a significant number worry that they will regret the decisions they take. A recent survey suggests that they are not necessarily worrying without reason. Ten per cent of first time buyers regret making that first purchase. 

Common reasons for regret

Moving away from family
For 40 per cent of the 750 survey respondents, this was the biggest cause of regret.

Moving to an area with a higher crime rate
Extrapolating from the survey, it seems that around one in seven first time buyers make their purchase in an area with poorer crime statistics.

Moving further from work
Around a quarter of first time buyers have cause to regret their purchase when the realities of a longer and more expensive commute to and from work kick in.

Moving to an area with a higher flood risk
Ten per cent of first time buyers find themselves having to buy in an area where the risk of flooding is higher than for their previous home.

All of these reasons for regret are likely to share a common thread: finances. Boosting savings before buying can help reduce the chance that a buyer will end up settling for a property and then later regretting its purchase. Increasing a deposit pot might sound hopeless but, with interest rates slowly on the rise and house prices in many areas of the country beginning to stagnate, the position for first time buyers is perhaps no longer as tricky as in recent years.

Check how much you can borrow before looking at properties and property prices
It is natural for many buyers - and not only first-time buyers - to get very excited at the prospect of owning a property. This makes it only too easy to begin looking at houses and flats before determining a budget. Unless someone is in the fortunate position of being a cash buyer, a sensible first step is to find out how much a bank or other lending institution is willing to lend. Obviously, this will depend on the applicant's earnings, age and credit status. However, having a ballpark estimate for how much a bank or building society will lend makes it easier to work out the size of deposit needed, using sold property prices to provide further guidance.

Check entitlement to the government's help-to-buy scheme
Help-to-buy is a government-run scheme aimed at assisting first time buyers who are over the age of 18 into property ownership, even when they do not have a large deposit. The scheme was introduced in 2013 and is due to be withdrawn in 2020. It runs slightly differently in the different countries of the UK.

Currently, in England, the scheme can be used for new build homes worth a maximum of £600,000. Outside London, successful applicants receive an equity loan, which can cover a maximum of 20 per cent of the purchase price. Within London, the equity loan can cover 40 per cent of the purchase price. 

In Wales, the scheme works in the same way as in England, but property prices are capped at £300,000.

In Scotland, the Affordable New Build Schemes allows would-be homeowners to purchase a home with a 15 per cent equity stake from the government and the applicant's own five per cent deposit.

In Northern Ireland, the Co-Ownership scheme permits applicants to buy a property worth a maximum of £150,000.

A help-to-buy loan remains interest free for five years. A help-to-buy mortgage - which must be repayment and not interest only - covers the rest of the price. As well as being a first-time buyer, applicants must have saved at least five per cent of the purchase price as a deposit.

Anyone benefiting from help-to-buy must repay the loaned sum either within 25 years or when they sell the property. Of course, they may choose to repay it earlier.

The help-to-buy scheme has several advantages, most notably that the equity loan is interest free for the first five years and the fact that applicants only require a five per cent deposit. Needing to borrow less overall than would otherwise be the case means that applicants should be more likely to qualify for a mortgage and are more likely to benefit from a competitive rate of interest.

On the downside, anyone choosing help-to-buy should be aware that the rate of interest applied to their equity loan will increase annually after the initial five-year interest free period. In addition, the amount to be repaid on the equity loan will fluctuate alongside the property's market value. A property that rises in value will cost the homeowner significantly more in repayments than they borrowed. Another potentially negative point is that the help-to-buy scheme applies only to new build properties. Moreover, not all developers permit help-to-buy. Finally, there is a concern that help-to-buy increases the chance of homeowners ending up in negative equity. This is less of a problem for anyone who plans on living in the property for many years, but those who anticipate moving within the short to medium term may want to rethink their plans.

Check eligibility for help-to-buy ISAs
This tax-free individual savings account pays a 25 per cent bonus on savings up to a maximum bonus of £3,000. Banks and building societies across the UK offer help-to-buy ISAs and can provide further details.

Alternatives to help-to-buy
A glance at sold property prices is enough to convince many of those keen to buy that there is no time to waste. However, help-to-buy schemes are not necessarily the only way of buying a property you will not come to regret. For some, choosing to rent - even if this means a house share - for longer can provide a welcome boost to their deposit pot. Others may be able - and willing - to live with their parents for a while in order to save even greater sums. Bigger deposits mean better deals on mortgages and more money to spend on a property. This can be enough to enable someone to look in a more desirable area. Finally, it is important not to forget to shop around for mortgages, using a broker if necessary, in order to track down the best possible deal.

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Source: 07.08.18

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