First Time Buyer option in London
There is no doubt about it that buying in London for the first time is tough, but it’s not impossible. The first thing you need to do is accept that even though you will be spending hundreds of thousands of pounds, you will still have to compromise on either location, property size or the type of property you buy.
If it’s of some comfort, in London, it’s not just you that suffer. There is so little stock and choice even for millions, that everyone has to give up something, such as living near a tube or train station when buying.
There are options!
You will need to save a deposit of thousands of pounds and you will have to pay for legals and a survey, but it doesn’t mean you can’t afford to buy even if your budget is around £10,000. Below is a summary of different ways of getting on the ladder.
Help to Buy a new build
This is where you can buy a newly built property from participating developers with just a 5% deposit. Most big developers are taking part and they advertise locally and on-line property search engines. You put in your 5% deposit, the government effectively ‘tops up’ your deposit by up to 20%, which is in the form of a ‘loan’, then you secure a mortgage for the rest.
To access this deal, you need to contact your local ‘HomeBuy agent’ who will work with you to apply for the scheme. If you are eligible, you can start searching for property. Do checkout first though the costs now and in the future as after five years you will have to pay back not just the mortgage, but the loan of up to 20% from the government.
Interested in finding out more? Read my Help to Buy a new build checklist
Help to Buy for an existing home
This works differently to the scheme for new builds. You visit a participating mortgage lender and they would confirm your eligibility. You find a property you like then you pay a 5% deposit and secure a 95% mortgage to buy it. The government support for this scheme is in the form of insurance. This protects the lender, so if you don’t keep up repayments and are repossessed, they can claim some of their losses.
Want more help? Read my Help to Buy an existing home checklist With both of the Help to Buy Schemes, talk first to a mortgage broker first (they should do a free initial assessment). Some lenders are offering mortgages which don’t require any help to buy funding but just need a 5% deposit. This is useful and worth knowing about if and when the government decides to withdraw Help to Buy.
Shared equity purchases
This is where a developer may choose to sell you a property at under the full price, in return for keeping some of the property’s equity. For example, a property might be marketed at £200,000. The developer may offer you to pay for 80% of the property, so 80% x £200,000 = £160,000. Typically after 10 years, you either pay back the 20% or if you sell keep your 20% and repay the rest.
While the Help to Buy Scheme is available, many lenders have switched out of shared equity, but there are some still schemes available and this way you don’t have to worry about paying back the government loan within five years.
Interested in finding out more? Visit my Shared Equity checklist
This is a great scheme if you are eligible and you might be surprised to know anyone earning up to £60,000 a year can apply. To find out more, contact your local Homebuy Agent who will assess your application. My view is if you are renting in your local area and can’t afford to buy through the Help to Buy or Shared Equity schemes, it is worth comparing the long term costs of renting versus buying into shared ownership as it might be a more secure option.
With shared ownership the whole property is yours to live in. You part buy with a small deposit and a mortgage and pay rent to the housing association who offer these schemes, on the rest. Overtime you can buy more of the property, eventually buying the property outright (with mortgage help) if you want to, or just maintain your stake. Be aware though your rent will increase each year, often in line with inflation.
Want more help? Read my Shared Ownership checklist
Buying with friends and family
It might be you have a friend who also wants to buy, but is struggling and pooling your resources could get a two bed property and share the bills. Or it might be you could buy a two bed property and rent out a room which you could earn up to £4,250 tax free to help fund a bigger mortgage. Alternatively friends or family might help fund part of the costs, knowing you will live in it and look after it they will jointly purchase.
What’s important if you go down this route is having a good broker and a good legal company involved. The lender will need to be happy about who is paying for what level of ownership. Legally, buying with someone who isn’t a spouse is better as ‘tenants in common’ and if someone is ‘investing’ their money, they may have to pay tax if you sell the property and money is made.
If you want more help and advice on buying with friends and family, do contact me
If you need help working out which one is right for you, do contact me and I’ll do my best to help.
I run one to one clinics at London property shows, so come along to the Property Investor Show at Excel on 10th and 11th of April
or the First Time Buyer Show on the 10th May and it would be great to meet and chat through what’s right for you.
Factor in all your property costs - not just the property's price
When you buy a property it is a little daunting on how much you will have to pay stamp duty (over £125,001) legals and a survey. We monitor all these costs for you, so visit us for help
But it’s not just the price and purchase costs you need to think through. When you own a property, if it’s a new one, hopefully there will be little maintenance costs and utility bills should be lower. Older properties and flats can incur additional, unexpected costs such as a boiler break down or fixing leaks or the roof. The utility bills could be hundreds of pounds more a year, so don’t just compare the initial cost of the property, compare how much each year it will cost you to maintain and run it.
What's your plan B?
Much as we would love life to always go to plan, inevitably it doesn’t. The advantage of renting versus buying is that you can up sticks and move pretty fast, but when you own that’s not quite so easy. My advice for first time buyers is always make sure when you buy you can sell when you want to and if you need to move out sooner, then check before you buy what it would rent out for and if this covers your costs. But make sure too the electrics and gas are safe as you will need certificates to let your home.
Top five tips for first time buyers
- Research all the different ways of owning a property
- Be flexible on location, property type and size
- Make sure you know all the costs involved in buying, maintaining and running a property
- Check out sold property prices and try not to offer more than the highest price paid on the road
- Ensure you can stay in the property for at least five years or can rent it out and cover your costs
For FREE checklists on buying for the first time, selling a home or investing in property, visit Propertychecklists.co.uk