Mortgage professional Darren Polson has noticed a lack of confidence from first-time buyers who are feeling despondent because of climbing mortgage rates and house prices. Here he explains how there is more than a glimmer of hope for those keen to realise their homeownership dreams in the near future
Buying a new home is one of the biggest decisions most people will ever make, particularly in financial terms.
It can be a stressful and complex process, particularly if you’re a first-time buyer.
There’s all the new terms and jargon and then a series of big tasks such as applying for a mortgage, getting insurance and agreeing a price.
It’s a hugely exciting time, and possibly you’ve been thinking about it for some months or years.
However, what we are seeing now is a marked lack of confidence from those who are looking to purchase their first home.
This is not a huge surprise given the sharp rise in mortgage rates and what seems, on the face of it, to be the substantial and ongoing growth in house prices during the last few years.
Many potential first-time buyers could be forgiven for thinking that right now might not be the best time to buy a new home.
However, there is some light at the end of the tunnel and the reality is that this could well be the perfect time to consider buying.
So, what has changed for first-time buyers?
Whilst it’s true that interest rates have risen considerably, it’s also fair to say they have to some degree settled down and we have seen an increasing number of lenders offering a range of competitive mortgage deals.
In addition, although house prices have indeed been rising at a pace in recent months and years, sometimes perception overtakes the true picture.
At a local level our estate agency colleagues have seen many more properties selling at or under the market valuation. A clear indication that the market is moving.
Both of these factors put first-time buyers in a much stronger position than they might have been a few months ago, and it creates an opportunity for them to explore the market with a genuine expectation they could well afford to buy.
Find out what you can afford
A good place to begin is to work out your budget. Whether you are buying by yourself or with someone else, you need to know both your budget, and indeed, like many, whether you need a mortgage.
There are normally two elements to your budget, which are how much you might be able to borrow, and what size of deposit or contribution you can make.
You will also need to establish what the potential repayments might be, and whether you can afford them, taking into account the rest of your bills. Ideally, you’d get all of this information together before you starting your search for property.
Check and manage your credit score
Review your credit score as this can not only impact your ability to get a mortgage but also the interest rate you may pay.
Be mindful not to miss any payments on credit commitments and also ensure you do not take out major commitments during the process.
Save a deposit if you haven’t done so already. The minimum tends to be 5% of the property you are buying but remember if the property goes for above the value you will need to cover this.
Generally, the higher the deposit will normally mean a lower interest rate.
Consider other costs
Although you will have saved a deposit, keep in mind the other fees related to buying a home, will this impact the amount of deposit you have? Expenses such as stamp duty – Land and Buildings Transaction Tax (LBTT) in Scotland – legal fees and moving costs can all impact your budget.
Don’t forget about protecting your mortgage, income and family. You are legally required to hold building insurance and it is recommended to insure your contents also. In addition, life cover, critical illness cover and income protection is vital to ensure you keep your home in the event of the worst happening.
There’s no doubt that the prospect of buying your first home can be daunting but seeking advice from an independent
mortgage broker right at the start can ensure that the process is a smooth one.
They can guide you at every step, from finding the best mortgage deal for you, to helping navigate the different types of protection you might need.
Now could be just the right time to secure your dream home.
Darren Polson is head of mortgage operations at Aberdein Considine
