Hey, Skint pals, don’t you love May? Hopefully some of you who managed to bag the £20 of fuel for a tenner deal I featured yesterday – if not you still can until May 27. Another bank holiday weekend is upon us – and apparently this weekend more of us will be looking for a house, or doing up our own homes to sell than at any other time of the year.
This is one of the busiest weeks of the year for househunting and buying – but only if you’re fortunate enough to be able to afford it. Some younger folks in my family want to buy their first flat at the moment and they’re finding it almost impossible to break out of the trap of trying to save for a deposit whilst paying out every month on rent. When I bought my first flat more than ten years ago, getting a mortgage for the full amount (100%!) was nothing out of the ordinary, but these days? Well, you’ve as much chance of winning The Apprentice as sweet-talking the bank into lending you the full amount.
So with mortgage companies now asking for higher deposits than most first time buyers can afford, just how do you get your first foot on the housing ladder?
Unsurprisingly it’s all about the saving, folks, but it’s increasingly difficult to save as much as is required in these tough times. The more deposit you can put down, the less risk you are as an investment and therefore, the cheaper the rate of interest you’ll receive. For example if you can stretch to putting down a £24,000 deposit on your first £120,000 flat (ie 20%) you could bag yourself a decent rate of interest because you’re only taking out a mortgage on 80%. But realistically, what first-time buyer can do that?
Most first time buyers, even after years of saving, are still looking at having lower deposits – say five or ten percent – meaning they’re faced with 90 or 95 % mortgages and higher interest rates.
And it’s not just about the deposits either – if your salary is too low mortgage lenders can still refuse you, even if you have the deposit, so what are first-time buyers to do? Well, another option, is to check out the schemes that help young people on to the property ladder, like the Government’s First Buy and New Buy schemes. Here, 90-95 per cent mortgages are available on new homes built by participating developers, and the homes tend to be far more affordable than those sold on the open market.
Which Mortgage Type Should You Go For?
First time buyers – make that all of us – get confused about which type of mortgage to go for. The two main types that are widely available are the fixed rate and the tracker rate. This BBC article explains very clearly the main points of first-time buying, but basically, fixed rate mortgages offer security in terms of knowing exactly how much needs to be paid each month, for a set period of time. Best for: risk-averse folks and those who want/need to control their budget very tightly.
The tracker mortgage uses an interest rate that is set just above the Bank of England base rate. This will then change as the Bank’s rate fluctuates, meaning that you could save money if the rate decreases, or on the other hand it could cost you more. This is the most popular type of mortgage and does generally work out cheaper than others, as well as providing more flexibility. Best for: folks who are a bit more relaxed about regular fluctuations in mortgage payments and who have a little leeway in their budget.
So, which do you favour folks? And do you have any tips for first-time buyers trying to get their foot on the housing ladder? How on earth did you do it? Or are you a serial-renter who doesn’t want to own property at all? There are plenty out there!
Coming next folks – that post on secret insider tips to save money at the salon that I promised you. It’s full of good stuff – straight from a stylist’s mouth! Meantime, hope you all have a great holiday weekend.