When you first move out of home, there’s no question for most people that renting is the most sensible option. Throughout your twenties you’d be forgiven for thinking it’s probably still the best approach: it’s certainly the most common one. However, new research conducted by the housing and homelessness charity, Shelter, has shown that if you were able to buy in your twenties, you could save an incredible £146,300 over your lifetime, compared to those who buy later - and you could be £561,200 better off than those who never buy at all.
It may seem like a bit of a stretch at this point but there are several ways in which becoming a first time buyer is getting easier. In association with HSBC, we examine five ways first time buyers could improve their chances of getting on the property ladder.
1. Think big about freeing up money in your budget
Saving for a deposit isn’t always easy when you’re already renting your own place, and there are all the monthly bills to pay. However, if you plan to save a deposit of £12,000 over four years, then you need to go through your budget and free up £250 a month.
Some people will be able to do this by cutting out luxuries, and tightening their belt. Others will need to think creatively – possibly moving into cheaper rented accommodation for a while, or even moving back home in order to save more.
2. Take advantage of the new Help-to-Buy ISA
This new ISA, outlined in the Budget, offers an extra boost for buyers, because for every £200 you put into the scheme, the government will add another £50 (providing you save a minimum of £1,600) . When you're saving for a deposit, it makes sense not to turn down free money. You can save up to £200 each month, plus an additional £1,000 when you open the ISA. It means that if you save up to the maximum of £12,000 in the ISA, the government will top it up by £3,000, giving you a 10% deposit on a £150,000 house. George Osborne described it as "effectively a tax cut for first time buyers"⁂.
The scheme can be used by any first time buyer on any property worth up to £450,000 in London and £250,000 elsewhere. It is also applied to each individual, so if you are buying as a couple you can get a £6,000 bonus on £24,000 savings, and build up a sizeable deposit. The bonus will be calculated and paid when you buy your first home.
3. Consider whether you can get help
Increasingly parents are stepping in with some help when their offspring want to buy, possibly by lending them money for a deposit, or by agreeing to buy a property together. When you are looking at all your options, it pays to ask if your parents are in a position to help.
Alternatively, there may be help available through the government’s Help-to-Buy schemes. In addition to the Help to Buy: ISA, this comes in two forms: there’s the equity loan - where the government will lend you money towards the price of a newly built home. If you have a deposit of at least 5%, you could borrow up to 20% of the purchase price from the Treasury. There’s no interest on this loan for the first five years, and after that the rates are designed to be highly competitive.
Alternatively there’s a mortgage guarantee, where the government guarantees part of your loan - enabling you to buy a home with a 5% deposit. These are available on both new and old properties.
4. Search the whole market for a mortgage
At the moment there are some incredibly competitive deals being offered by lenders, and mortgage rates are at their lowest for years. HSBC, for example, has a range of mortgages for those with small deposits like 5% or 10%.
They also offer £1,500 cashback for HSBC Advance Bank Account customers* on mortgages in the Homebuyer Specials range, which could come in very handy if you need to do some work on your new home, or you could do with a hand with furnishing it. The company was named as the Moneynet Personal Finance Best Overall Mortgage Provider this year, so it’s worth checking out the range they provide.
Getting the right deal can save you substantial sums every month - in some cases over £100 - so it’s worth putting the legwork in at this stage. Find a HSBC mortgage now
5. Consider whether you need advice
There will be some people who need a great deal of help with finding the right mortgage for them, and others who already know exactly what they want: there are approaches to suit them all.
If you need help with the whole process, including understanding what you can afford, and what is available across the wider market, then you may want to use an independent mortgage broker. Some of these will charge a fee for advice, but in some cases it will be money well-spent.
In other cases you may have seen a mortgage that you like or wish to speak to a particular lender about the mortgages that they offer, but just need some support through the process, in which case a qualified mortgage advisor tied to the lender may be able to help. HSBC, for example, has 500 of these across their branches, and if you talk to one of them you will get a named advisor, with a direct number and email address, so you can get in touch any time you have any questions on their products.
If, on the other hand, you’d rather get on with things yourself, some lenders will let you complete the entire application online.
⁂If you subscribe to a Help to Buy: ISA, this may affect your eligibility to subscribe to a cash ISA in the same tax year.
Your home may be repossessed if you do not keep up repayments on your mortgage
*Available to HSBC Advance and HSBC Premier customers (financial and other eligibility criteria apply) on the Homebuyer Specials range of fixed rate mortgages. Residential home purchase applications only. Available up to 95% loan to value (LTV). Minimum loan size is £75,000 excluding any existing borrowing. A maximum loan size may also apply. An upfront booking fee of £199 applies and other fees and charges may be payable. An Early Repayment Charge applies during the fixed rate period. Cashback will be paid within 40 calendar days of receipt of your first monthly payment. This offer is limited to one application per property. HSBC reserve the right to withdraw this offer at any time without notice.