Now my son is in full time employment, his next ambition is a flat or house of his own, an ambition shared by most children of clients I have met. For many of them, this is going to take a very long time if they want home ownership rather than a rented flat or terrace.
Typically, young professionals spend a few years renting, as they are dragged around the countryside developing a career, saving a deposit and hopefully, finding a life partner to share an owner-occupied home and the bills.
Renting, in the early days of employment can be inevitable; if work is a long way from the family home, then there will not be many alternatives; buying will be out of the question with no deposit saved up and insufficient income to service a mortgage. Renting can be a positive experience, if you want to be in the middle of a city, if you relocate for work regularly and you can find good quality accommodation, but more often than not, it is an experience to get through as fast as possible!
My sister struggled to find decent accommodation and got so fed up with having to move at the end of a shorthold tenancies, that she braved penury rather than rent again.
The Telegraph carried an article that covered the financial barriers to home ownership with the title, “Get on the property ladder; find a partner or a parent”, (see the original article here), which details many of the issues around getting that first property.
For a single person, knowing that the average UK property is six times the average annual salary and the mortgage providers are very reluctant to lend more than four times salary, suggests that they are in for a bumpy ride. The only way to break this loop is to have a massive deposit saved up, which is much easier said than done.
Becoming a couple and adding two full time salaries to the affordability calculation, makes servicing a mortgage easier, but a deposit is still a necessity as 100% mortgages were a casualty of the last property bubble. A target of 10% for a deposit should give you choices on the mortgage deals available.
Even harnessing the services of the “Bank of Mum and Dad” is not as straightforward as it used to be; lenders are insisting on deposits being easily visible to them, so as cash in a bank account in the mortgage applicant’s name; and if parents are on the property deeds, then the stamp duty rate is boosted by 3%, following the changes on second homes.
Thoughts for prospective buyers
Think seriously about staying in the family home and saving as much as possible. Rent and other household expenses can swallow half of your take-home pay, so saving while freezing in a damp flat can be impossible.
If nothing else, staying in the family home may make the parents keener to help you buy a property elsewhere! There are a number of ways they can help; gifted deposits, guarantors, shared ownership or even a private mortgage. Beware of nasty complications, like the Stamp Duty uplift on second homes.
Budget hard; do not spend money on stuff you do not need. You need 10% of the value of the property you want as a deposit and several thousand more for legal costs, moving and incidentals.
Keep your credit score up. These days there is no need to pay for credit details as there has been a rise in companies offering credit reports for free.
Use a monthly mobile phone contract and a basic credit card and pay them “on the nail”, so you are seen as responsible with credit.
Get to know the housing market in the area you would like to live. In an ideal world you want the worst house in the best street, so some DIY and decorating can get you a tax free capital gain when you sell this property and trade up.
Your first home will probably not be a home for life, so keep it in good repair and try and make it attractive to the next buyer.
If you would like to know more about how we can help you plan and realise your financial goals, then contact us at email@example.com or call us on 01223 792 196.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.