by admin | Aug 21, 2020 | Mortgage News
If you’re a potential first-time buyer then you may currently be very confused by all the headlines regarding the health, or otherwise, of the property market. There’s an easy way to deal with this confusion – ignore them. Focus on the fact that homes are meant to be places where you live. The fact that they also tend to increase in value over the long term is simply a useful bonus.
With that in mind, here are some questions you should be asking yourself before deciding whether or not to aim to buy now or wait until later.
Am I 100% sure I can service a mortgage over the next 5+ years?
When it comes to mortgages (and by extension home-buying), this is the key question. Ideally, you should be confident that you can service a mortgage over the entire term (without having to sell your home). In the real world, however, the length of mortgage terms means that it’s close to impossible to know what you’ll be doing (financially or otherwise) at the latter part of them. You should, however, be totally confident about what you’re doing for the next five years and if you’re not, then you’re probably better off renting.
Remember that buying a home and being unable to keep up with your mortgage can work out a very expensive and painful experience particularly if you end up in negative equity (owing more than your house is worth). You are especially vulnerable in the first five years or so of ownership. This is not only the time when you’ll have the least equity in your home, but also the time during which you’ll still be swallowing up the purchase and moving costs.
Am I 100% sure I can commit my deposit money over the next 5+ years?
Similar comments apply here. Once you convert your cash into bricks and mortar it stays converted until you sell your home. Selling your home within the first five years of purchase can see you having to take a hit on the transaction costs, not to mention having to deal with a whole lot of upheaval. In short, if putting together a deposit would leave you very short of cash, then you might be better off renting. Even with insurance, you have to think about what would happen if you had any sort of emergency.
Do I want to stay in one place over the next 5+ years?
In principle, you have the option to buy a house, live in it for a while yourself, then let it out while you go to live elsewhere, for example, if you go to work overseas. In practice, the amount of administration and cost this can involve means that it’s probably only worth even considering in very niche situations.
For example, you’ll have to change every product associated with your house, including your mortgage and insurance, from residential-property products to investment-property products. You’ll also need to meet all your legal and compliance obligations regarding the maintenance of the property and the welfare of your tenants.
This means that these days, you should buy a property on the assumption that you’ll be living in it yourself until you’re ready to sell it. If you’re thinking of letting your property on a non-residential basis (for example allowing holiday rentals for part of the year) and/or having a lodger, then you would need to check with your mortgage lender and your insurance provider(s) to make sure that this would be acceptable to them.
For completeness, if you are thinking of using your main home as a holiday let for part of the year, then you should also check with your local council to make sure that this is permitted.
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | Jul 17, 2020 | Investment, Mortgage News
The plight of first-time buyers has been a matter of concern for some time now. With COVID19 restrictions ongoing and Brexit around the corner, it looks like life could be about to get even tougher for (potential) first-time buyers. Here are some of the challenges they may face – and what might be done to help them.
Raising a deposit
Back in 2017, Lifetime ISAs were introduced to help people save either for their first home or for a pension (or both). In response to the impact of the Coronavirus pandemic, the government changed the rules on Lifetime ISAs to allow borrowers to withdraw funds without an active penalty. In other words, borrowers lost the government bonus but did not have to pay the 5% withdrawal fee.
Once the UK has established a post-COVID19 “new normal” (and possibly after Brexit if that is later), it might be feasible to reassess the Lifetime ISA situation and see if there is any way to use it to help undo the damage of the pandemic (and, if relevant, Brexit).
At the very least, the government could look at ways to make it possible for people to “get back where they were”, even if they can’t afford to replace the money they withdrew during this financial year. It may even be possible for the government to increase the savings limits (and corresponding bonus) and/or the length of time over which first-time buyers can save.
Satisfying the affordability criteria
The Mortgage Market Review obligated lenders to stop making lending decisions purely on headline data such as income and, instead, to look in more detail at a potential borrower’s ability to afford the loan in their personal circumstances. Making this work in practice requires being able to make reasonable predictions about what the future is likely to hold for the person in question. This could be extremely challenging in a post-COVID19/peri-Brexit environment.
On the one hand, nobody wants to see a return of the behaviours which led to 2008. On the other hand, nobody wants to see buyers, especially first-time buyers, frozen out of the market due to lenders being unable to offer them any flexibility in case they wind up on the wrong side of the FCA. Again, this looks like an area where parliament could potentially assist.
The government has already extended the Help to Buy Equity Loan scheme albeit only for first-time buyers. This could possibly be expanded further, albeit with appropriate caution. For example, the rules could be adjusted to allow for the purchase of existing properties. This could open up some interesting opportunities for first-time buyers such as the option to take on former investment properties, perhaps even the homes they are currently renting, or even to buy properties in need of refurbishment.
Dealing with the fear of a market downturn
Buyers, especially first-time buyers, may be wary of buying into the property market in the near future for fear that the property market will be hit by a slump or, even worse, by a crash. While these fears are understandable, they are also a sign that buyers need to be educated about the realities of property purchase.
In particular, property professionals need to ensure that buyers are clear about the fact that property should be seen as a long-term investment purchase rather than a short-term impulse buy. They should expect periodic fluctuations in the market, including occasional, sharp, downturns, and be prepared to ride them out.
This may involve working with the broader financial services industry and maybe even the government to ensure that first-time buyers have the necessary financial education to understand the financial practicalities of home-ownership.
Your property may be repossessed if you do not keep up repayments on your mortgage.
For Investments we act as introducers only.
The FCA does not regulate some forms of Buy to let Mortgages.
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