Buying Your First Home: A Complete Guide
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First-time buyer with GSOH and average income seeks housing market crash, in order to be able to afford own home. Modest property required, but mansion with swimming pool for the current price of a two-bed terrace would certainly be a bonus. Please note: mortgage must be affordable.
If that sounds like the type of Lonely Homebuyer's ad you would write, then you've probably spent the last six months hoping and praying that the credit crunch will get so bad that property will finally become affordable.
And you have good reason to be hopeful. Latest figures from Nationwide show that annual house price growth has slumped to its lowest level in nearly a decade, after a series of small falls in prices over the past five months.
If this trend continues, you may soon be able to get on the property ladder without having to overstretch yourself or live in a shoebox - the stark choices which have faced most first-time buyers in the past.
But is the credit crunch really such good news for first-time buyers? What should you be aware of if you are looking to get on the housing ladder now?
Whatever your question is, we have the answer.
Is now a good time to buy?
Not according to The Fool's head of personal finance, David Kuo. He predicts prices will fall by 20% this year. But I disagree. To find out why - and to hear us fighting our corners with the help of Halifax chief economist Martin Ellis - download our recent podcast on house price predictions.
Does the credit crunch mean I will find it harder to get a mortgage?
Unfortunately, the credit crunch means mortgage lenders are finding it more difficult to get wholesale funding, which means, in turn, they aren't lending as much. There are only 6,200 mortgage deals available today, as opposed to the 13,000 that were available before the credit crunch.
And because there are far fewer deals around, you are far less likely to find a competitive mortgage rate. Read Half Of Home Loans Are History for more in-depth analysis of this problem and to find out more about the types of deals that have become more expensive.
Do I need a deposit?
In the past, it was relatively easy to buy a property without a deposit, because 100% mortgages (which allowed you to borrow 100% of your property value) were quite common and competitively-priced. Nowadays, it is much more difficult. Almost a third of the lenders which offered these products have withdrawn from the marketplace, and again, that means deals have become much less competitive.
However, it is still possible to find a 100% mortgage - it's just likely to cost you more. And it may not be such a good idea in an uncertain property market, as there's a higher risk you could fall into negative equity (when you owe the lender more than your home is worth). Read No More Mad Mortgages to find out more about this.
How big should my deposit ideally be?
The bigger your deposit, the better the rate is likely to be. While in the past, borrowers with 5% deposits would be offered just as competitive rates as borrowers with 10% deposits, this is no longer the case.
So, to be absolutely sure of getting the most competitive deal nowadays, it is advisable to build up a 20% or even a 25% deposit. However, borrowers with a 10% deposit should still qualify for a good choice of deals at competitive rates.
Bear in mind that it could be worth cutting your borrowing by even just £1, as then you may then qualify for a better rate - potentially saving you thousands. Take a glance at Two Ways To Save £2,000 On Your Mortgage to find out how to do this.
Can I protect myself from further falls in house prices?
The best way to protect yourself from further falls in house prices is to choose a property that will hopefully hold its value in the years to come - no matter what happens in the wider economy or national housing market.
To achieve this, I suggest you read up on:
• The Best and Worst Properties To Own to figure out which kinds of homes are likely to prove good investments.
• Avoid This Property Peril if you're thinking of buying a newly-built property, to ensure you get value for money.
• Property: The Best Ways To Add Value. By buying a property that you can improve, you can offset any falls in house prices.
• What Do Buyers Want? Knowing how popular your chosen property will be with other buyers may help you to negotiate a good price.
• Make The Most Of Property Prices Plunges. This should help to ensure you pick a property that is worth what you pay for it.
Quite a heavy reading-list isn't it? But if you take the time to do your research now, you should benefit from it later.
And remember, you're not alone. When I was buying my first flat, I found the help of my parents, friends and, last but not least, my mortgage broker invaluable.
While my parents and friends provided me with a lot of support (it is, after all, one of the most stressful things you can do), my broker found me the best deal available from any lender, which saved me a lot of money. He also took all the hassle out of filling in the mortgage application forms and made sure there were no delays which would affect my purchase.
So how do you find a good mortgage broker? Well, you could try your local bank or high street, particularly if you want face-to-face advice. But be aware aware small brokerage firms often charge for their time, and advisers at banks will not be able to compare the whole of the market.
Alternatively, the Fool offers whole-of-market mortgage advice. (And our service is fee-free, so you don't have to pay the adviser for their time.)
Finally, keep your spirits up and don't be afraid to use your position as a chain-free buyer to negotiate hard on the price. Getting a good price now will ensure you're in a strong position, no matter what happens to the housing market in the future.
Good luck!
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