Bristol is one of the UK’s most expensive cities First time buyers will find Clifton or the Harbourside difficult. Bedminster is just over the bridge from Bristol city centre and has become extremely popular with first-time buyers. Expect to pay around £250,000 to £300,000 for a two-bedroom purpose-built flat or period terrace.
Show me the money
The Bank of Mum and Dad has become the way of funding deposits. This is for at least a quarter of transactions. What if you don’t have parents flush with ready cash? with a complex mortgage market, there are alternative forms of financial support.
Parent’s savings can be used as security for a deposit. This allows parents to get them back at a later date. It means that as long as payments on the mortgage continue, parents aren’t left penniless in their old age.
Other options include joint borrower, sole proprietor schemes. This allows parents and their children to combine their borrowing capacity to maximise mortgage lending. Only the first-time buyer is on the deeds. This means that the parent doesn’t pay the three per cent stamp duty surcharge for owning a second home. The first time buyer also benefits from stamp duty exemption.
Parents whose money is tied up in their home could try the National Counties Building Society’s family mortgage. It takes family assets into account as security. this means a first-timer with a five per cent deposit can benefit from better interest rates.
And buyers with no deposit at all could choose a “no-deposit” mortgage, backed by a guarantor. The guarantor will be liable to pay if the buyer defaults. This type of mortgage has accounted for one in 10 sales of first homes over the past two years.
Vicki and Pete Shannon, newly married and renting, decided they wanted a home of their own. In 2013 they set a target of saving £10,000 per year to put towards a deposit.
For three and a half years they travelled by bike, stopped eating out in favour of hosting dinners at home, and adopted an “only if truly necessary” approach to buying clothes. Adding in making packed lunches and sticking to meal plans, the couple found it reasonably painless to reach their target, on salaries of around £30,000 apiece.
“You just have to limit luxury items,” says Vicki, who swapped high-street clothes stores for vintage finds. “I gave up my gym membership, and went for a run instead, and just generally became more mindful about spending money. Going out for cocktails or dinner is great, but you have to think about how often you are going to do it.”
This simple strategy worked. Two years ago Vicki, 29, a health visitor, and Pete, 31, an architect, were able to leave their one-bedroom Battersea rental. They swapped it for their own three-bedroom garden flat in Thornton Heath, south London, which cost £350,000. Thanks to their scrupulous saving they were able to put down a 10 per cent deposit, and cover stamp duty.
The Government’s flagship Help to Buy scheme will run until 2023, offering buyers a 20 per cent Government loan (40 per cent in London) to put towards a property. This means they need a five per cent deposit, and a mortgage for the remaining 55 per cent.
The scheme has drawbacks. It applies only to new-build homes, for which buyers will pay a premium. Thhe Government loan is interest-free for the first five years but interest kicks in during the sixth. Owners will then either have to sell up or find a way to pay an extra monthly bill on their home.
Another option is Shared Ownership. Many buyers are wary of the idea of only buying part of a property and continuing to pay rent on the rest. Housing associations insist they gear payments to make sure it works out cheaper than renting an equivalent property. Buyers can also increase the proportion of the property they own over time, eventually becoming outright owners.
Like Help to Buy, this scheme only covers new homes. Demand exceeds supply so finding a shared ownership flat can be a task. Buyers have to pay a monthly service charge on top of everything else. When selling up, housing association clients have first claim, which can keep prices down.
Taking the whole process and breaking up into more manageable chunks, as these schemes do, first-time buyers are able to take that initial leap onto the ladder. After all, no one wants to be paying their landlord’s mortgage for the rest of their life.”
Certain properties offer more value if you are prepared to compromise. A flat above a shop can be a great starter home. They are typically 10 to 20 per cent cheaper than a conventional property.
You will also pay less per sq ft for an ex-local authority flat. Look for homes built pre-1950 which had really generous space standards. Treat large post-war estates with caution because a property in a concrete jungle can be hard to sell.
Buying a wreck is another option but be aware that profits will be less than before. Direct Line found that a home needing major structural work will typically cost 17 per cent less than one in good condition. Note that a renovation could cost more than you thought. It may be better to think about a property which needs only minor structural work, which costs on average six per cent less than the market average.
The art of negotiation
“In the present challenging market, it is not at all uncommon for prospective purchasers to make offers up to 30 per cent below the list price,” says Mark Pollack of Aston Chase estate agents. “But a purchaser needs to judge how realistic the asking price is in the first instance and seek guidance from the agent, as a derisory opening offer will more often than not prove to be counterproductive.”
If you can’t secure the property at a price you consider fair in the current market then walk away. There are plenty of houses out there, and waiting a little longer for the perfect home is a whole lot better than paying over the odds in a slow market.