06 Feb The top five tips for first-time buyers looking to step onto the property ladder
After the announcement from the Bank of England that interest rates would rise to 4% last week – the highest rate since 2008 – the property market remains a difficult environment to navigate, particularly for first-time buyers. Although the average house price fell 0.6% in January to £258,297 – the fifth month in a row that prices have fallen – first-time buyers must grapple with high mortgage payments and the cost of living crisis affecting their finances. Property expert David Hannah, Group Chairman of the UK’s leading property tax specialists, Cornerstone Tax, provides his top five tips for first-time buyers looking to step onto the property ladder:
1: Understand what you can afford
“You need to understand what you can afford; this is a very important tip. If you take on too much mortgage debt and put too much of a strain on your monthly or weekly budget you’re going to run into trouble and that’s just going to lead into a load of stress. Every first-time buyer needs to make sure that the mortgage payment that you are committing yourself to is a reasonable fraction of your earnings. If you stretch it too far or don’t fix the rate, you could find yourself in trouble – we’ve obviously seen recently that interest rates can rise rapidly and severely affect a first-time buyer’s monthly mortgage payments.”
2: Stamp Duty
“The second tip is to make sure that your stamp duty calculation is correct. It’s little known that one-in-four stamp duty calculations on purchases are wrong, and with first-time buyers paying 5% on the amount of the purchase price on properties between £425,001 and £625,000, it’s an important cost to consider. If you have a particular property in mind or a particular type of property, it’s worth getting it calculated definitively. It’s important to do this before you go to your mortgage application because it could have a key impact on you not getting the right figure and walking away from a deal that you could actually afford.”
3: Understand your budgets
“Number three is to understand how you budget and how your budgets can run away with you. New build homes tend to come with guarantees meaning that minor repairs and defects are covered out of the developer’s costs. If you buy a second-hand home however, these costs can’t be claimed from anybody else. If you don’t have a proper survey and an understanding of the state of repair of the property before you buy it, you could be faced with substantial bills for such things as rewiring or a new roof if you didn’t have that anticipated before the purchase. In those circumstances, you could be led into financial difficulty because you’re having to spend money that you haven’t anticipated. Also, if the survey report is sufficiently alarming you can pull out of the deal before exchange or renegotiate the price down to take into account these future costs.”
4: Consider renting a room
“The next tip is to realise that there are ways to make your homeownership more affordable. With the increase in house prices over the last 50 years and the shortfall in available rental properties, many homeowners are turning to renting a room. This is obviously an intrusion on your family life, but if you vet the room renter carefully then you can end up with an income of as much as £500 a month. If you’re paying out around £850 a month on a mortgage that’s a very welcome contribution. You can earn up to £7500 a year tax free using the rent a room allowance and this can help offset the cost of mortgaging even if you’re a first-time buyer.”
5: Location, location, location
“The last point is that buyers need to not just focus on the property but also get to know the area you’re moving to – don’t just look at the unit, look at the site. If you’re looking at a new building, work out where all the other properties are going to be – are you going to be overlooked or does your property back on to a major road? It’s important to understand what the levels of noise are likely to be in your area, there are horror stories of people who’ve bought properties only to find that their back gardens back onto a dual carriageway. You need to look at where the local amenities are, if you’re a first-time buyer and you’re thinking of starting a family, you need to consider where shops and schools are located and if they are commutable or within walking distance. These are important factors, not only in your life in your new home but also in the appeal of that property when you come to sell it to move on.
“I would also say that buyers need to be aware that there are soft costs associated with buying a property – your legal costs, surveys and various agent fees to name a few. You need to be careful to include those in your budgets, there are a lot of good online resources which can break these down and provide you with forms so that you can budget accurately before committing yourself to the house buying process.”
