For the UK’s would-be buyers, it feels like an attack on all fronts.
Property prices are stubbornly high and now Mark Carney, governor of the Bank of England has given his strongest hint yet that, with inflation running at above target levels, interest rates will rise from their record-low levels in the “relatively near term”.
Mortgage rates are already starting to creep up in response. In fact, one in 10 potential first-time buyers say an interest rate rise could prevent them from buying their first home, according to a recent study by Yorkshire Building Society.
Add in the unfathomable obstacle course of lending criteria, and it seems there’s no hope for hopeful renters squirrelling away their coppers in a desperate bid to someday have a place of their own.
And yet, despite the challenges, not least the news from the Office for National Statistics out this week that British property can cost as much as £6,500 per square metre, the majority of 18- to 40-year-olds still believe they will become homeowners.
So what now? We’ve asked a panel of experts how they would deal with a problem like property.
“Although there is speculation of a possible rise coming next month, we need to keep in mind that rates have been at record-low levels for years now,” says Jeremy Duncombe, director of Legal & General Housing Partnerships.
“Even if there is a slight increase from 0.25 per cent to 0.5 per cent, this would still only return rates to where they have been for the majority of the last nine years.
“Despite Brexit and the general election, the mortgage market has continued to remain robust. Two and five-year fixed rates are still very low, with house prices still rising, although in some areas at a lower speed than before.
“Borrowers have a lot more options and choice when it comes to choosing the right mortgage. New lenders, increased competition, good availability of funding and higher LTVs (loan-to-value ratios) than we saw after the financial crash, are all contributing to keeping rates low.
“There are also many places first-time buyers who are struggling to get on the market can turn to for help. Government schemes like Help to Buy helped 81 per cent of first-time buyers onto the housing ladder in quarter two. Shared ownership and parental support through schemes like the Barclays Springboard, are also on hand to help.
“However, with all this choice available, some first-time buyers may feel slightly overwhelmed as to where to begin looking. With products and rates constantly changing, getting in touch with a Mortgage Broker will help any potential buyer navigate through the choices available. Advisers can provide invaluable help when searching for the best solution and make sure first-time buyers receive the right advice to help them secure a property.”
“There are a number of things that first time buyers should do before they take the plunge to ensure they are best protected against any future rate rises,” adds Charles McDowell, director of mortgages at Aldermore. “It’s important that first-time buyers work out how much money they have left each month after all their outgoings. This includes bills and other spending, as well as paying off any outstanding debt. This will help assess whether they have capacity to cope with a future rate rise and the resulting increase in monthly payments.
“Prospective buyers should shop around and ensure they settle on the best mortgage product for their situation,” he says. “Be sure to consider all the fees and always look at the APR as well as the initial rate. Finally, a good measure of protection can be to go for a fixed-term mortgage deal. This shields against rate rises within that fixed period of time (usually 2, 5 or 10 years). It does mean that borrowers could be paying over the odds if rates were to lower and predicting these things is impossible.”
Wait to inherit
Ask property hopefuls where they intend to find the money for their deposit and the response is more than a little morbid. One in every five would-be buyers believes their best chance of getting on the property ladder is to inherit a home when their parents die and another one in five say inherited cash would be the answer.
“The idea that so many young people could be relying on the death of their parents to take their first steps onto the property ladder is indeed depressing, but if the gap between wages and house prices continues to widen, it is difficult to see a viable alternative for young aspiring homeowners,” says Nick Marr, co-founder of property marketplace, TheHouseShop.
“With the substantial boom in the Buy To Let (BTL) market over recent years, we have ended up with a market where young professional renters are effectively funding the BTL mortgage payments of older generations – with little prospect of the roles reversing. This can be particularly hard to take for the many Millennials who have seen their baby boomer parents build up substantial personal wealth from home ownership.”
Bank of Mum and Dad
“Usually, the biggest challenge for first-time buyers in the UK is saving for the deposit, and inflation makes this even harder,” notes Daniel Hegarty, CEO and founder of online mortgage broker Habito.
“With renting prices high and property prices rising, more and more people are relying on their parents and grandparents to help them get on the property ladder. This will mean the gap between the people who can call on the bank of mum and dad and those that can’t will only expand with continued house price inflation.”
While the number of young adults anticipating help from parents has doubled in the last year, Yorkshire Building Society estimates that four in five first-time buyers now expect support from parents to total less than the 10 per cent deposit required for the average first home.
For those that can’t call on significant family support, there are mortgages to be had with a deposit worth 5 per cent of the property (or a 95 per cent loan-to-value) but it is harder to get accepted by a lender at this level.
More than one in 10 first-time hopefuls would buy with a friend or partner to get round the affordability problem. But things don’t always go to plan, warns Chun Wong, dispute resolution partner for law firm Hodge, Jones & Allen.
“Many people see joint property ownership as their only way onto the housing ladder. Increasingly family members and friends are buying together as well as unmarried couples. While this can make excellent financial sense at the outset, without the correct agreements in place, it can prove a costly mistake should you part ways or fall out.”
If buying a property with someone, there are generally two recognised arrangements – “joint tenants” or “tenants in common”.
For joint tenants if one of you dies your share automatically passes to the other person. For tenants in common if one of you dies your share will be divided according to a will. If there is no will, the rules of intestacy will apply and the share will pass automatically to their next of kin which wouldn’t be a partner that you aren’t married to.
Wong advises those who are purchasing a property together and who aren’t married to consider several key details, including the deed of declaration in the case of an unequal share in the property and the legal title – in other words, who should be named on the legal title document.
“If a dispute over ownership or division of the assets of sale makes it to the courts, they will often look to see who is named on the official legal title – this is always the starting point. If you’re not named, you won’t be recognised by the law unless you can prove to the contrary,” she says. “It is often a long and expensive process.”
“If it’s jointly named, then it won’t matter who put up the deposit, or how the mortgage was paid; each party will receive an equal share, unless you can prove to the contrary.”
While there are other real-life options, including shared ownership schemes and guarantor mortgages, data from TheHouseShop suggests 5 per cent of would-be owners hope marrying a rich partner will give them the leg up they’d need.
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