First Time Buyer
This guide looks at the concerns specific to first time buyers. It explains what to look out for and gives an overview of the options that are available to help first time buyers on to the property ladder.FF
This guide is organised as follows:
First time buyers have had a hard time of it during the last few years. First, the housing boom priced many out of the market. Then, as prices dropped, the credit crunch made it much harder to secure a mortgage and led to lenders requiring larger deposits.
There may be light at the end of the tunnel, however. Most housing market commentators expect prices to drop around another 10% or so before stabilising. That’s on top of a drop of around 20% between the end of the boom in late 2007 and May 2009.
If house prices do continue to drop this will bring them closer into line with the historical average. According to Halifax, the average house price to earnings ratio was 4.36 in May 2009. This is down significantly from its peak of 5.84 in July 2007, though still above the long term average of 4.00.
It’s also worth bearing in mind that when the market corrects itself the house price to earnings ratio tends to drop below its average. For example:
In the crash of the early 1990s, it dropped below 4.00 in August 1991 and then fell steadily before bottoming out at 3.09 in October 1995. It then took until July 2002 before it returned to 4.00 again — a total of 11 years!
If prices do continue to fall and banks gradually relax their lending criteria then first time buyers could find themselves in their best position for years. Especially if interest rates continue to remain low, though how long they will is not clear.
Do you want to buy a property?
It can be really difficult for a first-time buyer to invest in a property without knowing the exact steps to take.
This is why real estate agents are helpful.
PK Property’s services cover all aspects of the purchasing process, from finding the right Sydney property investment and determining its true market value. If you want to find out more about property buying and are in need of a real estate agents help, contact them now.
How much can you afford?
In the current climate, banks will typically lend around 3.5 to 4 times salary, tending towards the lower figure if the calculation is based on joint incomes. Just because you can borrow this much, however, doesn’t necessarily mean you should.
The first thing to consider is how much you can afford to pay each month based on your existing budget and your minimum requirements in terms of lifestyle. The key is to calculate your budget as accurately as you can as it’s easy to overlook expenses, especially if they are infrequent.
If you are planning on getting a mortgage with a special introductory rate make sure you consider how much you will have to pay when the introductory period ends.
Whatever sort of mortgage you are getting, you need to know how much it would cost if interest rates went up and that you could afford to continue making payments.
Your lender or broker should be able to help you with this or you can use a mortgage calculator to get an idea of the effect of different interest rates.
Once you’ve decided on a mortgage product you can calculate what your buying costs (in addition to the house itself!) would be. These will include:
- Valuation/survey fees
- Arrangement costs
- Life assurance
- Buildings and contents insurance
- Legal fees
- Higher Lending Charge, if applicable
- Stamp duty
- Moving costs
Finally, don’t forget your ongoing costs once you buy your new houses, such as utilities and council tax.
If you buy a flat you will also have to factor in the cost of ground rent, service charge, and occasional maintenance. Your solicitor should be able to advise you on what these costs are likely to be, though bear in mind that they will vary.
Get a mortgage in principle
Once you have decided on which mortgage you want and how much you can afford you should get a mortgage in principle.
A mortgage in principle is an agreement from your lender that they will offer you a mortgage subject to certain conditions, including a successful credit check and property valuation.
Having a mortgage in principle means that:
- sellers will take you more seriously, putting you in a stronger bargaining position
- you’re less likely to lose out in a race for a property
As a first time buyer securing a mortgage in principle — together with the fact that you have no chain — can put you in a very strong bargaining position.
Sellers will sometimes accept a lower offer from one buyer because they know that that buyer is in a position to complete quickly.
- Cutting costs
- Bank of mum and dad
- New builds