Buying your first home is one of the most exciting – and scary – decisions of your life. When you are finally in the position to be able to sign on the dotted line, it is a defining moment which you will remember with mixed feelings! But as you set off on this venture, there are people and organisations such as the UK’s national shared ownership portal who will do their best to ensure that the purchase process is a smooth one.
It is also worthwhile doing as much as your own research as possible so you can ask the right questions and make informed decisions. Free sources of financial advice are out there, and it might be your employer has a trusted advice for pension and financial matters that you can use. Ask at your local library or Citizens Advice Bureau for further recommendations. It is important that your finances are in good health.
Although there are challenges mentioned below, the benefits of owning your own place far outweigh the long term alternatives. After all, you are not only making an investment, but you will be no longer at the mercy of landlords and rental increases! You are planning and building something for your future.
You have a good job and a location in mind…
The chances are, if you’ve a good job, you won’t want to impact your commute adversely so location is important. It is possible that you have been renting long term in an area and you are already settled. You will be familiar with schools and other amenities, or you may already have family links there. However don’t be put off by looking at alternative location options – property websites will allow you to set up searches for different areas.
London offers something for everyone, which means that not only is choice endless, it is easy to get overwhelmed. You might value something larger with access to green space, or a smaller central location. So before you consider estate agent alerts such as ‘Houses for Sale in Harrow’ or ‘Houses for Sale in Greenwich’, you need to consider your budget and financial obligations. There are potential limitations regarding availability – certain London boroughs are building many more new homes so this will also give you a starting point.
Here is the bad news but…
You will have done your maths so it won’t surprise you that the finances will be challenging. For a person in their twenties earning an average salary, the financial requirements of buying a property can seem insurmountable. There are areas of the capital and south east as a whole where homes for first-time buyers might be 20, 30 or even more than 40 times their salary.
This is before you consider 20% deposits and other associated legal and mortgage broker costs. It is no wonder that commentators suggest that there’s a flight out of London. Indeed according to ONS data about 30,000 more thirty-somethings left London than arrived in 2015, an increase of 25 per cent since 2010. The government is alarmed that young people who are in good jobs are in this impossible housing position.
As a result they have introduced a number of initiatives in partnership with local authorities, London borough councils, and the Mayor of London’s Homes for Londoners scheme. This will ease the supply of high quality, affordable homes and has the objective of getting low and modest income Londoners on to the housing ladder.
What are your London property options?
We promised you at the outset that you could find assistance, and so we are happy to share the good news. There are three options available to first time buyers – Shared Ownership, Help to Buy and First Dibs for Londoners.
- This is also known as ‘part buy, part rent’ and aimed at first time buyers who cannot afford to buy a property outright. Under the scheme you can buy at least a 25% share in a home and then pay rent to the freeholder on the rest. As your salary increases and you feel more able, you can buy more shares in the property until you own it outright. This is known as ‘staircasing’ and has the benefit of cutting the amount of monthly rent you pay.
There are eligibility criteria regarding finances and personal circumstances. If you fit the requirements regarding salary, deposit and affordability of service charges (if applicable), you will pay less than you would on the open market.
Help to Buy
- The Help to Buy scheme is a Government funded scheme. Dependent on certain conditions, they will lend you up to 40% of the cost of a new build home, which means that you need a deposit of min 5% and a mortgage for the outstanding amount. There are other benefits; for the first five years, you will not be charged any interest on the government loan. Note that there are small ongoing fees that need to be paid.
Again there are some criteria to be eligible for assistance. The property must be a new build and advertised as such by a registered housing provider. The mortgage has to be a repayment one, and all calculations will be done by the Homes and Communities Agency calculator. As expected, you mustn’t own – and you can’t part exchange – any other property whilst buying a Help to Buy home.
First Dibs for Londoners
- First Dibs is a new voluntary initiative for 2018 and the Mayor announced it in direct response to the capital’s housing crisis. Very often new build properties are bought off plan by wealthy foreign investors who won’t be living in them. Given that Government assistance is only given to people buying new builds, this severely reduces the supply of eligible homes, making it even harder for average wage Londoners.
Key developers and housing associations promise that they will – for a limited time – sell certain properties under £350,000 in London only to people in London. Once the ‘head start’ period ends, these properties will be limited to UK buyers for a three month period. After this time, the property can be opened up to sale to the overseas market.
Taking the first step with any major purchase is the hardest because it is a financial commitment that will require a determination to start saving now. But as I have demonstrated, the issues are being addressed, and there is always help available when you need it. So what are you waiting for, stop dreaming, and start looking!