First time buyer options

Over the past few years, the UK property market has seen a significant increase in house prices; great for those already on the ladder, who can sit back and enjoy their growing equity, but not so good for first time buyers – essential to keep the market moving. According to research, the average property asking price in March 2007 was £228,183 –way beyond the reach of the national average salary. Despite this, it’s not all doom and gloom on the first-time buyer front; opportunities still exist to get that first, all-important step on the ladder – if you know where to look.

First things first: before you start pacing the streets, you need to know how much you can borrow – there’s no point in finding your dream home when it’s over budget. Approach two or three different lenders to see what they will let you borrow in principle. This used to be around 3 times your annual salary but a sustained period of low interest rates has led to an increase in less responsible lending by a selection of leading mortgage lenders; some now offer 5 or 6 times your salary. While this may appear tempting at first, remember that the past six months has seen three interest rate rises, with further ones predicted. If you overstretch yourself at the beginning you’ll struggle if rates rise further.

Before committing to anything, do your homework; research available mortgages through specialist magazines or online. Don’t forget to include other costs in your overall calculations; stamp duty of 1% if the property costs over £120,000, survey and valuation fees, solicitor fees and, of course, moving and furnishing costs.

Government Shared Equity Schemes

Since 1999, the Government has introduced a range of low-cost shared equity schemes to encourage eligible keyworkers and low-income families into home ownership. The latest, The First Time Buyers Initiative, (FTBI) enables first-time buyers to purchase a minimum 50% share in a new house, with the Government making up the remainder. Similar ‘Homebuy’ policies have already helped more than 40,000 families into their own homes and last year Housing Minister, Yvette Cooper, outlined plans to help a further 160,000, through related schemes by 2010.

Buying jointly

Teaming up with friends can be a more affordable way of stepping onto the first rung – and may benefit you financially (even over a relatively short period of time) should prices continue rising.

Growing numbers of people are choosing to start out this way and although the legalities are slightly more complex than with other mortgage applications (so allow for extra time to get your finances sorted) the practicalities should, in theory, not be too different. It’s always a good idea when considering buying with other people to get a contract drawn up by a solicitor to cover future buyouts and outline shared responsibilities – it serves to clarify everyone’s position and financial commitment.

Parent power

Younger first time buyers may be able to get help with a deposit or mortgage guarantee through their parents. Getting a substantial deposit together gives you more leverage in terms of best-value loans. First-timers can borrow more with a parent acting as guarantor, although this should be considered carefully by both parties as it may affect future borrowing. Some lenders may also expect the parents to be named on the deeds, creating potential tax problems.

Consider buying abroad

A growing number of first-time buyers (priced out of the market at home) are opting to invest abroad, with a view to accessing the UK market at a later date. An overseas mortgage specialist says that the number of first-time buyers has escalated recently; with enquiries on the up since the recent batch of Eastern European countries joined the European Union; canny investors are banking on the rise in prices that traditionally follows EU entry. With this in mind experts are predicting that Romania and Bulgaria look set to offer the most investment potential, although as with any market there is no guarantee so make sure you research thoroughly before parting with your cash.