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High rates, houses and the end of Help to Buy

In a world where inflation is on the rise and interest rates are at a 33-year high (yikes!), it’s difficult to imagine that first-time buyers will ever get on the property ladder.

Are you struggling to save for a deposit? Find that you’re navigating the mortgage market without a map?

Sound familiar? Are you trying to figure out if you should rent and save for a deposit, rent long-term or live with parents or relatives? It’s a difficult decision to make. Here’s our take on the situation.

Renting versus buying

If you’re considering moving out of your family home or on from university or a shared house, striking out and moving into your first home can be daunting – not least because there are so many decisions to juggle about money.

If we look at it purely for monthly outgoings, renting is definitely more expensive. Statista’s latest report tells us that the average UK rent has risen by over £100 in the last year to just under £1,200 per month. Renters in London face the biggest hit to their wages, with average rents at £2,000. An average London salary of £41,000 is a big slice of your pay packet.

And the cost of rent continues to rise sharply. Zoopla’s March 2023 study shows that rents for new lets alone have increased by 11% during the past 12 months and by 20% over the past three years, a whopping rise of £2,220 a year on the average home.

mortgages

But demand for rental properties still remains high…and far outstrips supply, according to Zoopla.

There are third fewer homes to rent, yet the demand has increased 250% above a five-year average just in the past year. So, with high demand and rent, many home-seekers will wonder whether buying is the safest option.

Many will be stuck between a rock and a hard place: trying to save a decent enough deposit for a home while living with a huge dent in their salary caused by high rental prices. Zoopla’s experts say that 75% of first-time buyers come straight from the rental market.

First-time buyers, unless they are very lucky, will be looking to get a mortgage and/or help to buy a home that suits their pocket, so let’s jump into choosing the best plan for your purse.
 

Saving for a deposit

It’s quite frustrating to learn that mortgage rates for first-time buyers have more than doubled over the past year.

First-time buyers must save for a larger deposit to make their monthly mortgage payments affordable. And with the average first-time buyer deposit at £61,000, that’s a lot of money and time
needed to own your first home.

But don’t despair! Even though the Help to Buy equity loan has ended, there’s no need to think that you can’t get help with buying your first home. Apart from the “Bank of Mum and Dad”, there are many schemes and government initiatives to get you on the property ladder. Take a look at our list to see which one suits you best.

Ways to save for a deposit and get on the property ladder:

  •  Lifetime ISA. With a 25% bonus from the government, a Lifetime ISA is for anyone between 18 and 39. You can save up to £4,000 each tax year, and the government will top that up with a healthy 25%, up to a maximum of £1,000. Not to be scoffed at!
  • There are apps to help you save, too. Get Nude is one such savings or investment account that uses its financial knowledge to take advantage of government bonuses and schemes to help you save a deposit quickly.
  • Many UK bank accounts have a regular saver option in their apps, so see what yours offers.
first time homebuyers

Mortgage help schemes:

  • Mortgage guarantee scheme. This is exactly what it says! The government will offer participating lenders a guarantee on your mortgage as long as the property you buy is less than £600,000.
  • First Homes scheme. This scheme offers new-build homes to local first-time buyers and offers a discount of 30% of the market value of similar properties. According to the Homeowners Alliance, this could save you tens of thousands of pounds. 
  • Shared ownership. With shared ownership houses, you buy part of the property with a small deposit and mortgage and rent the rest. Some schemes offer the opportunity to own more of the property over time but, says the Homeowners Alliance, read the small print as conditions vary greatly, depending on the developer.
  • Rent to Buy saves you quicker by offering rents at 20% lower than market rates. It guarantees the lower rent for at least five years, too, with the option to negotiate to extend it for longer. And if the owner decides to sell? You’re given the first option to buy.
  • Right to Buy is for council tenants in England, allowing them to buy the home they rent, sometimes with a huge discount. If you are renting from a Housing Association, they might have a similar scheme, so it’s worth getting in touch to find out your options.
  • Guarantor mortgages enable someone else – usually a parent or older relative –to act as a guarantor on your payments. That means they are responsible for making payments if you default on your mortgage, so there needs to be a lot of trust in the relationship. Do some soul-searching before you choose this option!
  • 5% deposit schemes 

- Deposit Unlock – much the same as Help to Buy: participating developers and mortgage lenders offer new-builds to all buyers with a 5% deposit.

- Proportunity – again like Help to Buy, with a few differences. You can buy any house, old or new, and you can borrow between 10% and 25% of the purchase price so long as you have at least a 5% deposit.

- 95% mortgages – still available for first-time buyers.

  • 0% deposit mortgages are the new kids on the block. They came about in May this year and gave first-time buyers a 100% mortgage – if they have a proven track record of paying rent on time for at least a year. You can borrow up to £600,000, which should get most first-time buyers on the ladder!

We mentioned the “Bank of Mum and Dad” earlier – well, here’s another way parents could help their children or grandchildren to buy a house: a lifetime mortgage. It’s taken out on the parents’ property and gives them a cash-in-the-bank boost and money to help their family. 

Lifetime mortgages are equity-release mortgages, so there is the risk of negative equity and a possible effect on means-tested benefits, and the house must be sold when it’s time to move out.

uk mortgage

There are, of course, so many more mortgages out there – too many to name! – these are just a starting point for you to jump in and take a look for yourself.

And don’t forget - don’t suffer in silence if you struggle to pay your mortgage. There are many more penalties if you don’t talk to your bank or building society than if you approach them. They will help you. They’ll talk you through your options, which might include remortgaging for a long-term solution or a payment holiday (if it’s included in your plan) for a short-term solution to get you back on track.

If you feel like you need more guidance, join us for our FREE half-hour webinar on 12th July at 19:30 BST, where we'll provide expert insights and tips to navigate the mortgage process with confidence. Register here.

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