First-time buyers: don’t rush in!
In today’s ‘want it all and want it now’ culture, it’s not surprising that people – chief among them first-time buyers – often rush into buying a home.
It’s perfectly reasonable to want to get on the property ladder, get settled and stop paying rent to fund someone else’s mortgage, but not at the cost of buying the “wrong” house or taking out the “wrong” deal for your circumstances.
My sister is looking to buy her first home in Belfast at the moment, but is finding it difficult, given the sizeable increases in property prices in the city over the past year. According to the latest figures from Nationwide, for example, the average house price in Belfast rose by 32% to £306,698 in 2008. For a twenty-three year old in their first job, it would simply be impossible to buy a property at anywhere near this price, despite the fact that she has a substantial deposit saved already.
Just last week her broker emailed to say he had found a reasonable fixed-rate deal from a large lender that might suit her circumstances. When she showed me the details, I agreed that it looked fine, but suggested she think about waiting for a few months to see if she could find a better mortgage. I think this would be a good idea for two reasons.
Firstly, my sister is still on her probation at work. This may seem like a tiny detail, but it could affect how a lender will view your circumstances. If you don’t pass your probation and lose your job, how will you be able to pay for your mortgage? If she was to wait another few months until she was on a permanent contract, the lender in question might view her application in a more favourable light.
Secondly, being a first-time buyer, she quite sensibly wants to go for a fixed-rate mortgage. This should help her to stick to a budget during the first few years as she buys the furniture, takes care of the decorating and gets used to running a house for the first time (she’s been living at home for the past few years – hence the substantial deposit!).
However, those looking for a fixed rate at the moment may find they are subject to a slightly unfair anomaly in the current market. The general consensus is that the Bank of England Base Rate will fall in 2008 with some predicting it will be as low as 5% by year-end, which makes tracker mortgages more attractive. However, increased demand will allow lenders to charge higher rates for such products, as they do not need to be as competitive to attract new customers.
In a normal market, this would work to my sister’s advantage – she wants a fixed rate, but the current vogue is for trackers, therefore she should get a better deal because fixed rates are less in demand. However, the credit crunch has made it more expensive for lenders to fund their mortgage lending over the past few months (because it’s more expensive for them to secure funding from other financial institutions). As a result, fixed rates have been slower to come down in price than in a normal market with Base Rate cuts rumoured to be on the cards.
So, my advice to her was to wait for a few months until the rate situation has settled down a bit and until she finishes her probation period at work. That way, she should hopefully be able to benefit from lower rates and a more favourable view of her application by the lender.
A little bit of patience may well pay off in this particular situation, as it could for first-time buyers across the country. Don’t be afraid to put your homebuying dreams on hold for a few months, or even a year – there’s no point in rushing into a deal only to find that you can’t afford it in six months, or simply that you could have got a better interest rate or a cheaper/better house if you’d held on for a while.
Whether or not my sister will actually listen to me remains to be seen, but if not, at least I can be a smug big sister in a few months and say “I told you so”!
Pauline McCallion is editor of Your Mortgage and Your Money magazines
Tags: First time buyers, mortgage news, mortgages, news
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