First time buyers – How to get your foot on the property ladder

The housing market is widely regarded as a thermometer, gauging the health of the wider economy.

If the economy is booming, then so is the housing market, but if the economy hits hard times, then the housing market will be one of the first areas to suffer.

Since peaking in July 2007, house prices have been falling sharply and according to research by the National Housing Federation, they are expected to drop by at least another 4.6 per cent in 2010 before stabilising in 2011.

As a first time buyer, falling house prices might seem to be good news - but things aren’t quite so simple.

Prices have been falling for a number of reasons, and none of them are good for first time buyers. Firstly, the black clouds of the economic recession are still firmly overhead, meaning that banks and other lenders are unwilling to hand out credit as they would have a few years ago.

Secondly, the ratio of house prices to incomes is 50 per cent higher than the long term average recorded between 1975 and 2005, meaning that unless you have a significant deposit at your disposal, the chances of securing a mortgage are nowhere near as good as they would have been a few years ago.

So, for those prospective first time buyers the future may look bleak, but the situation is not hopeless. Those looking to buy can boost their chances of being accepted for a mortgage by getting themselves in order with a mortgage makeover…

Make yourself a more attractive borrower

For those looking to take that first step onto the property ladder, there are a number of steps you can take to improve your chances of being approved for a mortgage.

Firstly, make sure that you are on the electoral role and that all your finances are linked to one address. Lenders will check your name and address and it will not help if you are linked to more than one.

Check your credit history. This can be done through any of the three major credit reference agencies; Equifax, Experian and CallCredit. Make sure all your finances are in order. You will need to challenge any inaccuracies that you find before you seek to secure a mortgage.

It also helps if you are a reliable person. Lenders like people with a proven history of borrowing money and paying it back on time. If you cannot prove this, take out a credit card, spend a little money on it and then pay it back on time. This will increase your credit rating and help prove to mortgage lenders that you are a safe bet.

Money matters

Obviously, your income is one of the most important factors when it comes to securing your mortgage. However, it’s not just about how much you earn, but also where your money comes from.

It helps if you have been in the same employment for at least six months before you apply for a mortgage. It also helps if your wage is paid into your bank account on regular intervals, as this proves that you have a reliable and steady income.

The deposit

Having a sizable deposit is another factor that could make all the difference when it comes to applying for that first mortgage.

For some, the option may be available to refer to the ‘bank of mum and dad’ for that all important monetary boost, but for those who don’t have that option, there is still time to put money aside before the market recovers and prices start to increase once again.

In the current environment, lenders are typically asking for a minimum deposit of 20 per cent, with the best mortgage rates reserved for those who can provide 40 per cent of a property’s total value upfront. However, in the coming months this situation is likely to get better, so remember – any deposit is better than no deposit!

What type of mortgage is best?

Even in the wake of the credit crunch, there are a number of options available for first time buyers when it comes to selecting the right type of mortgage. Dependent on your personal circumstances and eligibility, you might find that you can make significant long term savings be selecting the right type of agreement.

Guarantor Mortgages: For those whose parents don’t have cash at hand to give a deposit but still want to help you to get on the ladder, there is the guarantor mortgage. This is where you don’t actually borrow money from relatives, but they act as a guarantor for your mortgage debt. This makes banks more willing to lend money.

Graduate Mortgages: Banks are often willing to lend graduates a higher mortgage to income multiple. This is on the premise that you graduates tend to have increased earning power in the future. It may be possible to borrow up to five times your annual income.

Interest Only Mortgages: Interest only mortgage reduces the monthly payments for a mortgage because you only pay interest back and no capital. However, in the future, you will be able to concentrate on paying the capital back as well.

Longer Mortgage Term: Don’t worry about getting a standard 25 year mortgage term. If you get a 40 or 50 year mortgage you will increase your overall mortgage interest payments, however, you will make your mortgage repayments more affordable in the short term.

Joint Mortgages: Joint or shared mortgages are a way for first time buyers to share the cost of buying a house. If you don’t like the idea of sharing a house with a stranger, discuss with your friends whether they might be interested in such a scheme.

Need a little help?

If you’re a prospective first time buyer and wondering how you are ever going to get on that elusive first rung of the ladder, there is help at hand in the form of the Government’s shared equity scheme ‘Open Market HomeBuy’.

Open Market HomeBuy is a low-cost government-backed home-ownership programme that aims to help people to secure 100% funding of the value of their first home. It is a flexible equity loan scheme open to all first time buyers earning up to a maximum household income of £60,000 a year to buy their own homes on the open market.

Through Open Market HomeBuy, you can borrow between 15% and 50% of the value of the property at a low, or no, interest rate. For example, if you qualify for a mortgage of £110,000, you could potentially purchase a property worth up to £220,000.

For more information on the Open Market HomeBuy scheme visit the government and local communities website www.communities.gov.uk, where you will be able to find out more information about schemes running in your area.