Pensions Advice, Retirement Planning - Investment Financial Adviser Dunfermline, Fife, Scotland UK

Posted by William on September 6th, 2007 in Mortgage Advice

A brand-new Royal Institute of Chartered Surveyors accessibility index report published in August 2007 reveals that the cost of purchasing a home in the UK has become substantially more difficult by 350% since 1996. First-time buyers both on lower quartile earnings (£26 667) now need to find approximately £25,600 to pay for a deposit, stamp duty and various purchase costs for even a standard starting home. For a couple buying for the first time this equates to a massive 96% of their joint take-home incomes.

According to government figures from the June 2007 House Price Index the average house price in England is now over £200,000. In Scotland the median price is over £160,000. London prices as ever steal the show - the average property there is now well over £300,000. Over the past year first-time buyer households crossed the threshold for stamp duty in Scotland, making it more and more difficult for Scots to buy affordable housing.

London, the southeast and southwest are the most problematic areas though. Here first-time buyers will need to save over 100% of their joint annual incomes just to get precarious toehold on the lowest rung of the property market ladder. Then even when having done so, the pressure of maintaining such huge monthly housing overheads brings with it a plethora of difficulties and stress which sometimes begin to attack the very heart of what keeps up successful monthly repayments - the couple’s relationship itself.

With 51% of first-time buyer household incomes needed to fund monthly mortgage payments in London, it’s not surprising that some couples could find such pressure almost overwhelming.

The senior economist at the Royal Institute of Chartered Surveyors - David Stubbs says… “House prices have risen by over 11% a year since 1996 whereas first-time buyer incomes have only risen by 3.5 a year.”

With the recent US debacle regarding US ’subprime’ mortgages only just unfolding, and the attendant fallout affecting interest rates having a global knock on effect, UK first-time buyers find themselves increasingly challenged to come up with more and more creative solutions to not just owning the house they want, but ensuring they can keep it from repossession too.

We wish there was some better news for all those seeking a first-time buyer mortgage but for the moment it’s a case of gritted teeth and gung ho determination that things will work out somehow for good.

Here are five suggestions which may help you if you’re one of those buoyant souls with the gumption to give it a try.

1. Decide early that you may simply need to rent until you’ve build up the necessary equity needed to buy a property. Consider establishing a separate income stream apart from your main job on a part-time basis. Far from being a foolish thought, becoming an ardent eBayer could well provide exactly what you need to build the savings you are looking for.

2. Research possibilities of acquiring property at auction whereby houses can often be purchased at below market values.

3. Research possibilities of acquiring property through Housing Associations. Many housing associations allow you to purchase a 50% share in the property. Then after a provisional of in most cases one year you can purchase the remaining half of the property either immediately or in 25% chunk’s. In addition to paying the mortgage you’ll also need to pay the rent on the outstanding half of the property until you have purchased it outright.

4. Consider the possibilities of purchasing property with other trusted parties (family, friends etc) each taking equal shares in the house you choose to buy together. Large older properties can often offer ample living space to accommodate two to four people in this way without encroaching on each other’s privacy.

5. In a similar vein to the last comment, consider taking on board a lodger. The government have a scheme called “Rent a Room” which allows you to receive up to £4250 pa tax-free from your lodgers rental income. In essence it means you’ll be able to earn over £350 each month tax-free which can of course help pay your mortgage.

Finally, faced with such astronomical mortgage payment challenges, some people are increasingly considering taking out interest only mortgages rather than capital repayment ones. This is because of the substantially lower monthly costs associated with this model. Caution however should be exercised when making decisions as to the type of mortgage which suits best for unschooled first time buyers.

What is flexible and convenient for one couple may well prove to be the financial undoing of another less disciplined in setting in place provision to pay back the capital element of an interest-only mortgage. As always, wise trusted counsel can save the unwary from many a pitfall at this important stage in life.