Buying your first home is a giant step and can become even more daunting when everyone around you is showering you with well-intentioned but often contradictory advice. Getting an agent will cost a fortune, some may claim. Don’t even think of buying a home while you’re still paying off a student loan, opines another. Here, to help you clear the hurdles to home ownership, we debunk some popular myths about first-time buying.
Myth 1: Why buy? It’s cheaper to rent
Well, that depends on what you mean by ‘cheaper’. Yes, your rent may cost less than your mortgage, and maintenance is something for the landlord to worry about. But owning your home is a long-term investment that frees you from rent increases (your mortgage rates can be fixed), the landlord’s taste in paint colours, and restrictions on how you use the property (no pets, for example). When you own your own home, the money you would have spent on rent goes towards a major asset that should increase in value over time and provide you and your family with enviable financial security as well as a sense of pride. It is called building equity – and there’s just no contest, really.
Myth 2: Now is not the time to buy
Woe unto those who imagine they can predict which way the property market will go. There are simply too many variables that impact property values. And while you wait, and wait, for that downward swing that will net you a bargain, you’re lining the landlord’s pockets. If instead it swings upwards, you are left with regret over not capitalising on an earlier opportunity.
Rather than wait for the market to swing in your favour, the “right” time to buy is when you are ready to make the transition to home ownership, and that can depend on your personal finances, on your career, and on similar life-changing events such as committing to a relationship or planning a family.
The right time to buy can also vary from location to location. A neighbourhood that is undergoing a revival, with new developments offering attractive opportunities especially to first-time buyers, can offer the right time to buy no matter which way the market swings.
Myth 3: Have debt? You can forget about getting a mortgage
This is an old favourite. Got a student loan? A credit card or a store account? Then you can forget about owning a home!
Fact is, if this wasn’t a myth, very few of us would ever become homeowners because however great it is to be entirely debt-free, for most of us it is simply out of reach.
Credit is not bad in itself, provided that you are not over-extended, and you are scrupulous about meeting your monthly payments. In fact, without credit you cannot build up a credit record, which is necessary for potential mortgage providers to establish whether you are a good risk.
Myth 4: Saving up for a 20% deposit is going to take years
It is true that a bigger deposit puts you in stead for better interest rates, as it reduces the lender’s risk. It is likewise true that a down payment of less than 20% will mean having to fork out for private mortgage insurance, so be sure to include that in your planning budget.
But saving up 20% of the value of your first home isn’t within everyone’s reach, and it is possible to buy a home with a smaller down payment. The Federal Housing Administration (FHA) loan, for example, requires a deposit equal to 3,5% of the purchase price, and other lenders may also consider a smaller deposit.
One smart saving option to consider is an ISA – an individual savings account where you can stash up to £20 000 per year and pay no tax on any interest you earn.
Myth 5: A fixed-rate 30-year mortgage is the only way to go
Did your parents tell you that? Thought so.
A fixed-rate 30-year mortgage is the traditional option, and for good reason. Your monthly payments aren’t likely to fluctuate much, and because the loan period is so long, your repayments are lower.
This mortgage option is the best choice for some – if, for example, you aren’t comfortable with risk, or if a long-term loan with low repayments is the only affordable way for you to enter the property market. But in the long run your house will cost more, because while your interest rate is low, you will be paying interest over a much longer period.
If you can afford it, a shorter term at a higher interest rate will ultimately save you thousands in interest.
Adjustable-rate mortgages also come with lower initial rates and put you in stead to take advantage of interest rate fluctuations.
Myth 6: You don’t need a real estate agent
Buying a home is a complex process, and if you are doing it for the first time, you may run into costs you weren’t prepared for – things like surveyor fees, mortgage fees, stamp duty and home inspection costs can really add up.
But the one person you will not have to pay, is your real estate agent. This is because it’s the seller who pays the agent’s commission from the proceeds of the sale. A good real estate agent with knowledge of the area where you plan to live, can help you find a home that suits your needs and your budget; they can advise on whether the asking price is commensurate with the value of the property, and negotiate on your behalf.
A property company that offers an end-to-end service can also help you negotiate the mysteries of mortgage applications, hook you up with reputable service providers, and keep you from drowning in the inevitable paperwork.
Myth 8: Buying off-plan is expensive and risky
Let’s talk about the cons first. Buying off-plan means buying a property before it is built – and having the patience to wait until your home is complete. It also requires you to do your homework and ensure you invest with a reputable developer who won’t go bust and run off with your money. That’s it. The rest are all pros!
When you buy off-plan, you are likely to pay less than the property value, particularly if you get on board during an early phase. And if your property is in an up and coming area, the likelihood is high that its value will have increased by the time you move in.
You will also be able to personalise your home by selecting finishes and fixtures that suit your taste and your pocket. This is expensive to do in an older build, as you will have to remove existing fittings in order to replace them with ones you prefer.
In up and coming Luton, where the Strawberry Star Group is developing mixed-use project Lu2on, buyers can take advantage of a reserve-to-buy scheme that allows buyers to raise part of the money to reserve the purchase of an apartment and receive government assistance to afford the balance.
Even more motivation for first-time buyers to own their very own home, not just in Luton, but anywhere in England, Wales, and Northern Ireland, is that mortgage rates are at an all time low. The cherry on top is that first-time buyers will also not have to pay any stamp duty land tax (SDLT) if their purchase of a residential property is for £500,000 or less (as long as they intend on occupying the property as their only or main residence).
If you want to find out more about sales and potential new homes, or have queries about property management and need some help, then please get in touch with us and our experienced teams of estate agents will be happy to help.