As we begin a new year there are few signs of the Edinburgh housing market slowing down. That may be good news for those looking to sell but it’s not so great for those looking to buy and, in particular, first-time buyers. With help to buy schemes coming to an end or running out of cash, helping young people join the property ladder remains the biggest challenge for the sector. So here are some questions that potential first-time buyers should ask themselves, before taking the plunge.
- Do I have a big enough deposit? Saving for a deposit is one of the principal hurdles those entering the property market must overcome and house price inflation that continued unabated all through 2021 has not helped. On the bright side, lenders are once again offering 95% mortgages following a hiatus during the pandemic. The amount of deposit you will need will depend on the value of the property you’re after. As a rule of thumb, the average cost of a first-time property in Scotland is £144,492 so a deposit of 5% would be £7,225 or £14,449 for a 10% down-payment.
- How much can I borrow? When seeking a mortgage, lenders will look at your financial circumstances and be prepared for a thorough filleting of your bank accounts. As well as assessing your earnings, providers will also want to look at your spending patterns so make sure your credit cards and higher purchase repayments are all up to date before putting pen to paper. Some lenders may allow you to borrow up to 5.5 times your household income but the limit is more likely to be 4.5 or even four times your income. If you’re unsure what to do or how much to ask for, it may be worth speaking to a mortgage broker.
- Should I be concerned about mortgage rates? While mortgage dropped last year, we are now seeing inflation rising to levels not seen in a couple of decades and a recent hike in the Bank of England base rate could have a knock-on impact on mortgage rates in 2022. There’s no cause for immediate alarm, even if you can only afford a small deposit, as banks and building societies usually start by applying rate increases on low loan-to-value mortgages, for example where existing homeowners are seeking to borrow 60% or less. Average rates on 95% mortgages remain among the lowest on record so a small rise later in the year is unlikely to have a major impact on your plans.
- Can I afford the extra costs associated with purchasing a property? Remember that, in addition to the cost of your new home, there are additional expenses to factor in including the Land and Buildings Transaction Tax (for properties worth over £175,000), legal fees and removal costs which can add a few thousand pounds on to your top line. Make sure you budget for those before thinking about making an offer.
- Am I familiar with market trends in the area where I want to buy? Have you researched sales prices achieved recently in your target area? Portals like Zoopla are great for gaining a street-by-street impression of local market trends. Sales figures are usually posted on Zoopla three months after the sale is registered with the Scottish Land Registry so you will always be working slightly in the past. While you will see that prices rose at near record rates in many areas last year, that pace of price inflation is unlikely to continue throughout this year so don’t be downhearted. It’s hard to anticipate what 2022 will bring for first time buyers but while analysts predict the market will remain strong, prices are likely to rise at a slower rate and plenty of mortgage options will remain available.
For more information on buying or selling a property call Purdie & Co on 0131 346 7240 or visit www.purdiesolicitors.co.uk
[I1]The Home report is normally provided by the seller, though sometimes the lender for the purchaser gets a separate valuation anyway.