2021 was arguably a difficult time for first-time buyers, with lower mortgage availability and eye-watering rates making homeownership feel increasingly unobtainable. But good news is on the horizon, with 2022 looking far more promising says Nathan Bakhbakhi, Knight Frank Finance Associate.
Data by Moneyfacts.co.uk showed the number of products available for first-time buyers rose by 159 between Nov-Dec 2021. Total offers stood at 5,315 – up from 2,782 the year before.
At the same time, the typical rate on a two-year fix for borrowers with a 10% deposit was 2.51% (Dec 2021), significantly lower than the 3.79% seen in December 2020.
So, with this good news ahead, what do first-time buyers need to know before buying a property in 2022?
- What deposit do I need to put down?
For a new build property target a deposit of at least 10% if it’s a house. If it’s a flat, lenders will usually require a little more – 15%. This is because new build flats tend to be more expensive when you first buy them (known as a ‘new-build premium’). So, the higher deposit safeguards against any potential future drop in value if the property had to be repossessed by the bank and resold.
If it’s isn’t a new build property, there are some lenders who will accept deposits as low as 5%, although offers here are few and far between. More likely, you’ll need at least 10%.
- What is Help to Buy and is it right for me?
This is a government-backed scheme that helps first-time buyers get a property with a 5% deposit. The scheme can be a great way to get on the property ladder and interest rates on Help to Buy purchases are as low as 1.74% on a 2-year fixed interest rate, which is obviously an added bonus. This scheme ends on 23 March 2023, however, so it’s worth speaking to an adviser soon if you think this would be right for you.
Depending on the deposit you put down, you can borrow anything up to 5.5 times your income. More lenders are now offering that extra income stretch for first-time buyers, but you’ll need a minimum 20% deposit. If you have a deposit of 10-15% then you might be able to get up to 4.9 times your income. If you’re using Help to Buy, borrowing is capped at 4.5 times your income.
Buying a house can be a lengthy and competitive process, so it’s important for buyers to be prepared to avoid disappointment. This means getting an Agreement in Principle as soon as possible, which is valid for three months and can be done in 20 minutes over the phone with a broker. After that, the application process takes about 3-4 weeks to get a mortgage issued.
- I’m self-employed, will I struggle to get a mortgage?
There are lots of ways to reach affordability and get mortgages for self-employed people looking to buy their first home. The best advice for the self-employed is to get your accounts and tax returns in order, and don’t worry if you’ve had a bad year during Covid because lenders are willing to use your recent financial year if it’s stronger for affordability purposes.
If you are looking for mortgage advice to buy your first home, get in touch with one of our expert brokers at Knight Frank Finance to discuss your options.