I am a potential first time buyer. At 39 years old, I’m getting older by the day and have been renting a large three-bedroom house for 12 years.
I’m married with two children and want to buy a house similar to the one we currently live in, with three double bedrooms and ample parking.
My other half runs his own business which will need to be registered for VAT this year.
I live in Hampshire, where house prices seem expensive and I don’t see how I’m going to get up the ladder.
Mortgage Help: In our new weekly column Navigating the Mortgage Maze, broker David Hollingworth answers your questions.
My current salary is £42,000 per year. I get annual pay rises of around 5 per cent and quarterly bonuses, and I have £20,000 in savings.
If I was looking to buy a house it would cost between £400,000 and £480,000. How can I achieve this?
I don’t really want to go into a new build as these usually have a storage room that my 10 year old son would hate and not enough parking.
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David Hollingworth responds: First-time buyers have continued to face significant challenges in the housing market.
Even with more subdued activity, house prices have remained stubbornly high, supported by the low number of homes put up for sale.
Even where prices have fallenin many regions they will often be even higher than before the pandemic, which caused a sharp increase in demand.
You are not alone and the average age of first-time buyers has increased over time.
How much deposit do you need?
Aspiring first-time buyers face several stumbling blocksbut it often comes down to two key areas, deposit and affordability.
High prices mean a large deposit is required to meet the typical minimum requirement of 5 percent of the purchase price.
There is a good choice of lenders offering mortgages of 95 per cent of the property value, although rates are slightly higher than those offered to those with a larger deposit.
On the face of it, the savings you made would meet that 5% requirement on a £400,000 purchase.
That said, it will be important to take into account all other costs related to buying a house before assuming that all existing savings can be allocated to a deposit. Other costs to consider will include investigation fees, legal fees and moving costs.
On the plus side, assuming your wife is also a first-time buyer, you should be able to avoid most or all of the stamp duty property tax bill.
First-time buyer relief means no stamp duty is payable on purchases up to £425,000. Even if the purchase price is £625,000, only the amount above £425,000 will be charged.
This could remove a significant burden that would otherwise eat further into your deposit funds.
You should also make sure to keep some of your savings as a rainy day fund and not spend the entire amount on the purchase.
There will always be a need for emergency cash with a young family, and purchasing a home could come with other costs, whether anticipated or unanticipated. Increasing your savings will play a vital role in making your purchase a reality.
Next step: Our reader is currently renting but would like to purchase a three-bedroom family home
Lifetime Isas (Lisas) can be opened up to the age of 40 and offer a 25 per cent government boost to your savings.
They will need to be used to buy a first home or for retirement, you will need to have held the Lisa for a year before purchasing and it can only be used on a home with a purchase price of up to £450,000.
How much can you borrow?
Affordability is the other major challenge. The amount of mortgage you can get will determine how much you need to put down as a deposit or whether you may need to adjust your target purchase price.
Lenders will use an affordability model and consider income and expenses to assign an individualized borrowing amount.
This often equates to an income multiple of around 4.5 times income, although some may be able to offer 5 times or more in the right scenario.
Perenna is a new lender offering long-term fixed rates that can offer up to 6 times income in some cases.
Your ability to achieve the level of borrowing you would need will depend on the income you and your wife can provide.
Lenders will generally require at least two years of income history for a self-employed borrower. Lenders will take into account at least a portion of your bonus income, provided you can demonstrate your track record.
Discuss the options: David Hollingworth suggests our reader follow some advice on how much they can borrow.
What are the alternatives ?
Mortgage advice likely available, for example from a mortgage broker, will help you understand how close you can get to your target house price.
If there is a significant discrepancy, then you can consider whether it is possible to compromise on the property and how you can put up a deposit.
Renting is expensive, so none of this is easy. Skipton Building Society has launched a mortgage that uses a person’s rental history to allow them to borrow up to 100 percent of the purchase price of a home, recognizing that a mortgage could mean a lower monthly payment.
Although this removes the need for a deposit, you will still need to meet affordability requirements.
Shared ownership could be an alternative option. This allows the purchase of part of the property with rent paid to the housing society on the remainder.
This gives greater security of ownership and some exposure to the property market at a more affordable level, ultimately allowing further shares to be purchased as much as possible until the property is fully owned.
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