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Lower Deposits Produce Rise in First Time Buyers

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1st Time BuyersMore first time buyers have been planning removals across the UK during the first half of 2014 thanks to lenders making it easier for people to obtain mortgages with smaller deposits. According to research conducted by LSL Property Services, approximately 146,000 buyers who purchased homes during the first half of the year were buying property for the first time. This figure was not only 27% higher than the number of first time buyers making purchases during the first half of 2013, but also the highest figure for first time buyers since before the financial crisis, in 2007.

The rise in people planning their first property purchases and removals is thought to be due to the lower deposits now being accepted by many mortgage lenders. Raising a deposit can be one of the main barriers to making it onto the property ladder, so lowering this barrier can have a significant effect on first time buyers. The average deposit made by a first time buyer in June had dropped 18% compared to the same month last year, reaching £24,530. The average deposit has been below £25,000 for the last five months.

The Help to Buy scheme has played a part in enabling these first time buyers to access lending without needing to save up large deposits, but lenders have also been more willing to consider lending at higher loan to value ratios outside of the scheme.

However, the Money Advice Service recommends that first time buyers still need to think carefully about whether they can afford to buy a home. Careful budgeting is the key to making the switch from tenant to homeowner, so potential first time buyers need to ensure that they will be able to cover their monthly repayments and afford the additional costs associated with moving, including mortgage and solicitor’s fees, stamp duty, removals, furnishing and decorating costs, and home insurance. Buyers will also need to save up a deposit of at least 5% of the property price, and go through the mortgage application process, providing details about their income, debts and living expenses. Gathering all of this information on income and outgoings together to work out whether homeownership is affordable is still the first step to getting a mortgage and moving in to your own home.

Are Homebuyers Taking On More Than They Can Afford ?

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Financial worry's

Everyone knows that buying and moving into a new home can be an expensive business, with costs ranging from removals to redecorating, but it seems that some homeowners are still unprepared for exactly how much it will cost. The higher costs created by rising house prices are part of the problem, but difficulties are also created when interest rates on variable or tracker mortgages change.

An increase in the number of complaints made about interest-only mortgages has raised particular concerns. Complaints have risen by 6% during the last year, according to the Financial Ombudsman Service, and the Council of Mortgage Lenders is now calling for borrowers to discuss any problems with their lenders as soon as possible. Some homeowners are leaving it far too late before asking for help, but a solution can often be found much more easily when discussions start early.

However, problems are not just being caused by mortgage repayments. Some homebuyers are also struggling to budget for all of their removals and living expenses, according to the Money Advice Service. Borrowers can often get so caught up in the excitement of applying for a mortgage and choosing a property that they forget to account for all of their other expenditures when working out how much they can afford to spend on their mortgage repayments.

It is all too easy to overlook some of the smaller one-off costs associated with moving, such as hiring a removals van, because you are too focused on larger ones like the deposit, but it is essential to sit down and work out a complete budget before you make your move. Your budget should also include all of the regular costs that you will need to pay alongside your monthly mortgage repayments. The Money Advice Service suggests that most homeowners will need at least £1200 a month to cover bills and repayments. Lenders are also beginning to show concern about budgets beyond mortgage repayments in order to ensure borrowers can cover their living expenses. This could lead to more questions begin asked of applicants, but for those homeowners, particularly first time buyers, who have struggled to balance their budgets, taking more time to think about all their finances, not just their mortgages, could be very helpful.

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