Sally is struggling to save up for her first home and get a mortgage. But is Sally alone? And what can Sally do to get a mortgage? #GetSallyHome
Is Sally Alone?
In the video above, we’re introduced to Sally, “a 33 year old professional living and working in London…who rents…and has a burning desire” to own her own home.
Sally certainly is not alone. Here’s just a few facts that show how difficult buying your first home has become for the typical young person living in England’s capital:
- Londoners now spend two thirds of average income on rent (Standard – Jan 2016)
- The average age of a first-time buyer in London is 32 (The Guardian – June 2015)
- Average rents in London are growing 8 times faster than average wages (Move Bubble – 2014)
So, to help you get in to a position where you can start dreaming of getting on the property ladder, here are a few tips for getting your first mortgage.
When applying for a mortgage, the lender will perform a check over whether the mortgage is affordable. This is their check to ensure that you will be able to repay the mortgage payment each and every month.
In the past, this used to be a simple calculation based on the earnings (or combined earnings) of the applicants.
However, since the Mortgage Market Review, this has become much more stringent and the lender will look deeply into your personal finances.
To help move this process along, you can make sure that you keep a detailed budget of all of your income and expenditure, to prove that you spend responsibly and live well within your means.
This isn’t something that should be done a week or two before the application, but rather should be a way of life. Doing this earlier in life will not only help you with your mortgage application, but cutting your expenditure will also help you save quicker. This will then help with…
Saving Your Deposit
This is one of the toughest parts of buying a house for many first time buyers, especially in London where such a high proportion of the average person’s income is spent on rent.
According to the latest HPI data, the average price of the first time buyer’s house in Q4 2015 broke the £400k mark – £401,212 to be precise.
Even with the help of the government’s Help To Buy scheme, first time buyers are required to put down a deposit of at least 5%, which on the average property would be a whopping £20,000.
However, by following some of the 111 ways to save on your household bills, you can hopefully start building that gap between the money you’ve got coming in each month, and your monthly expenses and start building up a “nest-egg” that will cover your deposit.
Having “good credit” is also important when applying for your mortgage. Your credit history will always be checked by prospective mortgage lenders, and this is something that you can’t start preparing for long before you actually apply for your mortgage.
As well as the obvious (paying your debts on time), there are also some other important steps potential first time buyers can take to improve their credit. For example, being on the electoral register at the address where you currently rent (and pay your council tax) will greatly improve your chances of being approved for a mortgage when the time comes.
Additionally, and this isn’t just advice for getting a new mortgage, you should avoid payday loans at all costs! Surveys show that two thirds of mortgage providers have refused a mortgage application solely because they use payday loans.
Consider Alternative Options
Even after reading these tips, you might think that all hope is lost. Well, not so fast. There are other options out there, like L&Q’s “Shared Ownership Scheme”, which allows buyers to buy between 25% and 75% of a property and still rent the un-owned share a subsidised rate. In this scheme, buyers are only required to take out a mortgage on the portion they are purchasing meaning that the mortgage affordability and saving up for the deposit become that little bit easier.
This post is written with the support of L&Q.