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Planning for the longer term helps first time buyers

May 13, 2022

Getting onto the housing ladder has always been a challenge, except for the wealthy.

Although tax is on the rise – a promised temporary measure due to the billions spent on the pandemic – – interest rates are nowhere near their 17% peak in the 1980’s, with the average salary a fraction of what it is today when the Bank of England base interest rate is just 0.5%, increased from 0.25% in February .

It’s important to remember this, rather than criticise the ‘baby boomers’ who also experienced financial struggles to buy their first home, rationing treats like holidays and eating out, which are so commonplace now.

Over the years, as living costs rose, so did average incomes. Inevitably, property values shot up in response to demand and shortages, and today’s young buyers need 7.9 times their salary (13.4 in London) to secure their first home. The Bank of Mum and Dad (or Grandma and Granddad) has helped many young people with deposits, and investing in a lifetime ISA, where the government adds 25% to annual savings, provided the money goes towards a first home or pension.

Home ownership amongst the 25-34 age group has shrunk to just 41%, so here are some short-term lifestyle changes determined young potential buyers adopted to increase their deposit funds.
Such decisions are especially difficult after the last two years of virtual isolation, but lockdown restrictions have actually helped; being unable to travel, attend football matches or concerts, or even see friends in the pub added to savings. Working from home (WFH|) meant some giving up renting and returning to live with parents, whilst reducing takeaways added a surprising amount to the pot.

WFH meant wearing more comfortable leisurewear are, spending less on new clothing, a trend which continues even as more return to the office, allowing them to free their smart outfits from wardrobe hibernation. Switching from car to bike, or even foot, for short journeys can be another bonus. Of course, such options aren’t available to everyone, including those on the front line, but, as life returns to ‘normal’, focusing on what is essential spending – especially as costs increase – will help.

Maximising the benefits may also require adapting the type and location of property to something more affordable in the current market, taking future plans into account in choice of accommodation. Best value for money can require thinking for the longer term, perhaps further from family and friends, choosing something in run down areas that have become ‘gentrified’, rather than in mint condition.

Having a mortgage arranged in principle enables you to build good relationships with estate agents, explaining your ability to proceed with a purchase quickly could ensure that you are first on their list to call when appropriate properties become available.

Our trained advisers at the Mortgage Centres would be delighted to assist with your strategy, guiding you to the most suitable mortgage to meet your finances.

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