Five Steps To Buy Your First Home
Are you thinking of buying a home in a couple of years? Here's what you should do -- right now!
Unless you've been living as a hermit for the last few months, you'll have probably realised that changes are afoot in the property market.
According to the latest house price index from Nationwide, the price of a typical home fell by 1.7% in July, bringing the annual fall to 8.1%.
Mortgages are getting harder to come by, and estate agents all over the UK are feeling the pinch (everybody say `aaahh').
But what if you're currently planning to buy your first home? If you're sitting tight, watching the house of cards fall down, you might be wondering if there's anything you can do to prepare.
Thankfully, there's plenty to get on with. Start preparing now, and when you do decide to buy, you'll be in an excellent position to pounce on the best possible deal.
Start feathering the nest
I'm not a homeowner. My boyfriend and I recently sat down and tried to work out the size of mortgage we might be able to afford in a couple of years' time.
Salary-wise, it all seemed quite optimistic. In fact, we were rather excited until we realised we'd forgotten to factor in the need for a deposit. Then the gloom hit. Based on our calculations, that meant we had to find an extra £50,000. Oops.
Mortgage lenders have become increasingly reluctant to lend to borrowers with small deposits. And even if you do manage to secure a mortgage with a deposit of, say, 5%, you'll have to pay a much higher rate of interest, plus Higher Lending Charges.
Broadly speaking, the bigger your deposit, the better your rate is likely to be. A 25% deposit should ensure you get a decent, pre-credit crunch rate.
So -- if you're serious about getting on the ladder, start saving that deposit fund today!
Saving for a deposit
The good news is that credit-crunched banks are currently very keen to get their hands on your cash -- and savings rates have risen as a result.
If you think you will want to get onto the ladder soon, the best strategy is to put your money in an instant-access cash ISA, which will protect your savings from tax. You can get a market-leading 6.25% APR on a cash ISA from HSBC.
You can only put up £3,600 a year in an ISA, however, so if you have more savings which you want to be able to access quickly, put them in an instant access savings account. The market-leader in this category is Kaupthing Edge, as it pays an amazing 6.55% in interest.
Alternatively, if you are happy to lock your money away for a year, you can bag an even better rate! ICICI Bank pays 7.2% on its 12-month bond.
Do your homework
Do you know your trackers from your discounted variable rates? Before you set your sights on that dream home, do some research into what kind of mortgage is right for you.
Our guide to mortgage basics is a good place to start.
Then do the maths!
Sit down with a calculator and do some basic sums -- planning for the worst case scenario as well as the best. The Fool's mortgage calculator should be a big help.
Ask yourself: what if house prices don't fall as much as you'd like? What if you can't get the best mortgage rate on the market? Or if that pay rise doesn't materialise?
It sounds a bit pessimistic, but ultimately you've got to plan for what you can afford, not what you'd like. We all have lessons to learn from the credit crunch -- and that's one of them!
Get your priorities in order
Have a think about what will affect your first house purchase. If you can make the important decisions now, you'll be more focused and efficient when you start to look around.
For example, how many bedrooms will you need? Are you expecting for the patter of tiny feet? Or do you want an extra bedroom to rent out?
Ideally, you should try to protect yourself against having to sell again quickly -- because if house prices keep falling, you could fall foul of the market.
So, where are you likely to be happiest long-term? Do you want to be near good schools? Or is having somewhere with a garden more important to you?
Finally, investigate all the options. There's more than one way to skin a cat, and there are several different ways to get on the property ladder, too.
You don't even have to work through an estate agent. As my Foolish friend Szu Ping Chan recently explored, it is possible to pick up a good value property at auction.
However, a word of warning. This method of buying can be confusing and intimidating, and if you haven't done your research properly, you could end up with a property nightmare on your hands. So if you do decide to go down this road, visit a few auctions and familiarise yourself with proceedings before you start bidding.
Two other alternatives are shared ownership schemes and shared equity schemes, which could both minimise the amount you have to borrow from the bank. Read Help Is At Hand For First-Time Buyers for more on these.
Once you've got these basics under your belt, the future shouldn't look quite so bleak. And in fact, if you're ready to pounce when the market bottoms, you could save yourself tens of thousands of pounds.
Are you about to get on the property ladder ? Use The Motley Fool Mortgage Service to help find the best deal for you.