The cost of living crisis has left many first-time buyers feeling nervous about stepping onto the property ladder, with over a third postponing buying a home due to financial fears, according to a report from the Yorkshire Building Society.
But as the price of food continues to rise and the looming rise of electricity costs continue to worry residents across the county, is it really a surprise to hear that confidently buying a house is off the cards for many people?
Even just looking online for advice can be daunting, with millions of conflicting articles making it hard to get a good sense of what you can do right here in Cumbria to make the best of your situation.
To help make your search for information that bit easier, we reached out to Jack Green, mortgage hub manager at The Cumberland, to do some quickfire questions on essential advice for first-time buyers in Cumbria amid the cost of living crisis.
What’s the first thing to think about when buying a house?
We would recommend you speak to a mortgage advisor as early on in the process as possible. There are some people who are probably two years out from buying, they’ve only just started saving. It’ll help you get a rough idea of what your mortgage payment could be before you start looking at properties.
By getting an agreement in principle before you start looking at houses it means that you don’t get your hopes up on something you can’t afford, and it gives you an idea so you can start to think about these practical things like saving the amount you’ll need to pay each month.
How should we approach saving?
Saving for a deposit is the biggest thing for a first-time buyer but also there’s your monthly mortgage payment. So, it’s really useful if, three or six months beforehand, you ‘practice’ saving that amount of money while you are still, say, living at home with your parents.
If you know your mortgage payment is going to be £650, three months before, save that £650. It really helps a first-time buyer to get a good understanding of what it is like to live with a large outgoing.
It’s a big change from paying a bit of board to your parents each month to then suddenly finding your mortgage is £600 and your council tax is £150 a month.
Of course, ultimately, you can put the money you’ve saved towards your deposit or other moving-in costs.
What is the best saving account for a deposit?
If you already have one, the Help to Buy ISA is a no brainer if you’re saving for a deposit. It’s a Government-backed savings account, and they’ll top up the amount in the account by 25 per cent if you use the savings for a house deposit. So if you save £10,000 to use as a deposit, the Government will give you another £2,500 on top for free.
However, we see a lot of customers who have got a Help to Buy ISA, but they aren’t saving into it, they’ll save into another savings account.
The Help to Buy ISA closed for new accounts in November 2019, and was replaced by the Lifetime ISA, which is similar but does have some different terms and conditions. Check with a savings account provider for details.
The tip is to make sure you utilise your Lifetime or Help to Buy ISA first and put the maximum in there before you start worrying about other savings accounts. There’s no reason not to do this. Also, remember to ask your solicitor to claim your bonus for you when you buy your house.
Is a mortgage calculator worth using?
A lot of lenders – The Cumberland included – have a calculator where you can put in your income and it will give you an amount you can borrow. They are designed to give you a very, very rough idea.
If you’re going to use a calculator make sure you include all your outgoings. We sometimes see people have missed something off, for example, they’ve got a car loan and they’ll forget to include it.
The calculator says you can borrow £200,000, you get your heart set on a £200,000 house, but you may find the lender can only lend £150,000 because you’ve not included all your outgoings or you’ve put your income in wrong.
Calculators are great to give you an idea but they shouldn’t be used as an agreement in principle; it’s not personal advice, there’s nobody checking your circumstances.
Again, you need to speak to an advisor. Potentially, you could borrow £10-30,000 either side of the amount you want. You might not include bonus income or child benefit or tax credit but perhaps we could use those so it lets you borrow more. It works both ways.
They are a rough guide so use them like that, but don’t make offers on a house on the strength of a calculator on a lender’s website that’s not personalised.
Should we consider affordable housing?
All councils now have a list of affordable properties. These could be shared ownership, they could be discounted purchase price, there particularly to help first-time buyers.
It could be the full value of the house is £200,000 but it has a restriction that says it can only ever be sold at 70 per cent of the market value. So you get that house for £140,000. But when you come to sell it, likewise, you can only do it for 70 per cent of the market value.
It’s a really great scheme for first-time buyers to get something that they probably couldn’t afford to pay the full price for so consequently, they are really popular.
You’ve got to apply to the council and they will have some restrictions: you’ve got to be a local resident and it’s got to be your main home, you can’t let it out.
What should we do about our finances in general?
Put yourself in the best possible light and avoid any extra stress or questions that a lender might ask.
Bear in mind you are going to provide your bank statements to a lender and they are going to go through those in detail. Things like payday loans, regular gambling or only living within your overdraft will get picked up.
It’s about being sensible. We’re not saying change your lifestyle or anything like that, just bear in mind somebody’s going to be having a look at your bank statements.
We hear a lot about interest rates going up – should we be concerned?
All lenders have safeguards in place to make sure you can still afford your mortgage even if interest rates went up. The regulators make us do this as responsible lenders.
A responsible lender will check you can afford your payments, both now and also if interest rates were to start to increase.
They will look at a worst case scenario, and when doing affordability checks look at whether you can afford your payments if interest rates went much higher than they currently are.
What are the practicalities when we move into our new house?
Don’t worry too much about having enough money to be able to buy everything you would ever want, in the way of furniture for instance, immediately.
It’s more important to make sure you’ve got money to do your first food shop than it is to worry about buying a brand new sofa.
It can take years to get yourself in a good place where you have got everything you want. Be patient and be practical.
I’ve just moved into my first house – how can I make some more money?
Try the Rent A Room scheme which not a lot of people know about. Again, it’s a formal, Government-backed scheme.
It’s completely legal and almost encouraged to an extent because it is a tax break. Your lender in most cases will let you do it without affecting your interest rate.
You can set your own rent and earn up to £7,500 a year if you are renting a room out in your property, tax free. So it’s a massive help with bills.
It’s not just for first-time buyers but it’s a really good scheme for people who are on their own who want to earn. For most people it’ll be a friend who’ll be living with them.
If you were renting your full house out, that’s different. You’re then into buy to let territory.
See www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
What about other savings or costs?
Remember the single occupancy council tax rebate. Many first-time buyers who are living alone for the first time aren’t aware they are eligible for the 25 per cent discount on their council tax. That’s an easy few hundred quid a year.
On the other hand, beware of additional costs attached to some new build houses and flats which often come with maintenance charges and ground rents which aren’t made clear. These are costs you pay for the upkeep of communal areas.
