First-Time Buyers Struggling but Mortgages Don’t Have to be Taxing

The total number of mortgage approvals in 2020 was the highest it’s been since 2007. Despite a poor start to the year, a stamp duty holiday helped the property market recover in the latter part of 2020. In context, May saw recorded lows within the British lending sector with only 9,400 mortgages approved. Fast-forward to December 2020 and 103,400 were approved. That meant the UK ended the year with 818,500 mortgages given to new and existing homeowners. It may be much of the same in 2021 as Chancellor Rishi Sunak has extended the stamp duty holiday until June 30. However, as encouraging as those statistics are, it’s not all good news. First-time applicants are feeling the pinch.

First-Time Buyers Feeling the Pinch

Although banks are willing to lend in times of economic uncertainty, the demands placed on first-time buyers have become tougher. A study conducted by Hamptons International for Guardian Money found that 33% of “young households” in the UK don’t earn enough to pass the current affordability checks. This includes checks for mortgages up to 85% based on a 15% deposit. The statistics also show that the average price paid for a first-time property is £196,390, meaning people need to be earning more than £37,000 per year to get a mortgage. And, even if someone can pass the affordability checks, they still need a deposit of £20,000+.

The lending conditions are tough but there is hope on the horizon. New products are emerging that can help first-time buyers. To assess the value of these products, prospective lenders should calculate mortgage payments and their borrowing potential before applying. The Trussle mortgage calculator is one way to get an idea of what you might be able to get from a mortgage lender. By entering a few details, such as annual salary and monthly outgoings, users can get a ballpark figure that can be used to develop a more effective strategy. For example, a single person earning £50,000, with a £20,000 deposit and £1,200 in monthly outgoings could borrow around £178,000. As per the stats, that’s below the average price of a first-time property.

Knowledge is Crucial When Sizing Up New Offers

Of course, there are properties within that price range. However, more importantly, the figure provides a starting point. With this knowledge, the applicant could look at some of the latest schemes and initiatives designed to help first-time buyers. In this case, a 95% mortgage could help maximise borrowing and secure a property. These mortgages aren’t guaranteed by they’re designed to help those in need during the current economic crisis. The same could be said for the UK’s first-ever 40-year mortgage product from Habito. The lender’s new range of products offers fixed-rate terms for up to 40 years with deposits starting at 10%.

Although the interest rates may not be as favourable, the entry conditions are such that they may be appealing to first-time buyers. However, the lesson here is that you can only make this assessment if you’re an informed consumer. A 10% deposit may sound appealing, but do you really need to accept higher long-term interest rates to pay a lower deposit? The answer might be yes but you’ll only know that if you use tools such as a mortgage calculator. Many first-time buyers often falter because they start the application process without a proper understanding of their position. A little knowledge can go a long way, particularly in tough times. That’s a financial lesson everyone should take note of in 2021.