With the average monthly rental payments increasing by 2.5% in recent months to £853.00 (Zoopla, 26/02/2018), it is no surprise that there has been a sharp rise in the number of buyers making their first foray on to the property ladder.
Many young people are stuck in a vicious circle of renting whilst trying desperately to save for a deposit towards their first home. With rental prices continuing to rise, this is becoming increasingly challenging.
What many people do not realise, however, is that although traditionally a deposit of 10% of the purchase price of a property is requested at the point of exchange, it is very much possible to be able to purchase your first home with a smaller deposit.
Zoopla has confirmed that in recent months there has been a shift in the market away from purchasers putting down a higher deposit: more than a fifth of people purchasing a property put down a deposit of less than 15% in January, according to chartered surveyors e.surv.
This may possibly be due firstly to a recent increase in lending, with lenders perhaps being spurred on by the November interest rate hike for the first time in ten years and therefore making larger mortgage advances available; and also an increase in buyers taking advantage of the Help to Buy ISA scheme available for first time buyers (please see this link for more information in respect of the ISA scheme and also the help to buy equity loan).
It is becoming more common for lenders to advance a higher percentage of the value of a property and therefore a smaller deposit being required to make up the final balance to complete. A total of £21.9bn was advanced during the month of January this year, 9.7% higher than in the same period of 2017, according to trade body UK Finance (Zoopla, 26/02/2018) which shows that lenders are becoming increasingly willing to lend.
Help to Buy ISAs, which were brought in to being by a government drive to assist first time buyers, have been available from 1 December 2015 (and will continue to be available until 30 November 2019); and have proven to be very popular: the government has confirmed that as of 11th January 2018, more than 1.1 million ISAs have been opened.
It is a common misconception that these can be used towards the deposit of your first home. This is incorrect: the Help to Buy Government Bonus contribution (calculated on the amount of savings made in to your ISA) can only be drawn down by your conveyancer to be used towards the final balance to complete once a completion date has been agreed - i.e. it cannot be used as the deposit upon exchange.
These two instances, of higher mortgage lending and the increased use of Help to Buy ISAs, may go part way to explaining the shift towards smaller deposits being put down on purchases; where the funds simply are not available at the point of exchange; and only available upon completion.
At the end of the day, no matter how the purchase price of your property is financed, and when in the transaction those monies will be available for use, the full amount will still be available on the day of completion. If the seller is unwilling to exchange on a deposit of less than the usual 10%, there is always the possibility of exchanging and completing simultaneously on the same day. This essentially negates the need for an actual deposit at all, as exchange and completion take place at the same time once the seller's solicitors have received the full balance to complete from your conveyancer.
In essence - do not lose hope of owning your first home simply because you do not have the deposit available. There are many options available to you to help; and you do not need to struggle in vain. The dream is not over!
More information can be found at:
- Zoopla Increase In Buyers With Small Deposits
- Zoopla First Time Buyer Numbers Hit Decade High
- Government News Over 350,000 People Benefit From Support To Buy Their Own Home
- Zoopla Homeowners Remortgage Ahead Of Potential Rate Hike
More information about Help To Buy schemes can be found on our Help To Buy page. If you have any further questions or would like to get the purchase process started with us then please call us on 01603 620508, or use our website contact form and quote service, and a member of our residential property new business team will be in contact soon.