Members of older generations were generally able to buy their first homes at a young age, having spent only a relatively short amount of time saving up for them.
Consider that, even just 20 years ago, the average cost for a two-bedroom ‘starter’ property in the East of England was just £45,000. Adjusted for inflation, this would be just shy of £75,000 today; however, the actual cost is around £100,000 more than that. 1
For aspiring homeowners in the region (and indeed anywhere), this means more saving, more debt, more time waiting to get on the property ladder, and more time waiting to trade up once you’re on it. Buying your first home is a bigger decision than ever, and one you need to make sure you get right.
Here are some factors you need to consider:
You cannot borrow a mortgage of any size. Like most secured loans, a mortgage is underwritten according to affordability requirements. Though these vary from lender to lender, you typically cannot borrow more than three times your income (or combined income, in the case of joint applicants).
The average asking price for a two-bedroom home in the East of England is £189,000. This means that, with a 30% deposit (£56,700), you would need a combined income of £44,100 per year to qualify for a mortgage. With a deposit of 20% (£37,800), you would need a combined annual income of £50,400, and if you could only stretch to a 10% deposit (£18,900), you would need to earn £56,700 per year to be able to buy a home.
The Mortgage Market Review
This April, the Financial Conduct Authority will introduce a number of new rules that will make it even tougher to get a mortgage.
This includes additions to the affordability requirements outlined above. In addition to income multiples, lenders will also check that the monthly repayments will be affordable against your monthly pay. This means that the interest rate of your chosen mortgage will be a more prominent factor in the assessment.
Though it is not yet known what figures lenders will work to, it is safe to assume that few will allow your mortgage repayments to exceed 30–40% of your monthly income. As the application will also be ‘stress-tested’ against future interest rate rises, this puts applicants on high incomes and with larger cash savings to put down up-front in a much better position.
Starting a family might still be a distant consideration, and the 850 square foot flat you have your eye on probably seems more than adequate for your needs.
But consider the price gap between your average starter home and the next rung up the ladder – a three-bed home. In the East of England, this gap amounts to about £70,000. This considered, you could be in that home for several years before you can afford to scale up. And it won’t be long before all that space starts to feel a lot less… spacious.
The local area
For the same reasons that space is an important factor when choosing a starter home, you will want to give careful consideration to the local area. A young couple might be perfectly happy living in an area with easy access to nearby pubs, clubs and restaurants, but five years and one birth down the line, the fact that it’s a thirty minute drive from the nearest school will start to be an issue!
Go into your first home with the assumption that you will be there for some time to come. Even if it transpires that you aren’t, you might find that the extra consideration you give the decision will mean that you are much happier for the time that you are there. And if nothing else, it will mean that the property will be easier to sell when it comes time to move on, and another hopeful house-hunter is making the very same decisions that you are now.