First time buyers - the options

With the market in most parts of Shropshire still out of the reach of many first time buyers, is there any hope of getting onto the property ladder in 2008?

According to some of Shropshire’s leading estate agents, there are still lots of options for twenty and thirty-something young professionals in the county.

Shared ownership

“You can still find a good property for £120-£130,000 in Shropshire, but for first time buyers who are struggling, shared ownership has to be the way forward,” says Nick Evans of Evans Estates.

Most estate agents agree that shared ownership, which refers to joint-sharing ownership of a property with a public body or Housing Association, offers first time buyers the most affordable solution.

The scheme lets purchasers buy a percentage of a property owned by a housing association, then rent the remaining share until they fully own it.

There’s also a Gifted Deposit scheme, which is similar to shared ownership but allows buyers to purchase a new home with as little as £2,500 and pay back the gifted amount on re-sale.

“This has proved a good route for first time investors as it means they don’t have to overstretch themselves,” agrees Bill Roberts of DB Roberts Estate Agents. “Renting is still an attractive option, but there’s a lot to be said for owning a house.”

The ‘rent to buy’ scheme, which has been well established in the US market but is still relatively new to the UK, allows first time buyers to rent a property for a period with an option to buy at its original value, which prevents the property price increasing out of reach - even with market fluctuations.

Going Dutch

The trend in many cities of friends buying a flat or house together could well catch on in the country too.

Clubbing together with fellow house-hunters in a similar area makes good financial sense, as it will increase your chances of getting onto the ladder and give you far greater options than if you were buying alone.

This trend has been reflected in mortgage lender’s rates too. A Group Mortgage caters for those looking to buy a property with up to four friends or family members, and high street banks report a 50% increase in the number of group mortgage applications.

However, buying with friends can create numerous potential problems, so if you’re considering this option, you’ll need to think very carefully about the reliability of your fellow investors.

If one falls into arrears on the mortgage, the rest of the group will have to make up the difference and potentially incur a bad payment record.

Mortgage matters

There’s no point searching for the house of your dreams if isn’t within your price range.

Most first time buyers in the county will have to start with a flat or apartment, or a house in an area they wouldn’t normally chose to live in.

“It’s vital to talk to a reputable mortgage advisor about affordability and clarify the price range they need to look within,” says Catherine Grainger of Barbers Telford.

“Otherwise buyers could find themselves facing disappointment further down the line.”

Mortgage lenders rates can vary considerably, but the benchmark figure for an individual in regular employment is around three times their annual salary, and 2.5 times for a couple based on their joint salaries.

It’s tempting to go for a higher rate – some companies offer up to six times an individual’s salary.

But it’s important to stay realistic in your expectations - with interest rates set to rise again next year, buyers who have opted for a 100% mortgage could find themselves in a negative equity situation.

“The best places to buy if you are a first time buyer are of course to some degree down to personal taste,” advises Catherine.

“However it’s always worthwhile taking a global view as to how re-saleable your property will be when you move on a couple of years down the line.

“Local amenities, accessibility to schools, stamp duty thresholds and the general reputation of the area are all important factors.”

Rising rents

In previous years, potential buyers have been dubious about renting because of the ‘dead money’ stigma.

But as the market becomes less and less accessible, renting could still be the most sensible option.

“I do think we’re going to see a lot more people renting until house prices fall,” agrees Nick Tart. “People are no longer ashamed to rent and it does give you a lot more freedom.”

However, it isn’t cheap. Economic uncertainty has led cautious buyers to chose renting as a long-term option, and the average price of a three-bedroom semi in parts of Shropshire has risen to £600 a month.

“At the moment, I think it’ll be a long time before first time buyers are able to get on the ladder,” says Nick.

“Therefore we’ll develop a culture of people renting until they’re in their mid 30s and are eventually able to access some of the equity passed down from their parents houses - which is no different to what they do in France and Germany.”

By Lara Page