What can first time buyers do?

 

A lot has been written recently about the plight of the first-time buyer. There are plenty of statistics available to demonstrate that the first-time buyer market is at crisis point, but have we left things too late? Is there a danger that first-time buyers as a force in the marketplace will disappear completely? And if so, what are the implications?

 

This has been a recognised problem for quite some time. The age of first-time buyers has gradually increased as their deposit requirements have spiralled out of all relation to the rate of inflation over the last few years. Inevitably, this situation causes problems in the marketplace. It distorts house prices and alienates a whole class of today's young people, who simply feel priced out of the housing market.

 

Given that many first-time buyers struggle to save a sizeable deposit, they have to borrow a large proportion of the purchase price of their first property which, taking recent price rises into account, means they will find it difficult to make ends meet, especially if interest rates rise further. In this climate a property market novice will be forgiven for feeling like the ugly sister. But what can be done to help first-time buyers make that move?

 

One way to get onto the ladder is to buy with friends. This is an idea that newly earning workers have used for many years. But with prices high, more people are taking up this concept later on in their careers. However, a couple of caveats apply here.

 

When friends – as distinct from couples and partners – decide to co-own, it is wise for them to do so as tenants in common. This means that each party owns a pre-agreed percentage of the property, and this cannot be changed without the express consent of the other co-owners. It also means that more than two people can share ownership of the house or flat.

 

The converse is to own the property as joint tenants, which is the usual way in which spouses or long-term cohabitants possess property. The problem for friends is that the split of ownership is not exactly distinct and, if one friend passes away, his or her share automatically reverts to the survivor. This is fine if you're married, but not such a good option for work colleagues.

 

Another idea is to rent out rooms to friends or colleagues to help pay the mortgage. But make sure that you provide them with a suitable agreement that simply offers them a licence to occupy on a non-exclusive basis. You don’t want a lodger to claim rights over your property on the basis that he has made contributions to its maintenance, repair and upkeep.

 

Other ideas floated by the press and other commentators include the concept of parental guarantors. Indeed, a recent poll by the over-fifties website fiftyconnect suggests that 63 per cent of its members intend to assist their children to buy their first home. And some lenders have even launched products that are specifically designed to assist with this desire to help children onto the property ladder.

 

One option might be to use more US-style longer term fixed rates, allowing borrowers to increase their income multiple calculations up to possibly five or six times salary on the basis that what is affordable now will be even more affordable in the future.