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First-time buyers help to prop up the property market

Although the housing market has slowed, due in part to the widespread uncertainties surrounding Brexit, there is some good news. The number of first-time property purchases made in 2018 reached 372,100, up by 3% on the 2017 figure. This means that for the first time since 1995, those making their first property purchase represent a bigger share of the market numerically than those making a second or subsequent move (51% to 49%)1.

Stamp Duty cuts

First-time buyers found their property-owning plans boosted by the Chancellor’s cut in Stamp Duty announced in November 2017. This means that if they spend £300,000 or less on a property, they won’t pay Stamp Duty. If they buy a more expensive property, the first £300,000 will be free of Stamp Duty, provided that the property’s price is £500,000 or less. In Scotland, firsttime buyers enjoy Land and Buildings Transaction Tax relief that saves them up to £600, whilst in Wales they get no special Land Transaction Tax concessions.

Help to Buy set to continue

The government’s Help to Buy scheme is playing a major role in helping first-timers realise their property goals. Under the scheme, first-time buyers and second-steppers are offered a loan of up to 20% of the price to buy a new-build property of up to £600,000. A London-only version of the scheme provides 40% equity loans.

The 2018 Budget contained details of how the Help to Buy scheme is to operate in the future. Until 2021, anyone taking advantage of a Help to Buy equity loan to boost their purchasing power, can buy a property worth up to £600,000. Thereafter, and for a maximum of two years, only first-time buyers will be eligible to buy through the scheme, and the maximum property values will be restricted, with differing figures in place around the country to reflect regional house price variations.

Time to make your move?

If you’re thinking of making 2019 the year you buy your first home, it makes sense to get in touch. We can help you make your dream a reality.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

1Lloyds, 2019

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Homeowners choosing to improve rather than move

Once upon a time, homeowners moved four times after their first purchase; now it’s more like twice. New evidence suggests that in England and Wales, many more of us are putting down roots and choosing to stay in our current homes for longer.

Research1 carried out by Dr Ian Shuttleworth of Queen’s University Belfast points to a major cultural change, and highlights that at least a million fewer people moved between 2001 and 2011 compared with 1971 to 1981.

Staying put and renovating

This trend is borne out by recent research from insurer Hiscox2. They have identified a five-fold increase in the number of homeowners who have chosen to renovate their existing home in the last five years. The choice to renovate rather than move is likely to be influenced by a range of factors such as the continued rise in house prices in some regions, predicted rises in interest rates, the additional costs such as stamp duty, the lack of suitable property on the market, tighter mortgage lending criteria and the economic uncertainty that arose after Brexit. In addition, in some parts of the country property prices have hardly moved, meaning that families can find themselves held back because they have made little or no profit on their existing home.

In 2013, the research2 showed that just 3% of homeowners chose to improve as an alternative to moving, but five years later, this figure has risen to 15%. Local council figures show that requests for planning permission have risen by 29% in the last ten years.

Outwards and downwards

People are increasingly looking to adapt their property to meet their changing needs, with an extra bedroom high on the agenda of many families. Unsurprisingly, loft extensions head the list of alterations having increased the most, up by 114%. As reports in the media have highlighted, digging out basements to create extra accommodation is becoming increasingly popular, especially in fashionable parts of London.

1Queen’s University Belfast, Fewer people moved house in the ‘00s than the ‘70s, 2018

2Hiscox, Renovations and Extensions Report, 2018

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Later life mortgage borrowing has become standard practice for many

The mortgage landscape has changed in a number of fundamental ways over the last few years. Diverse factors such as the increase in house prices, students leaving university with larger debts, the trend towards couples buying their first homes and starting their families later in life, the ability to access pensions from age 55, are all having an impact on homeowners’ borrowing requirements and repayment patterns.

For the majority of us, our mortgage represents the biggest single financial commitment we are likely to make. Repaying it has a major impact on how we manage our finances. Over the last few years, more mortgages have been granted for terms in excess of the standard 25 years, not least because stretching the monthly repayments over a longer period can make them more affordable (although this does mean that the borrower will be paying interest for longer).

With house ownership proving a challenge for many young buyers, the average age at which they take on their first mortgage is more likely to be in their 30s. This means that many more borrowers will find themselves repaying mortgage debt well into their retirement years.

The amount of mortgage debt held by over-65s is set to double to about £40bn by 2030, according to a May 2017 study supported by the Building Societies Association.

KEEPING YOUR MORTGAGE UNDER REVIEW

If you are in the situation where your mortgage is likely to run on into your retirement, keep it under review. There may come a point where you may want to consider shortening the mortgage term if your finances mean that you can afford higher repayments. Alternatively, you might want to consider making overpayments to reduce the amount of mortgage outstanding. Getting good advice will help ensure that you manage your finances effectively, especially later in life.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Equity release topped £3bn in 2017

Many people approach retirement owning a family home and want to benefit from the cash tied up in what’s probably their biggest asset. For some, the thought of downsizing and moving in later life to release cash is too daunting to contemplate. An equity release plan allows you to turn some of the capital value of your home into cash, without having to sell up and move away.

For those reaching retirement, equity release continues to be a way to top up their income, carry out home improvements, have a holiday of a lifetime, or pass on capital to other family members. In 2017, more than £3bn was released, according to figures from the Equity Release Council.

Lifetime mortgages – a type of equity release – have a seen a major surge in popularity amongst older homeowners, and have become the fastest-growing sector of the mortgage market.

Independent professional advice is essential; equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should discuss it with your family.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it.

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Airbnb – Implications for home insurance

Airbnb is an amazing business success story – there are now more than four million homes listed around the world. But homeowners who list their property on Airbnb or similar sites need to think carefully about their insurance position, as when they have a tenant in their property, they may not be insured under the terms of their cover.

Typical contents insurance won’t necessarily pay out if you make a claim on damage caused while your property was being let out. So, if you’re already a host on Airbnb, or thinking of joining the network, then you will need a comprehensive insurance policy that specifically allows you to rent out your property for periods of time, or covers you if you have tenants who sublet.

Airbnb do provide what they call a host guarantee, but make it clear that it isn’t an insurance policy and they recommend that you take out your own separate cover. There are now new top-up policies on the market to protect hosts. They provide cover for homeowners, tenants and landlords who let rooms, annexes or whole houses, and some allow you to increase your cover on a short-term basis.

In addition it is vital that homeowners considering letting a room or property in this way, seek consent from their mortgage lender first, restrictions may apply.

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First time buyers use stamp duty savings to cut mortgage costs

Low mortgage rates, high levels of employment and government schemes, such as Help to Buy, are all helping first-time buyers enter the housing market.

The recent abolition of Stamp Duty for a majority of first-time buyers looks set to provide additional help by reducing the upfront costs associated with making a first home purchase.

STAMP DUTY CHANGES

Except in Scotland, Stamp Duty was abolished last November for first-time buyers on homes worth up to £300,000. Particularly to help those buying in very high-priced areas such as London, a stamp-duty exemption is in place on the first £300,000 purchase price on properties valued up to £500,000; the additional amount up to £200,000 will incur 5% duty.

From April this year, property Stamp Duty matters in Wales will, as in Scotland, be devolved. The above concession will then cease to apply in Wales, but the new Land Transaction Tax there will have a £180,000 threshold for all purchases, not just those of first-time buyers. The Scottish Government has proposed a higher £175,000 (from £145,000) Land and Buildings Transaction Tax threshold for firsttime purchases as from 2018-19.

The government’s decision in November has had a mixed reception. Many believe that it won’t have a material impact, and some have warned that it will drive up house prices, leading to first-timers paying more for their houses than they are likely to save. A spokesman from the Number 10 press office defended the change in Stamp Duty, claiming in early January that 16,000 first-time buyers had already made a saving of up to £5,000 as a result of the cut, and estimated that more than 1m more would stand to benefit over the next five years. They also said that 80% of all firsttime buyers will pay no Stamp Duty under the rule change.

Those purchasing a £300,000 property are set to save the most, benefiting by £5,000. First-time buyers of more costly homes up to £500,000 see their Stamp Duty lowered by £5,000. However, there are also substantial worthwhile savings to be made on less expensive homes. Purchasing a property worth £208,000, the average price paid by a first-time buyer, would previously have given rise to a Stamp Duty payment of £1,660, but a first-time buyer will now be able to save this amount.

MORE HOUSING STARTS NEEDED

Some commentators have been quick to point out that the move doesn’t tackle the major issue which is the UK’s chronic housing shortage. The government has announced a series of measures designed to fix what they see as “the broken housing market”, and freely admits that at least 300,000 new homes are needed every year to keep pace with demand.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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More homeowners climbing the ladder

There’s some better news for those who are looking to

make their move up the housing ladder. Second-steppers, as they are often referred to, are mostly couples and young families seeking to move on from their first home to somewhere bigger.

Figures from Lloyds Bank1 show that more than 370,000 homeowners were able to step up the housing ladder and purchase their next property with a mortgage in 2017, the highest recorded figure for the last ten years. The only region to record a fall in the number moving up was Greater London.

Homeowners ready to take their second or subsequent move have found it easier lately, thanks to a combination of factors, including low mortgage rates, high employment and the equity they have accumulated in their first home.

Strong house price growth has led to many second-steppers being in the happy position of having substantial equity in their homes.

This often means that they can afford to put down a bigger deposit on their next property, helping to get a better mortgage deal.

A LITTLE HELP FROM THE BANK OF MUM AND DAD

According to Lloyds, the difference in price between a typical first-time buyer’s

home and their next purchase is around £126,000. Their research found that on average they have £105,000 in equity from the sale of their first home, leaving a funding gap of around £21,000. It’s at this point that parents and grandparents often step in and help.

MAKING THE NEXT MOVE

In order to get more living space, second-steppers are adopting a number of buying strategies. Many are moving out of larger towns and cities to areas that are potentially less fashionable, but are less expensive. Some are actively seeking homes that they can extend to get the living space they need.

Multigenerational homes are becoming more common too, with families pooling their resources to buy a home that can accommodate them all. This has the benefit of allowing older homeowners to release equity that they can then share with their children, and younger families get the space they need to grow. Homes with annexes or with potential to be split in two can work well, as both generations get to retain their privacy and independence.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

1              Lloyds Bank, Jan 2018

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How to add value with a home renovation

The continuing rise in property prices has also fuelled a sharp increase in homeowners extending their properties with a view to adding value. In the year to June 2017, 197,000 people in England obtained planning permission to improve their homes, with a further 23,700 adding extensions under permitted development rights1. The figures suggest that, on average, one homeowner was extending or improving their property for every five who were buying a home.

ADDING SPACE

How much value you can add by updating the kitchen, the bathroom or adding another bedroom, will of course, depend on a variety of factors, including the type and location of the property. Research by a major insurance broker2 shows that converting a single garage into a room could add as much as 20% to your home’s value, and building a loft extension could add around 15%.

A conservatory provides extra space, although it will restrict the size of the garden. Unlike an extension, it won’t usually require planning permission as long as it doesn’t cover more than half the area of the land occupied by the original house (your local council planning department can advise). Having one could add around 7% in value.

Basement digs have also become popular over the last few years. However, they are usually only undertaken where house prices are so high that the value they add covers the cost of the work.

AFFORDABLE WAYS TO ADD BUYER APPEAL

Even simple make-overs, like painting and decorating the exterior and tidying the garden, could result in a 10% rise in value.

If you don’t have the budget to completely renovate your kitchen, replacing the worktops, cupboard doors and flooring can make it more attractive to buyers. In the bathroom, a new suite can make a big difference, but if funds are tight, simply replacing taps, painting walls and cleaning the tiles can improve its appeal.

1 Savills, 2017

2 Towergate Insurance, 2017

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Why being bad at maths could cost you money

Getting your numbers wrong when working out how much home insurance cover you need could prove to be a costly mistake that could have serious consequences. If you don’t check your home contents sum insured on a regular basis, then you could find that if you need to make a claim you are underinsured. If you’ve had the same level of cover in place for a few years, then it may no longer reflect the up-to-date value of all your possessions.

If you don’t have the right level of cover in place and you need to make a claim, you could find that your insurance company reduces the value of your claim substantially, even if your claim is for less than the total amount of your sum insured.

If for example, you have possessions worth £50,000 but only insure them for £25,000, and you make a claim for £10,000, your insurer may reduce the amount they pay out to £5,000 because you are underinsured.

So, make sure you check the value of your home contents when renewing your policy.

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To buy or rent? What you need to consider

Buying your own home is a big financial decision and one you need to approach with your eyes wide open. There are many things to consider and you’ll need to weigh up the pros and cons carefully before opting to become a homeowner.

RENTING GIVES YOU FLEXIBILITY, BUT YOU PAY FOR IT

Renting your home gives you a roof over your head, the flexibility to move on pretty much when you choose and has the added benefit that you aren’t generally liable for any maintenance costs. However, the downside is that you aren’t building up valuable equity in your home. Buying gives you a growing stake in your property and means that if it increases in value you make a profit. You also have the satisfaction of knowing that when you’ve finally paid off your mortgage, you’ll own your home outright. Is buying a property right for you? Here are some questions that can help you decide.

IS IT CHEAPER TO RENT OR BUY?

In the short term, it can be a cheaper option to rent. The rent you pay could be cheaper than the cost of a mortgage. Also, the deposit for a rental property can often be much less than the deposit required to purchase a property. However, the mortgage market is currently very competitive and there are some good deals available. We can advise you on what type of deal might be available for someone in your financial circumstances.

WILL YOU BE ABLE TO AFFORD TO OWN?

Saving up for the deposit is only the first step. You and your mortgage lender will need to be certain that you can budget wisely and will be able to afford the monthly payments now and in the future. You will also need to have enough cash available for other home buying expenses like survey costs, legal fees, stamp duty (payable on properties with a purchase price of more than £125,000 in England and Wales, and LBTT above £145,000 in Scotland), plus moving costs. You’ll need to consider all the ongoing expenses that come with home ownership, like buying furniture, utility bills, insurance and maintenance costs.

WHAT ARE YOUR OTHER FINANCIAL GOALS?

Whilst buying a home is a major goal, it won’t be your only one. Everyone should have a financial plan in place that takes care of important things like saving for the future and making provision for retirement. For instance, if you’re thinking of setting up your own business or pursuing other interests or dreams, you might want to prioritise these goals over buying a home for now.

If you would like some professional advice, do get in touch.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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