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  • Writer's pictureMatthew Pigrome

Comprehensive Guide for First-Time Buyers: Making the Rent vs. Buy Decision

With the rising cost of rents, many people are exploring the possibility of homeownership. However, buying a home is a significant financial commitment with its own set of risks and considerations.


In this blog post, we will provide you with essential information to help you decide whether it's more cost-effective to buy or rent, available mortgage options for first-time buyers, borrowing capacity, deposit requirements, and various government schemes designed to support first-time buyers.


Is it Cheaper to Buy than to Rent?

According to Halifax, most people spend less on monthly mortgage payments than they would on rent for a similar property. On average, the monthly mortgage costs for a three-bedroom home were £42 lower than renting the equivalent. However, the difference varies across the UK, with homeowners in Scotland making significant savings compared to renters, while in the east of England, it is cheaper to rent than to own.


Mortgage Options for First-Time Buyers:

First-time buyers can apply for the same mortgage deals as any other borrower. However, lenders closely examine their financial situation and credit record. After a year of rising interest rates, mortgage rates have also increased, ranging between 4% and 7%. Mortgage brokers can assist in navigating the market and finding deals that suit individual situations.


Borrowing Capacity for First-Time Buyers:

Banks typically lend four to five times a borrower's salary, taking into account existing financial commitments like car loans or student debt. Various online calculators can help determine affordability, while mortgage brokers can offer personalised advice.


Deposit Requirements:

Saving for a substantial deposit is often the biggest challenge for prospective homeowners. Generally, a deposit worth at least 10% of the property's value is required, with larger deposits securing better deals from lenders. Some lenders may accept a 5% deposit, and Skipton Building Society even offers a no-deposit mortgage, leveraging rent-payment history to establish creditworthiness. The government's Lifetime ISA scheme provides a 25% match on savings for eligible individuals aged 18 to 40.


Consider Sharing the Ownership:

Joint-ownership is increasingly popular among first-time buyers, including friends buying together. However, it is crucial to have a proper legal contract in place, as all parties will be liable for the full mortgage.


Tax Benefits and Government Support:

In England and Northern Ireland, first-time buyers are exempt from paying stamp duty on properties valued under £425,000. Scotland offers similar relief through the Land and Buildings Transaction Tax for properties under £175,000, while Wales does not provide first-time buyer relief under the Land Transaction Tax. The government has introduced schemes like Help to Buy, First Homes, and shared ownership to support first-time buyers and key workers with affordable housing options.


Conclusion:

As rents continue to rise, many individuals are exploring homeownership as a more cost-effective alternative. Understanding the financial implications, available mortgage options, borrowing capacity, deposit requirements, and government schemes for first-time buyers is crucial when making informed decisions. Mortgage321 is here to provide expert guidance and assist you throughout the process, ensuring you find the best mortgage deal that suits your needs.


Contact us today for a personalised consultation and take the first step towards homeownership!



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