Week 71: Five percent Deposit Scheme
Yeppie! five percent deposits are back! What are your thoughts? or what do you think? It's a bit tricky this one as on the surface it seems a great concept but upon deeper analysis you can start to see the cracks. It is a scheme devised by the government to help Generation Rent become Generation Buy. The millennium has seen a large dip in the level of home ownership which has worsened over the years. With a rise in non-traditional shared accommodation. People who are not related living together to form a household. It is official Generation Rent is far poorer than their predecessors and may never own their own home. Several schemes have been put into play to address this; ‘Help to Buy’, ‘Shared Ownership’ and ‘Help to Buy ISAs’. These have all been received with mixed reviews. You just have to go onto Money Supermarket and there is a wealth of information there. I’m no expert but I would tread carefully as buying a house is the single most expensive thing one will ever do in their lifetime so we shouldn't take this lightly. Let's take a look at some factors.
On a positive note:
Your dream of owning your own home could actually manifest
You will get onto the property ladder sooner rather than later
No more living in a house of multiple occupation (HMO)
Therefor not wasting money on rent
You will own an asset in years to come that will help your family
No need to save lots of money for upcoming deposits
Government to lend 95% of the mortgage
Paint the house ‘Red’ or have a dozen pets; it's Happy Days!
Somethings to think about:
You could stay with your parents and save a bigger deposit. It's good for the planet too
If you contribute a larger down payment it will unlock preferential interest rates
Your loan to value (LTV) borrowing will be better balanced
With a greater deposit your monthly repayments will be more affordable
You will avoid financial strain, pressure and/or debt
Higher interest rates will lead you to pay a more over the years when your mortgage term comes to an end
Some will even say saving up is futile as by the time you have caught up house prices would’ve gone up again!
For example: An average house costing £250k (there about) in the UK. Means, for a 5% deposit, you will only fork out £12.5k as the rest is on a long-term mortgage. But, there is always a ‘but’, decent interest rates will be limited and you will be paying upwards of 3.9% in mortgage repayments. If on the other hand you manage to save a handsome 25% where you pay £62.5k you'll have a massive pool of lenders to choose from with interest rates as low as 1.39% fixed for two years. Although 1.5% to 2.2% is more likely.
I will say do some calculations and see what fits you best. It may be that you would love to put down 30% but your salary just doesn't accommodate. In that case talk to your partner, sibling, friend or whoever you are joining forces with and weigh up all your pros and cons.
Tip: Do an income/expenditure sheet and be honest with yourself. This will be your starting point.
Are you a first time buyer? Is this topic close at heart? Have you been struggling to get your foot on the property ladder? Then I would love to hear from you.