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First Time Buyers – Budgeting Advice

Getting Your Funding Sorted

With the prices of properties in Edinburgh going a little crazy at the moment it is now becoming scarily common for properties ideally suited to first time buyers are selling within a week of going on the market and at prices that are nearing 20% over valuation.

Amy Lorimer speaks to Cameron, a solicitor specialising in buying properties for first time buyers in Edinburgh at Cameron Stephen, solicitors and estate agents, based in Leith, Edinburgh, on what first time buyers can do to improve their chances of successfully offering for a property and getting their step onto the property ladder.

Are properties really selling that quickly at the moment?
I’m afraid so. The other week we put on a property in the Newington area of Edinburgh. An ex local authority flat, one bedroom but fabulous views to Salisbury Crags and over Edinburgh to the Firth of Forth. We had about 50 viewings, set a Closing Date, received 16 offers. Whilst I cannot tell you the sale price, I can say that even Jayne, our estate agent, was surprised.

16 offers?!
Yes, which means 15 disappointed buyers. One or two of the buyers offered only a little over the Home Report value. Their solicitors would have told those buyers that their offer stood hardly any chance of success. At the moment, first time buyer properties in Edinburgh are selling quickly and for way over the home report value.

So what advice do you have for first time buyers to improve their chances of success?
There are two important things to do at the start, even before you start looking at properties.
First, go to a lender or mortgage adviser and get an accurate mortgage agreement in principle. This will give you a good idea of what a lender will give you as a maximum loan and will probably give you monthly mortgage payments calculated variously depending on the term of the mortgage gate (the length of the mortgage in years) and the loan to value percentage (usually 90%).
Second, work out how much savings you can get together for your deposit. You then need to appreciate how those two figures work together to give you a better idea of what properties you can afford.

You will need to explain this…
Most first time buyers will start looking for properties on the ESPC and will be looking at the asking price, usually offers over and think that the seller is looking to sell for over that price which of course they are, but more important than the asking price is the Home Report value. That’s the value put on the property by the surveyor who prepared the Home Report.

And where can buyers find the Home Report?
When we market a property for sale, buyers can access and download a copy of the Home Report from our website, but if buyers are looking for properties on the ESPC then there is a button that allows them to request a home report and a link is emailed to them. The valuation is found at the end of the section called the Single Survey.
And just to explain, most properties for sale in Edinburgh are marketed at a figure which is usually £5,000 or £10,000 below the valuation figure.

And you say that properties are selling at prices that are nearing 20% above the valuation?
Thankfully not all of them. At the start of 2017 we were advising our buyers to expect to have to offer about 10% above valuation but now, at the start of May properties are selling at well over that and are nearing 20% over valuation.

So, how will this help a first time buyer?
This is best shown by using an example: Let’s imagine you are a first time buyer, you have savings of £20,000 and have a mortgage agreement for £200,000. The first thing you need to understand is that the mortgage you will get is as a percentage of the home report value or the property not the purchase price.

I see. What you are saying is that if I offer £220,000 for a property with a home report value of £200,000 then my mortgage will be a percentage of £200,000 and not £220,000.
That’s exactly it. If you are getting a 90% mortgage, your mortgage would be £180,000 which would leave you needing a deposit of £40,000 and you only have savings of £20,000.

So, I can’t afford that property?
No. And this is where budgeting is all important. It’s not just what mortgage you can get or afford, it is how much of a deposit you have.

What price range should I be looking at then?
For someone like you with a deposit of £20,000, you need to be looking at properties with a Home Report value of around £100,000 and even then that would limit you to offering a maximum of £110,000 which is only 10% over the valuation which in the current market is probably not going to be enough. And there are plenty of buyers in Edinburgh at the moment in exactly the same situation.

Only properties worth £100,000?
With a valuation of £100,000, your 90% mortgage would £90,000 and your £20,000 savings would cover the balance of the price.

That’s quite depressing…
I know. You can afford a much larger property but the thing that is preventing you from getting the property you are looking for is the size of your deposit. Now, don’t get me wrong. I think that anyone who is a young first time buyer and has managed to save £20,000 has done brilliantly. But in the current property market in Edinburgh you are going to struggle.

Do you have any advice for first time buyers?
Of course, the above example, whilst not untypical, is just an example. It is great if you have a larger deposit. The important thing is to know the important role played by the amount of your deposit or savings and then working out your budget and what price you can afford to offer. You can then make sure you are targeting your property search for the right properties. There is no point looking at properties you can’t afford.
There are still some properties that are not selling at such high prices over valuation. These may not be in areas that you might at first instance consider but in my opinion it is still worth going to see them.
Also, look out for properties that have been on the market for a month or more. There is no guarantee with this tactic, but generally, if the property has not sold in the first month of marketing, then there is a chance the seller will be prepared to negotiate and you stand a chance of getting it for around the home report value.

How do buyers find out how long a property has been on the market?
You can’t find this information on the ESPC website but if you go onto the Zoopla website you will see that it has a listings history section which gives you the date of start of marketing which is the date you are looking for.

Search by Date