I was interested to read in the ESPC news paper this week the article First Time Buyers Mythbusters but feel I should make comment, because, in my view, it does little to bust those myths.
The property market in Edinburgh continues to be a sellers’ market and there does not, at least at present, to be any sign that the market is cooling down. And that is, unfortunately bad news for first time buyers, and particularly so for first time buyers on a limited budget and with a (relatively) small deposit saved.
There are four concerns covered in the ESPC article but I shall only cover the first three. So, here goes…
Concern 1: I’m not going to be able to save a big enough deposit
As is rightly pointed out in the article, many more lenders are now offering first time buyers 95% mortgages and reference is made to some analysis that suggests that £20,000 to £40,000 was quite common as a required deposit. The article suggests that as a First Time Buyer you could afford to buy a £120,000 flat with only a £6000 deposit or savings.
Don’t get me wrong, it is great that lenders are offering first time buyers 95% mortgages and for a lot of places around Scotland which are not seeing the same increase in property prices that Edinburgh is experiencing, that is great news.
But the biggest thing that first time buyers like you have to be aware of is the fact that the mortgage (the 95% loan) is based not on the purchase price. It is based on the home report value for the property.
Concern 2: Prices in Edinburgh are too high to be able to afford a flat
I can also agree with what the article says are the average prices of one bedroom flats in those parts of Edinburgh.
But here’s my point: those average prices are probably around 10% above the Home Report value. The chances of you being able to buy a flat in Edinburgh for the Home Report value are practically zero at the moment.
So, let me bring those first two concerns together in an example:
Earlier this month (August 2017), a flat has sold for £137,137 in Easter Road. I know for a fact that there was a Closing Date for this property. Now, the asking price was offers over £120,000 and the Home Report value was £125,000. As you can see the sale price was considerably over the home report value. In fact it was £12,137 over the home report value which equates to about 9.7% over the value.
Remember, the mortgage will be 95% of the value of £125,000. So, if you were a first time buyer buying this flat you would need savings for your deposit of £18,387.
Although the writer of the ESPC article indicates that the amount a first time buyer needs to save is exaggerated, as you will see from the above example that is not the case. As in the example, a relatively modest property with a value of £125,000 has sold for more than £12,000 over its value with the result that the first time buyer would need to have savings of over £18,000.
Concern 3: Is it wise to get a mortgage with only a 5% deposit?
Now the article doesn’t really address that question but instead comments that first time buyers might be able to get assistance under the LIFT Scheme. I am not going to go into depth about what the LIFT Scheme is in this article but in brief, it is assistance to first time buyers from the Scottish government.
I hate to pour cold water over this suggestion but the LIFT Scheme is difficult to get approval for, lasts a limited time once you are approved, and since the maximum you can offer for a property using the LIFT Scheme is the Home Report value, then unfortunately in Edinburgh at the moment, as I have said already, your chances of offering successfully on a property at its Home Report value are practically zero.
Is it all doom and gloom?
No. Far from it! Every week we help first time buyers to offer successfully for properties. But it is not easy.
There are (and has been throughout 2017) an unusually low number of properties coming onto the market for sale and that, combined with the increase in numbers of first time buyers, has seen property prices increase city-wide.
But if you contact us, then we can give you assistance and guidance which has been proven to lead to success. What you might have to compromise on is the size and location of your first home.