What you need to know as a first-time buyer

Uncertainty surrounding the UK property and mortgage market has spread among first-time buyers.

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Mortgage products have been withdrawn, payments are doubling and lenders are withdrawing from agreed deals; Concern and uncertainty among Britons trying to buy a home soared last month after Finance Minister Kwasi Kwarteng announced his “mini-budget”.

His controversial plan includes tax cuts and more relaxed rules and regulations for businesses. As the UK’s cost of living crisis continues, Kwarteng argues his budget will boost growth. Critics say it will mostly help the rich and make the UK more unequal.

The mini-Budget had one positive for those trying to buy a home: stamp duty, a tax that many buyers have to pay when buying a property, was reduced.

Stamp duty cuts

Only people whose property is worth more than a certain threshold pay stamp duty, and for first-time buyers it was already set at a level higher than the average UK property price. before the mini-budget came into effect. Therefore, the changes do not affect many first-time buyers.

While the cuts will benefit some shoppers, the gains could be wiped out by other rising costs, says Paresh Raja, managing director of financial services firm Market Financial Solutions.

“The cuts in stamp duty […] it will definitely help. Unfortunately, a number of other factors are simultaneously making their lives more difficult: namely inflation, interest rates and mortgage market disruption,” he told CNBC Make It.

Francis Gill, a financial advisor at the London firm Humboldt Financial, has a similar opinion.

“For people who were very close to being able to afford a purchase but were still saving for stamp duty costs, this is a win and they should be able to bring their purchase date forward. However, what they have saved to SDLT [stamp duty] it’s probably going to be eaten up by the higher mortgage rates pretty quickly,” he said.

So what about mortgage rates?

The housing and mortgage sector has been particularly hard hit, with lenders pulling hundreds of mortgage deals or pricing them much higher after sovereign bond yields and the Bank’s rate expectations of England increased. This raised costs for borrowers, as the BOE’s base rate helps set the price of all types of loans and mortgages in Britain.

According to data from Moneyfacts, the average rate on a 2-year fixed mortgage topped 6% this week, up 2.25% from just a year ago. This could rise further, believes Nicholas Mendes, a mortgage technical manager at mortgage broker and adviser John Charcol.

“With rising lender costs, the volatile economic outlook and factoring in service levels and future rate increases, we could be looking at an average rate of 7% in the new year,” he said.

Many borrowers and future borrowers are already worried that they will not be able to pay the mortgage payments, which are established more than twice in thousands of cases. So research and expert advice is key for anyone looking for a mortgage deal at this time, Gill explains.

“Make sure your credit score is accurately reflected, make sure they speak to an independent broker, consider fixing for a period {…]and consider any early repayment charges,” he suggests.

“Talking to someone who can expertly analyze your situation is key. Really, really think if rates are that high in 2/3 years, (however long they’re considering fixing) if the mortgage is affordable,” he adds.

The market is pointing to a difficult 12 months

Nicholas Mendes

Technical Mortgage Manager at John Charcol

What about the housing market?

Markets are expecting a “difficult 12 months,” Mendes explains. Lenders could raise rates further and the prime mortgage rate could rise, while a recession and cost-of-living crisis are likely to put pressure on homeowners, he says.

But it may not all be doom and gloom as the next year unfolds.

“Property prices are expected to decline in 2023, just as we expect rates to decline slightly from their highs today,” Mendes explains.

Raja believes the markets could stabilize, or at least be less of a rollercoaster compared to the past two weeks. “The loan market will calm down after this particular turbulent period. We will no longer see such fluctuations in rates or products being scaled back,” he said.

This would at least alleviate some of the uncertainty that owners currently face.

For people trying to get on the property ladder, the chaos could even have some long-term upside as others are forced out of the property market, Gill notes.

“There might be an opportunity if a lot of buy2let owners leave the market, so there’s an influx of properties for sale and prices come down, maybe now they can get on the ladder,” he believes.

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