Hello everyone. My name is Mo and welcome to the Barclays podcast, dedicated to supporting those people who are looking to buy a home for the first time. Joining me today are my colleagues and experts, Lewis and Adnan, to help guide us through this journey.
Hi everyone. We're really hoping that using this you are able to navigate yourself through this amazing first step to owning your own home.
First thing to get you thinking today is to ask yourself at what point does the journey to buying a first home begin? That's a really, really great question. So, in every circumstance, buying a property requires having an initial deposit. How big this deposit is could vary depending on circumstance but is more commonly 10% of the entire value of the property. A great starting point would be setting yourself a savings goal to build this. In the UK, there are a range of different savings accounts that could be used to save for a deposit. Some are better than others.
Owning a home will ultimately change your life in a number of ways, with gaining a greater sense of financial security, starting a family, or feeling more responsible, consider the impact buying a home will have on your life. We appreciate that you might already have savings, or your family may have set savings aside for you. However, there is always more you can do to save. That's a great starting point.
So what savings accounts would you say would be useful to look at when saving for a new home? The Lifetime ISA, or LISA, is a suggestion. This is a tax-free way for first-time buyers to save up for a deposit to buy a property. This account must run for at least one year and you can add a maximum of £4,000 each year until you're 50 years old. Each year, the government will add a 25% bonus to your savings, which works out to be a maximum of £1,000. Please note though that Barclays, along with some other banks, do not offer this Lifetime ISA. That's an awesome idea from the government. That will go some way to support you in saving.
Any further advice you can give? Of course, budgeting is a great way to increase your savings faster. It's really important to consider how much money you can save just by cutting out the small stuff that really adds up. If you need any assistance with budgeting or financial planning, we have money mentors scattered around the country in our branches to help you with just that.
So, could you give us some example of budgeting? Eat at home, cut out restaurants and takeaways. Could you cut out non-essentials, such as takeaway coffees or that extra drink down the pub? Sell all your unwanted or non-essential stuff online. You'll be amazed how much you can raise. If you really want to build up your savings fast, then maybe sell your car, cut out holidays, or stop partying. It might sound harsh, but the tougher you are on yourself, the quicker you will save. A wise man once told me, if you don't sacrifice for what you want, what you want becomes the sacrifice. Going all-out means some people can save the 5% deposit needed to buy, using a Help-to-Buy equity loan, within 2 years. For a couple buying a £200,000 property, that means setting aside £400 a month between them. Another really important point.
Which of these options, or combination of approaches, might work best for you? Budgeting and making savings can be difficult. Take a moment to think about where you could cut back, what you are prepared to do to get on the property ladder. One of the things I wanted to go through are the various schemes that are in place. There are a few options to go through. Yes, each one can help people more or less depending on the circumstances, so it's important to reflect on the pros and cons of each before using them. Your mortgage broker or adviser can help you with this decision.
Here are the schemes. Help-to-buy scheme, also called the equity loan, not to be confused with the discontinued Help-to-buy ISA. You save up to a 5% deposit, the government then tops this up to a 25% deposit by loaning you 20% and then the other 75% is a traditional mortgage. This is only available though on new build properties and you don't have to pay any fees on the 20% you borrow from the government for the first 5 years.
In London, you can borrow up to 40% towards the deposit. For example, if you buy a £150,000 flat then a 5% deposit of £7,500 would need to be saved, to which the government then adds 20%, which is £30,000, leaving you with a mortgage of £112,500 - that's 75%. Scotland offers a similar shared equity scheme that loans buyer sums of up to 15% of the property's value, while the Welsh scheme is identical to the English one.
Another is the Shared Ownership scheme. A first-time buyer purchases a share in the property of between 25% and 75% and pays rent on the outstanding share, later buying an increasing share as and when they can afford to. Eligibility for this can be found on the government website.
Right-to-buy is next. If you live in a property, rented directly from a local authority, and have been there for at least 3 years, then you may be eligible to buy it at a discount. Find out if you're eligible online on the government's right-to-buy page.
Just a final note, although not a scheme, another way of potentially saving money is through looking to buy at auction. Auctions are popular with first-time buyers because sometimes it's possible to snap up a bargain, but it can be risky. You're buying with less knowledge about a property so you'll need to complete a lot more due diligence in preparation before bidding.
Adding to that, another way of buying a first place is with friends. These days, it's not unusual for groups of friends to buy together and there are mortgages available that can make this happen, but please take care to get legal advice from a solicitor who has experience of dealing with joint property ownership, and also speak to a mortgage provider before you enter into any agreement of this kind. Yes, definitely - make sure you seek out the correct advice.
I feel like that's given our listeners a lot to think about. Once again, one of these schemes may be more suitable to you than another, but that's all down to personal circumstances.
Quick-fire question: what would you guys say is cheaper - renting or owning a property? In the long-term, it can be cheaper to own than rent as mortgage payments may be lower than rental costs. Also, the money you pay into your mortgage will become what we would call 'equity', something you can use to pay a deposit on a new house, if you move. This equity could get bigger too as you pay more off of your mortgage but also if the value of your home goes up. It's worth bearing in mind that owning a home can also feel very different to renting.
Absolutely - it can give a greater sense of responsibility and can feel better than paying rent to someone else. There are, however, hidden costs that you should be aware of - for both buying a property and renting. When buying a property, you need to consider Stamp Duty, removals, insurance, ongoing maintenance and many more things, whereas with renting most maintenance is covered by the owner, except when repairs are due to tenant damage and costs will be covered by the rental deposit. Maintenance covered by the landlord can have a huge benefit.
Very good point - I just want to add to that, that on the Barclays website, you can get a rough idea of how much a mortgage will cost a month and how much you can borrow, using our calculators. They're free to use and you don't need to be a Barclays customer to use them.
So, theoretically, you listening to our podcast means that you want to buy your first home. What can I do, right this second, to help myself get a mortgage? There are a number of things you can do such as checking out your credit history is up-to-scratch. This means that you'll be more confident that a lender will offer you a mortgage, once you have a deposit and have made an offer on a property.
Just for our listeners' benefit, could you tell us what a credit history is? Sure - credit referencing agencies work with lenders to assess your credit history and determine your ability to pay back future credit.
How credit referencing works. Lenders assess every loan application, including mortgages, and part of the decision is how likely someone is to repay the loan and make payments on time - for example, how much of a risk they are. Many, including Barclays, use a scoring system and base it partly on information from credit referencing agencies, such as Experian. If you have borrowed money in the past, and paid off the loan on time, then your score is likely to be higher - that is, better - than someone who missed a payment or defaulted on a loan. Interestingly, if you have never borrowed any money, your score will also be relatively low as there is little information to analyse.
Good news for renters now, though. Several companies have started out recently that offer tenants the ability to use the regular rent payments to boost their credit score.
So, how do people improve their credit history? There are specialist credit-building payment cards. By ensuring you are on the electoral roll, reducing your debt levels and ensuring you pay your bills on time are vital. For more tips, head to the Money Advice Service, where you can find articles about improving your credit score. Some companies provide apps to help you review your credit score and suggest ways to improve it.
Amazing - some real insightful stuff here. Right, that's all we've got time for today. Lewis, Adnan and myself would like to say 'Thank you so much for listening'. Don't forget, Barclays is on hand to help you with your next steps. We do also offer free coaching appointments that allow you to work out your personalised budget and help you stay on track. Branch appointments and our website will also be available to help you choose your savings accounts, keep track of your progress and allow you to book yourselves onto our events.