First Time Buyers — 4 things to check before you sign
As a father of three, a topic within residential property that I am passionate about is the difficulty that most people face in getting on to the housing ladder. Those challenges are particularly acute for First-Time Buyers (FTBs) in London, where the cost of buying a property is now 10x the average salary.
At a time when home ownership is at its lowest level in thirty years, individuals and young people are the hardest hit in trying to get onto the ladder.
Today, 80% of FTBs in England are couples and the number of 25–29 year olds buying their own home has decreased from 55% in 1996 to 29% in 2015 (for 30–34 year olds it’s 68 to 45% respectively)! When contrasting this with a recent survey that found that of those renting, only 10% of respondents were doing so out of preference, it’s clear that many young people feel trapped.
The alternative to home ownership, the private rental sector, is one that most can’t wait to get away from. The experience and inadequacies are legend. Private renters often tell me stories of overcrowded properties, poorly completed and outstanding maintenance and high agency fees from ‘transactionalist’ letting agents.
The rise of ‘corporate landlords’ look to be an exception to this, with the concept of co-living now growing in London. It’s something I am keeping an eye on!
In theory, there should be no difference between renting and owning a property. Tenants should be empowered to live in a property that is well maintained, wind and water tight, dealing with a compliant landlord. However, this is not the experience of many Londoners and it is this inherent vulnerability that many can’t wait to escape from — whether it’s by moving to a property managed by a corporate landlord or trying to buy.
Unfortunately, the uncertainty in the market caused by Brexit has had a knock on impact for many FTBs. Consequent feelings of fear and anger are commonplace. Most buyers are in a chain, meaning that they are dependent on other transactions completing before they can secure their property.
And once the property is secured, many are hardly out of the woods. A staggering 54% of FTBs are left with no savings after completing their purchase. Another 19% have £5,000 or less.
Given the challenging environment, it’s clearly very important for FTBs to make the right decisions when purchasing their property. Here are four things to keep in mind during your search.
1. Check the vendor’s position!
Is the vendor part of a chain? Are they carrying out viewings of their own? Have they submitted any offers? If the vendor has already found a property to move into, they may have mentally “checked out,” making them a soft target, who is motivated to sell.
2. Leasehold vs. Freehold
Did you know that 95% of properties sold in London are leasehold?! If you are buying a leasehold, make sure you are fully aware of the hidden costs that come with it. What is the annual ground rent? How much is the annual service charge? How long is left on the lease? Does the vendor owe any money (that could be passed on to the buyer)? Last, confirm what permission you have to change things in your property. Often, building works require consent from the landlord.
3. Could you rent it out?
Be mindful that one day you might have to sell the property or rent it out. Enquire about potential rental performance and explore what opportunities there are to add value to the property. The property might serve your personal tastes and requirements now, but think about the long-term too.
4. Are you ready to move quickly?
Organise your mortgage, solicitor and surveyor so that you can move quickly. In this ever-changing political and economic environment, being able to complete a sale quickly will be an attractive quality to some vendors.
Owning your first home is something to look forward to, but it’s also a big commitment that most have to wait a long time for, especially in London. As I have said in previous blog posts, there are deals to be had out there if you as the buyer are well briefed and are ready to be decisive.
Think about speaking to a buying agent. They could save you time and money — and even make it an enjoyable process! Preparing well now could save you a lot of time and money later.
This blog post was first published on LinkedIn in September 2016. It reflects the views of the author and not necessarily those of Warnerheath Ltd.