First time buyer? Take your time and do your sums.

A fascinating report just released by the home equity company SHIP suggests that in the UK the average house deposit for 1^st time buyers is now 50% higher than the average cost of a first time buyer’s house in 1983. At the beginning of the eighties a first time buyer could expect to pay £20,810 for the average house. That figure is now £136,842 – an increase of 558%, and a first time buyer today would need, on average, a deposit of £31,474 to secure a loan to buy it.

To be fair it might be possible to find a 90% loan these days but you might end up paying an interest rate of close to 7% rather than the 3% or 4% that you would be offered if you had a bigger deposit.

On top of these pretty horrific numbers the report goes on to suggest that the average age of first time buyers is now 37 if they are buying independently and 29 if getting help from parents or other family members.

So it looks as though there are plenty of hurdles to jump through when trying to get your foot on the first rung of the ladder, if that’s not too much of a mixed metaphor.

So if you are looking to buy your first house what can you do to make the process easier?

Moneysucks offers you some tips:

 Make sure you do your sums before starting to look at properties.

Calculate all of the costs involved in the purchase remembering to add in Mortgage Arrangement Fees and legal costs as well as the deposit. And remember that it might seem like a good idea to add any fees to the loan to save you money up front but if you do that you’ll end up paying interest on it for a couple of decades!

And when you’re doing your sums make sure you take into account increased costs when you own rather than rent. Your monthly expenses will increase and it’s easy to get lulled into a false sense of security if you think only of the cost of the loan.

Check out your credit rating

Although most lenders will base the money they lend you on your income, more and more are also taking account of any other loans or debts that are outstanding so clear as many as you can before looking for a mortgage. Also your credit history is important so make sure that you are up to date on all of your other commitments.

Share the cost?

More first time buyers are buying jointly – either getting into bed (metaphorically at least) with a partner, family member or friend to help spread the cost. Even the Government might help with some of the ‘shared equity’ schemes that are now available. If you do go down this route make sure you take some robust legal advice before you put pen to paper. There’s no point saving a couple of quid now only to end up losing it all in a lenghtly and frustrating legal battle if it all goes wrong and you fall out a few years down the line.

Take Advice

It’s a jungle out there are there are hundreds and hundreds of different mortgage options to choose from. It’s a good idea to do a bit of research for yourself online but there are lots of good quality independent mortgage brokers out there who will guide you through the process and make it as painless as possible. They will need to be paid so check whether their fees come from the mortgage company or from you.

It’s not about making money

The recent property boom has led many to believe that owning property is a licence to print money. It’s not. A house is a home and a place to live not an investment! Treat it as such. If you want to make money out of property buy another one and rent it out, but that is risky and you should take a long term view. If your only property is the one you live in treat it as a home rather than a money machine!

Equity Release

We’re seeing lots of comments from people in retirement that are struggling to make ends meet on a day to day basis but who seem to have a lot of ‘money’ tied up in their homes. “What can we do to get access to some of that cash today, to help us make ends meet now, rather than leave it all to our kids when we die?” is the question they are all asking, although maybe not quite as bluntly as that!

The answer might be to look at some sort of ‘equity release’ scheme where some of the value of your home can be paid to you now but the loan doesn’t need to be repaid until you die, or need to go into care at some point in the future.

The amount available to you will depend on your age – most schemes will not consider an advance unless you are over 60, although some may be willing to set something up for you at 55 – and the value of your property. The amount you can borrow will be a percentage of the value of your property and will vary from 20% through to 45% depending on your age – the older you are the more you will be able to borrow.

There are three different types of equity release scheme:

Home Reversion – With this arrangement you will sell all or part of your home to a company in return for a lump sum of money that is based on a valuation that will be lower than you would expect! In return you will get a guarantee that you will be able to remain in your home (effectively as a tenant) until you die. The house is normally then sold and the company you sold it to will get its share of the proceeds which will, of course, include any increase in value since the point of sale.

Roll-up loans – with this arrangement the lender will give you a lump sum (or perhaps a regular income) based on the percentages above and you will pay nothing back until your home is sold – either at death or if you have to move into care. Instead the interest on your loan is ‘rolled-up’ and added to the initial amount borrowed. This can have the effect of increasing your debt relatively quickly. If, for example, you borrow £30,000 at an interest rate of 5% then you will owe £1500 interest at the end of year one. Since you haven’t paid it this amount will be added to your £30,000 loan and so you will now owe £31,500, to which interest will be added at 5% and so on. At an interest rate of 7.5% – not much higher than you are likely to be charged for this type of arrangement at the moment – your debt would double in 10 years.

Interest-only loan – this arrangement is similar to a standard interest-only mortgage where you would take your £30,000 as above but would pay the £1500 annual interest out of income so that your debt would never increase above the initial amount borrowed.

The type of equity release scheme most suitable for you will be dependent on your individual circumstances and it is important to take advice from a properly qualified independent adviser before deciding how to proceed. You can find details of such advisers in your area at  www.unbiased.co.uk

Some questions that you may want to ask your adviser before deciding if these schemes are right for you include:

What interest rate will I pay?

What are your Fees?

Will my spouse be able to live in the house after my death?

By how much will my debt increase every year?

The beauty of these schemes is that they can give you immediate access to much needed cash right now. But that access will come at a price. Interest rates for these schemes are not low and at the moment – even when base rates are as low as they are – you can expect to pay around 6.5%.

You may also, of course, be eating into any inheritance that you would want to leave to your kids – and without really knowing at what rate since you don’t know when you borrow the money how long you are going to live. The flip side of this is that by creating a debt on your estate you may actually be reducing any potential Inheritance Tax liability that your kids will have to face on your death.

A double-edged sword indeed!