The first-time buyer blunders that still haunt me to this day
30 years ago Sally bought her first home. Now she’s desperate to help her daughter avoid...
IT’S been three decades since I was a first-time buyer so when my eldest daughter announced recently that she was hoping to buy a place with her boyfriend it took me back in time to events that I’d much rather forget. But I hope my experience will provide a handy crib sheet for her in avoiding the classic first-time buyer traps.
Lesson one, never choose a property in a hurry; two, check out the freehold owners; and three, always organise a survey – a triple whammy of mistakes I made back in 1988.
In April that year the then Chancellor of the Exchequer Nigel Lawson had announced that he would remove a popular home buying perk called double Miras (mortgage interest relief at source) in August the same year.
The benefit gave income tax relief on mortgage repayments to people buying homes together. Giving such short notice of this major change proved a fatal error as it sparked a rush in transactions and a boom in house prices – just as I was preparing to make my first foray into ownership.
With the benefit of 20:20 hindsight I should have simply halted my plans. But I pressed ahead, panicked like many others that prices would leap out of reach. I rushed my £40,000 purchase of a one-bedroom flat on the South Coast.
At the top of the music charts at the time was The Only Way Is Up by Yazz and the Plastic Population. Oh how ironic (To rub salt into my wounds Zoopla tells me that today it would be worth £400,000). I sold the flat a year later at a 25 per cent loss.
My problems began when I failed to organise an adequate property survey. On moving in I discovered the flat was riddled with damp and had poorly installed plumbing. I had to pour more cash in, making repairs. I also faced high service charges from the freeholder with little to show for them.
I fell deeply out of love with the property and soon put it back on the market. By that time property prices were in freefall. It took a year, but I did sell – to a delighted plumber who had got a bargain.
Fast forward to 2019, and I have been bombarding my 26-year-old with advice.
The property buying landscape has changed – but many pitfalls remain the same. While prices have rocketed to frightening heights (from an average of £42,000 in 1988 to £185,500 now), mortgage rates have gone the other way.
My daughter hopes to secure a rate of 1.3 per cent, fixed for two years. If she manages to pull this off, it will lock her into a rock bottom mortgage rate.
Oh, how I would have loved to enjoy such a low rate – and the financial comfort blanket of a fixed rate mortgage 31 years ago. Back
Sally Hamilton
in 1988, fixed rate loans had not even been dreamt of. The result is that I was steamrollered into a variable rate deal starting at an interest rate of 11.5 per cent.
Today there are still Government incentives to cajole firsttimers on to the ladder – they just look different. They include a help to buy equity loan providing an interest free deposit for five years and stamp duty perks where there is no tax charge on property purchases up to £300,000.
To ram home the need to be on top of the process, I brought my daughter along to an event designed to demystify first-time buying. The sessions are currently being held in branches of Santander Bank across the country (1,400 are planned).
Mortgage adviser Froza Khan led our event at the Piccadilly, London branch – with manager Thomas Graney acting out the role of a first-time buyer. The pair covered everything from getting your finances in order to understanding the jargon. It’s a pity my bank didn’t offer such sessions back in 1988.
ORGANISE FINANCES BEFORE YOU BUY
MY eldest, who has been saving for several years for her deposit, has had an offer accepted on a flat. She found her mortgage via a broker – a route not on offer when I was buying in 1988.
This gave her access to all the loans on the market. I went direct to my bank which scrutinised my spending and salary slips before lending me about £30,000.
Tight er lending regulations mean my daughter has had to jump through extra hoops. In 1988, my mum helped towards my deposit – with no questions asked by the lender.
But today a contribution made by the Bank of Mum and Dad has been closely checked, first by the lender to ensure we won’t be demanding it back (we provided a letter confirming it as a gift) and by lawyers wanting to know where the cash came from ( including asking a solicitor to verify passport ID and proving the source of the cash).
CONSIDER THE TYPE OF LOAN THAT YOU WANT
LIKE many of my contemporaries in 1988, I was sold an endowment mortgage. This is where you paid just the loan interest to the lender but took out an investment-linked life insurance plan alongside it that was designed to cover the original loan at the end of the term (25 years in my case).
The alternative was (and still is) a repayment loan, where you pay the interest and a little bit of the capital off each month so there is nothing left at the end of the term.
Graham Sellar, mortgage expert at Santander Bank, says endowments were popular in the 1980s because of the Miras perk. He says: ‘ It meant you could claim the maximum tax relief on loan repayments.’
I lapsed my policy when I sold the flat. In the 1990s, it was found that many of these plans were mis-sold and would not grow enough in value to pay off mortgage capital. They no longer exist.
FIND A HOME – AND DO THE RIGHT CHECKS
WHILE I relied on visiting high street estate agents for my search, my daughter did the groundwork via the Rightmove website. But what hasn’t changed is the need to double check the quality of the property.
Sellers are not obliged to tell you about structural problems – so buyers should always organise a survey. Do not simply rely on the basic valuation report carried out by your lender ( as I regretfully did in 1988).
You can only have full surveys on houses but flat buyers (as my eldest has done) can opt for a middleground homebuyers report (costing up to £2,000). This should unmask any serious problems – such as damp or subsidence.
LEASEHOLD OR SHARE OF THE FREEHOLD
THE flat my daughter hopes to buy is owned via a so-called ‘share of freehold’ arrangement (not available in 1988).
This means all the flat owners in her building own the property equally and must agree the cost of any common repairs on the building between them.
More common are leasehold flats ( my first property) which are owned by a separate freeholder to which leaseholders must pay ground rent and service charges. Lease lengths also run down – making a property difficult to sell if too short.
For this reason Santander, for one, will not lend on a property with a l ease with l ess t han 50 years left to run on an interestonly deal ( 30 years for a repayment mortgage).
ONE THING THAT HASN’T CHANGED... CONVEYANCING
ONE relic from the 1980s that remains is the drawn- out legal aspect of completing a property purchase (conveyancing).
Twelve weeks was the usual period from offer until completion back then.
My daughter is already ten weeks in – and counting.