If you’re looking forward to graduating this year, you’ll probably beginning to consider where you will be living once you’ve left uni.
Many graduates will be resigned to renting for the foreseeable future, but some – especially those looking to live in more affordable parts of the country – will be considering how they might be able to get on the property ladder once they’ve started their career. If that’s you, read on for more on how you might be able to buy your first home after graduating…
Choosing a location
For some, this decision is easy, while for others, it can be made for them. Some students will return to their hometowns, with others choosing to explore pastures new. Many students choose to remain in the place they studied in, with recent research finding that over a third of students stay in their university city. Those who manage to secure a place on a graduate training scheme will likely end up moving to a big city hub like London or Manchester.
One major consideration for anyone looking to buy their own place post-graduation will be the average price of a property in relation to their likely earnings were they to live and work there. The house-price-to-income ratio, which is calculated by dividing property prices by annual earnings, is an indicator of affordability in an area. For example if the average property price was £200,000 and the average salary £30,000 the property price to earnings ratio would be 8. Recent data from the Land Registry and ONS showed that the North East offers the most affordable accommodation, with prices a little over six times the median salary, while house prices in London are over 15 times the median salary in the region.
Some lucky students may have a savings pot or preferably lending rates from the Bank of Mum & Dad behind them, which could help them to raise the deposit needed to get a first-time buyer’s mortgage. If you’re in this fortunate position, lenders will look at two main things when deciding how much you can borrow. Firstly, they’ll look at your income, and then they’ll examine your credit commitments.
Typically, you may be able to borrow around 4.5 times your annual income, although people in some jobs (such as a fully qualified and practising charted accountant, actuary, barrister, commercial pilot, dentist, doctor or solicitor) may be able to borrow up to six times their annual salary. Then, for every credit commitment you have, the lender may reduce the amount you can borrow. Credit commitments include personal loans, student loans, car finance, and credit card balances. Most lenders also deduct extra for expenses like child care. You’ll likely find that different lenders will offer to lend different amounts depending on the exact nature of your credit commitments.
According to Manchester-based mortgage advisor Jamie Thompson of Jamie Thompson Mortgages, who specialises in providing first-time mortgages, most people arranging their first mortgage tend to choose a fixed rate as it makes budgeting easier. Fixed-rate mortgages have a tie-in period, during which there are penalties if you want to remortgage, or your options may be restricted if you want to move home. With this in mind, it’s important to consider how long you are willing to fix your first mortgage.
An initial period is the time that the mortgage is arranged on its introductory rate before it changes to the standard variable rate. Interest rates in the initial period, or fixed period, are often a lot lower than the standard variable rate of the rest of the mortgage. Although you may receive a ‘discount’ during the initial period, it usually comes at the cost of flexibility. For example, if you wish to move home during the fixed period you’ll be tied to your current lender, who may not offer you the best deal, or lend you enough to secure the new home. You may be able to get around this by paying a penalty, but this could be in the region of thousands of pounds.
You can usually pick between 2, 3, 5, and sometimes even 7, 10 and 15-year initial periods. The longer you fix for, the higher the interest rate usually is. Things to consider when choosing the length of an initial period include:
- how long you expect to live in the property
- your relationship status
- if you are planning to have children and are therefore looking for a property near a good school, which will probably mean you are committing to an area for longer
- your likely career and salary progression, and whether you may need to move to a new area to take up a promotion.
Whatever you decide, your mortgage should be arranged around you. If you choose to use a mortgage advisor, they should take the time to learn about your situation and recommend a mortgage that best suits your needs.
Planning your moving-in date
It’s no surprise that buying a property is not a quick process. Surveyors estimate that it can take, on average, six months from a property being listed to the sale completion. To give yourself a fighting chance of having a property lined up for when you are looking to move in, it certainly pays to start researching the property market sooner rather than later. Good luck with your search!