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Debt Advice For First Time Buyers
Everyone knows just how hard it is to get your foot on the property ladder today and many of the young professionals who do manage this receive financial help for their deposit from the Bank of Mum and Dad.
However, if you want to go it alone, or have recently taken the leap into mature adulthood and bought your first place, only to find that you’re struggling to make repayments, then you won’t be alone.
According to the Citizens Advice Bureau (CAB), who dealt with 1.4 million debt problems last year, 13 per cent of 21-24 year old homeowners had missed a mortgage payment in the last 12 months - showing that many new homeowners are getting into financial difficulties as soon as they enter the property market.
But if you’re careful about your finances you can own your own home with a little less hassle.
If you’ve already bought your home
If you’ve recently made your first bricks and mortar purchase but are already struggling to keep up with repayments, then you will need to reassess your finances and make a few lifestyle changes.
Budget
According to CreditAction, more than 80 per cent of Britons admit to regularly overspending (2007). But if you’ve recently bought your own place you don’t have the luxury to do this. Not keeping up with mortgage repayments could result in you losing your home. You need to write a budget - taking all incoming and outgoing monies into account - and then stick to it.
Cut down
Mortgage repayments have to be your priority now, so you might have to rethink the amount you spend on those luxuries that you’ve become used to in less responsible times. You need to be realistic with yourself about what you can and can’t afford. This doesn’t mean that you have to live on Tesco Value food, but by deciding how much you can spend on a night out, then only taking that much with you, you can make a noticeable difference to your monthly budget.
Move your mortgage
You might not be able to do this if you’ve only just signed your contract, but make a note in your diary of the date you’ll be able to switch as this is one of the biggest money savers of all. As little as a quarter point difference can take thousands of pounds off the life of your mortgage.
Switch your amenities
By switching your gas, electricity, home phone, broadband and digital TV you can save yourself hundreds of pounds as well as getting yourself onto a better value package. You can save up to £207 on gas and electricity (British Gas, 2007), £140 on your home phone (Metro, 2007) and up to £180 on broadband (Times, 2007). To Compare and Switch click here for Gas and Electricity, Home Phone, Broadband and Digital TV.
You can also save by switching your credit card, but you need to aim to pay it off. You need to have as little additional debt as possible so that you can focus on your mortgage repayments. If you already have a substantial credit card debt that will take you a long time to pay off, it might be better to go for a low, life-of-balance card instead of the more popular ones that offer an interest-free period. Click here to Compare Credit Cards. You might also want to consider a loan with a lower APR than your credit card - just don’t secure it against your home.
It’s not only fashionable to be eco-friendly, it saves you money too. Lagging your boiler, switching to a water meter and turning your thermostat down can save hundreds of pounds in wasted energy.
Ensuring that your home is energy efficient will also help if you want to sell-up at some point as you’ll need to complete a Home Information Pack and ensure that your property meets certain energy efficiency standards.
Avoid further debt
Many people pay off their credit cards only to feel that they’re back in control of their finances, open a new credit card and maybe a couple of store cards and find that they can’t meet the repayments again. Financial control is as much a state of mind as it is a financial issue. You need to train yourself to be disciplined - until then, stay away from spending on credit.
Falling behind?
If you’re struggling so much that you’re regularly missing mortgage repayments, then you need to talk to your mortgage provider. Be upfront and honest about your situation and they will advise you on the best course of action and may even be able to agree a new payment plan until you get back on your feet again.
The same goes for your other lenders; explain that you’re having financial difficulties and they may be willing to work out a more affordable repayment plan and possibly agree to freeze the interest.
Debt consolidation
This should be a very last resort as these types of loans are typically secured against your home which you could end up losing if you can’t keep up the repayments. And since many people who consolidate their debts end up taking out more debt on credit and store cards - putting them in an even worse situation - you need to be absolutely sure that you will be disciplined with your finances if you’re considering a debt consolidation loan.
They do work for some people though - providing them with one lower, easy payment that covers their debts and avoids ruining their credit rating.
Get professional advice
If you feel that you bought a property before you were ready and really can’t keep up the repayments, you should get professional advice. Contact the CAB, National Debtline or the Consumer Credit Counselling Service (see useful links), all of whom specialise in helping people with money problems.
I haven’t bought a house yet, but want to soon. What’s the best way to save up?
All of the tips above apply if you need to save up for a deposit and are generally good financial practice. There is a huge amount of pressure on young people today to get onto the property ladder, but statistics clearly show that many are rushing into this only to realise that they can’t afford it.
Owning your own home is a great asset but don’t sacrifice everything in order to get it. You should think about whether or not it would be better to wait a few more years - when interest rates will have hopefully fallen somewhat - and you’re in a position to better afford your first home.
