Generation Z is just entering the workplace – the group of teenagers born since just before the start of the millennium. They are too young to remember 9/11 but have grown up in a world filled with political and financial turmoil. They are keen to look after their money and make the world a better place. Along with Generation Y born between 1980 and 2000 they have been stamped with labels that define them. But these young people have an entrepreneurial spirit like no other generation before them and many of them are either shunning university to set up their own businesses or are going freelance when they graduate.
Generation Y and Generation Z are joining the millennials in the freelance and contracting world and the 2 million freelancers working in the UK and we have seen a 26 per cent increase in the number of professionals aged 16-29 registering as self-employed over the last eight years. But these young people might think that they can never get on the property ladder and are destined to be forever known as ‘Generation Rent’.
Luke Somerset is business development director for Contractor Mortgages Made Easy, which specialises in offering independent mortgage advice to freelancers and contractors, and here he shares his tips on how young entrepreneurs can put a roof over their heads that will eventually belong to them.
Save a deposit or call on Bank of Mum and Dad
Let’s face it, saving a deposit is the single biggest hurdle between you and owning your own home. It’s not easy to save a substantial deposit when you’re establishing yourself, but thankfully help is at hand in the form of specialist savings accounts such as the Help to Buy ISA which will assist you in saving the 5 per cent deposit you need to purchase your first home.
And things have got better for the Bank of Mum and Dad too! Traditionally if your parents wanted to help you to get onto the property ladder, they would have had to write you a cheque and accept that they’d probably never see that money again. But today there are a range of innovative products which allow your parents to lend you the money you need to buy your first home while ensuring that they’ll see their hard earned savings back from the bank after a pre agreed period of time.
Not all debt is equal
It’s tempting to focus on paying your student loan off as quickly as possible, after all it is a scary sum of money to owe. However, if you are planning on buying a home, it may be best to focus your efforts on clearing your credit cards first – even if you’re currently on a 0 per cent deal.
Lenders will want to ascertain your monthly disposable income after servicing your credit commitments. They’ll assume that you’ll be making payments to reduce the balance of your credit card debt on top of paying a default rate of interest – this typically results in a lender calculating your monthly credit card payment at 3 per cent to 5 per cent of the balance outstanding and for that reason, a £1,000 credit card balance could have a greater impact on your borrowing capacity than a £25,000 student loan debt.
Credit score is important, but not essential
Credit scoring is a way for lenders to assess borrower’s willingness to repay their mortgage. A computer algorithm looks at your current and past track record of servicing credit commitments using credit reference agency data and scores you accordingly between 0-999. The higher your score the better your chance of securing a mortgage.
Having a lack of credit, or no credit at all, will result in you having a poor credit score, but don’t despair, some lenders take a more traditional approach and will look at far more than just your credit report when assessing your ability and willingness to repay the loan, so a poor credit score does not mean you will not be able to secure a mortgage. You should get to know your credit report as this is used by lenders and employers, so it is good to know what creditors are saying about you. To find out more about your credit report, click here.
Do your homework, or get a professional to do it for you
There are literally thousands of mortgage products available from hundreds of lenders with a range of features and varying levels of client service. Picking the right mortgage for you is far more than simply selecting an interest rate, so figure out what features are important to you and ensure that your mortgage reflects this – after all, you will typically be locked in to this mortgage deal for 2-5 years.
Service is often overlooked by borrowers when arranging a mortgage themselves through a lender directly. Latest data from UK Homebuyer, Quick Move Now, suggests that 34 per cent of housing transactions fall through, so ensuring that you have a lender who can turn your application around quick enough to maintain the chain and ensure that your house purchase proceeds without a hitch is essential. It is also important to understand the lenders criteria, because being declined for a mortgage can have a big impact on your credit score and therefore, your ability to obtain a mortgage with some lenders.
5. Build a career for you, not the bank.
Far too often we hear of clients taking job positions just to appease a lenders policy. But there is no need and your career choice should not be affected by your desire to own a home.
Speak to a specialist broker who can support even the most complex income situation. By following your dream and enjoying the benefits of being self-employed does not mean you cannot also own your dream home.
Further reading on mortgages
