Personal Financial Planning: Challenges of Buying a Home in England

This report delves into the difficulties young people encounter when purchasing their first home in England, emphasizing the need for sound financial planning. It identifies key challenges such as lack of experience, high prices, and limited savings. The report explores various government schemes designed to assist first-time buyers, including the Help to Buy ISA and shared ownership programs, and evaluates the current state of the property market. It analyzes market trends, regional price variations, and the impact of Brexit. The report includes a case study of Paula and Simon, illustrating how they can utilize savings and government assistance to secure a mortgage. The conclusion stresses the importance of financial planning and understanding available resources to navigate the complexities of the housing market. The report provides detailed references to support its findings.

Personal Financial Planning

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Key challenges for young people seeking to buy their first home in England...........................1
Main features of schemes available to help people save to buy a house in................................2
England......................................................................................................................................2
Evaluation of the state of the property market............................................................................3
Case of Paula and Simon.............................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
APPENDIX......................................................................................................................................7
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INTRODUCTION
Home is considered as a basic need of every person, but in recent time the way prices are
growing it is difficult for a laymen to buy a house in current market. Sound financial planning is
needed to buy an affordable home because housing sector has seen sharp rise in demand of low
budget flats and villas. Sound personal financial planning can provide great assistance in
purchasing a residence at good location with all the facilities (Willis, 2011). An individual need
to determine his/her current financial situation and than develop goals which can be reached in
appropriate time. This report will include key challenges that young people face at the time of
purchasing a house. Some schemes and solution for buying a property will also become part of
this file.
TASK
Key challenges for young people seeking to buy their first home in England.
Experience always assist a person at the time of making any important decision. Young
generation do have proper knowledge about various things that are signifiant at the time of
purchasing a house. They do not have necessary information about housing market which reduce
their confidence when they visit a fact or apartment. They are not aware of building material
which is used in construction, this create a big confusion at the time of decision making because
every builder or convince them that their quality is best that is available in marketplace (Finke
and Huston, 2014). Price is another concern, some young buyers can afford a home but when
they enter in industry they analyse that same product can be obtained at low rate and this trouble
happens for multiple times. Another issue that arises in-front of new generation customers is that
they do not have proper contact with agents or building companies which create a trust issue
between buyers and sellers.
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In young age, people do not have much savings which means that their financial position
is also not very sound (Grable, 2011). Most of the apartments that they like and need is out of
their range because they do not have necessary money to buy a property. When young people
want to purchase a home they want to search more and more options, this create confusion in
their mind because the price they want to pay for a home do not matches with the facility they
want. Down payment is another issue because spending huge amount in one go is difficult for
young generation. Their employment history also create hurdles in when they apply for loan, a
person who do not have good working history can not borrow money from bank (Van Rooij,
Lusardi and Alessie, 2012).
Main features of schemes available to help people save to buy a house in
England.
Their are various schemes in England to provide assistance to the people who want to
purchase a house, some are for first time buyers, other are for everyone. One of the popular
scheme of government is ''Help to buy ISA'', if someone is saving to buy a home than
government will top up their saving by 25 percent or up to 3000 pounds. If a person is
purchasing home with any other person than he/she can also get a ''Help to Buy ISA''. The money
given by government does not need to be repaid. But there are some rules which has to be
followed like purchase price should be up to 250000 pound (in London 450000 GBP). It should
be the only house an individual own. Another scheme is buying home through ''shared
ownership''. One can acquire a home from housing society in shred ownership. A person need to
buy share in his/her property, stake should be between 25 percent to 75 percent. An important
thing to notice is that owner need to pay rent on remaining share (Keown, 2013). Their are some
eligibilities which has to be followed in order to get advantages of this scheme, benefit seeker
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should be first time buyer, he/she had a home in that state or town but can not afford new one in
current market. Individual must be an existing shred owner. More shares can be bought after
sometime, they can cost more or may be less as it depend on prices exist in that area.
Their are some other schemes which are also very popular like ''Equity Loan Scheme''. It
is available for both first time buyer as well as existing homeowner. A person can borrow 20% of
the purchase price which will be interest free for initial five years but individual need to deposit
at least 5% of the amount in order to avail this benefit. This plan is available on new built house
and in London 40% of buying price can be borrowed (Alhenawi, 2013). Availability of this
scheme is up to 2021.
Evaluation of the state of the property market
Companies were expecting that after Brexit market of property will go down but in a
recent research it was found that prices has gone up by 0.6pc. It happens because of enhancement
in demand, and slow supply of finished homes. Average price is still rising with a high pace, last
year £194,000 was average price but this year it has gone up by £24,000 which is surprising
because no one was expecting it. Changes is value of properties in different regions is very
uneven. Prices in east and south east are more than average prices that exist in UK, but value in
areas like south west, north west and north east are below average. Worth of houses are
fluctuating on monthly basis as because building companies are in a confusing situation as they
do not know the exact need of market (Robb, 2011). Some region are underperforming and some
are delivering surprising results. According to some reports, prices in posh area of London will
go down by 9% and in other parts it will decrease by around 5%.
Availability of property is another big issue in housing sector, some regions are getting
overcrowded but some are still vacant. Finding a home in London is still difficult specially on
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Luxury locations. Properties which high price are available in prime location and their price is
also going down constantly. Companies are making affordable flats and apartments because of
which availability of houses are growing with a high pace. Prices in Wales and Scotland are
below the average rate so more option of home is accessible in these regions (Lusardi and
Mitchell, 2011).
Their are some locations like west midland and east midland where the price of property is
constant and supply of apartments is high. Market in this area is growing with gradually and it is
very stable.
Case of Paula and Simon.
Paula and Simon want to buy a property but they do not have appropriate amount to
purchase it. They have saving of £20,000 and their joint income is £60000, in order to acquire
home they have to take loan from bank plus they will also get some assistance from government
(Bucher-Koenen and Lusardi, 2011). They should purchase an apartment in developing location
of London which will cost them around £200000. They have to use their savings of £20000 plus
they will get some amount from government, which is not needed to be returned back. They will
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get £3000 from authorities so ultimately they have to take a loan of amount £177000 from bank.
4 years would be appropriate time to return this amount because their joint income is £60000.
This ''Help to buy ISA'' scheme will reduce their burden by significant number so they can
choose a property which can fulfil most of their needs. Per annum they have to pay an instalment
of £45000 including interest, the extra amount they have to pay on borrowings will be around
£750 per annum (Agarwal and et. al., 2015). They will have decent sum of salary after deduction
of instalment. Their monthly burden will be £3750 which they can easily afford.
CONCLUSION
From the above report it can be concluded that it is difficult for young generation to buy a
home in recent time because prices are still high, which were suppose to go down after Brexit
and global slowdown in market. Recent trends shows that value of property in various location of
London is increasing and market has surprising growth which was against the exception of
industry. In some areas, prices are increasing but there are many regions where value of property
is going down. Their are various schemes which assist in purchasing homes, government also
made various plans which provide great assistance at the time acquiring an apartment. Changes
in price is happening on a continuous basis, availability of property in some location are high but
their are some prime areas where space of houses is very less, like in prime destinations of
London. Proper personal financial planning is necessary in order to get mortgage for a flat, their
are various borrowing option and a person has to chose according to their needs and savings.
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REFERENCES
Books and Journals
Agarwal, S. and et. al., 2015. Financial literacy and financial planning: Evidence from
India. Journal of Housing Economics, 27. pp.4-21.
Alhenawi, Y., 2013. Financial literacy of US households: Knowledge vs. long-term financial
planning.
Bucher-Koenen, T. and Lusardi, A., 2011. Financial literacy and retirement planning in
Germany. Journal of Pension Economics & Finance, 10(4). pp.565-584.
Finke, M.S. and Huston, S.J., 2014. Financial literacy and education. Investor behavior: The
psychology of financial planning and investing. pp.63-82.
Grable, J.E., 2011. Innovation in doctoral degrees designed for adult learners: A hybrid model in
personal financial planning. New Directions for Adult and Continuing
Education, 2011(129). pp.43-51.
Keown, A.J., 2013. Personal finance. Pearson.
Lusardi, A. and Mitchell, O.S., 2011. Financial literacy and retirement planning in the United
States. Journal of Pension Economics & Finance, 10(4). pp.509-525.
Robb, C.A., 2011. Financial knowledge and credit card behavior of college students. Journal of
family and economic issues, 32(4). pp.690-698.
Van Rooij, M.C., Lusardi, A. and Alessie, R.J., 2012. Financial literacy, retirement planning and
household wealth. The Economic Journal, 122(560). pp.449-478.
Willis, L.E., 2011. The financial education fallacy. The American Economic Review, 101(3).
pp.429-434.
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APPENDIX
http://www.halifax.co.uk/house-price-index/
https://www.cml.org.uk/industry-data/
https://www.helptobuy.gov.uk/
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/
Lifetime_ISA_explained.pdf
https://www.moneyadviceservice.org.uk/en/articles/mortgage-related-fees-and-costs-at-a-glance
http://www.nationwide.co.uk/products/mortgages/our-mortgages/mortgage-calculators
http://www.moneysavingexpert.com/mortgages/
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