Do you know the benefits of being a first-time home buyer

2023 is a surprisingly good year for first-time buyers

Higher interest rates have led to a decline in property prices in Finland, which has somewhat unexpectedly opened up attractive opportunities for first-time home buyers, says Jussi Pajala, CEO of Nordea Mortgage Bank Plc.

“With the housing market slowing and supply increasing, first-time home buyers can now take their time to see what the market has to offer – and some may even be looking at larger homes than they originally planned. In this sense, finding a dream home has become easier. But of course the best homes always sell the fastest,” Pajala comments.  

A typical first home is a spacious studio or one bedroom flat measuring about 45 square metres. These types of homes have recently been built in abundance in fast-growing cities. 

Before the interest rates began to rise, a lot of small homes ended up in the hands of property investors who rented them out. But according to Pajala, the increase in rates as well as in costs in general has fuelled uncertainty around property investment, making many of these flats available to first-time home buyers.  

“If you’re a first-time buyer, I would say that now is a good time to find your dream home for a lower price since the home prices have dropped. I don’t expect any major changes in the housing market in the short term,” Pajala points out. 

When should I contact my bank if I’m planning to buy my first home? 

People who are thinking about buying a first home are often wondering if it’s possible to meet with their bank to discuss a loan and if they will be accepted for a loan altogether.  Jussi Pajala points out that age is by no means a barrier to getting a loan.  

“Young people can get into the loan negotiation process and be accepted for a loan once their bank has assessed their ability to repay the loan.  

The loan negotiation deals with different aspects of borrowing, including the interest rate, collateral, repayment methods and how to protect your loan from higher rates.   

Many people think that they should only contact their bank once they have found the perfect home.  

This is a common misconception, says Nordea’s Teemu Hiltunen who advises home buyers.  

“You should get in touch with your bank as soon as you start thinking about buying a home. We will walk you through your options and help you map out your dream home,” Hiltunen explains.   

One good reason to contact your bank early is that your bank will be able to advise you on whether the ASP scheme or some other way to save for a home is the best option for you.

Get on the property ladder with the help of a state guarantee and the ASP scheme  

ASP is a government-subsidised scheme based on Finnish law, the original purpose of which was to support young people’s first home purchases in Finland. Today, first-time home buyers up to the age of 44 get to enjoy the advantages of the ASP scheme.  

“Not every young person has heard of the ASP scheme or they find out about it too late since you need to save money into your ASP account for eight consecutive calendar quarters to be eligible for an ASP loan. Many of them could have saved a lot of money over the years and qualified for the benefits if they had known about it,” Hiltunen says.  

Even if you’re not going to buy a home right away, it’s important to start saving for it as early as possible. Even small amounts add up to a good nest egg in the long run. This also gives you an idea of what it’s like to put aside money regularly and to repay your loan in the future.  

“Most young people get the idea of buying a home from their parents who think it’s important to have your own home. And often the habit of saving also starts at home,” Hiltunen says.  

According to Hiltunen, it’s also possible to buy a more expensive home than the ASP scheme would normally allow.  

“If the price of the home exceeds the terms and conditions of an ASP loan, we can negotiate with the home buyer about an additional loan and the collateral required.”

Interest benefits and interest subsidy to first-time home buyers

Although home prices have fallen, first-time buyers might be apprehensive about the fact that interest rates on home loans are currently much higher than usual.  

When you’re trying to decide if it’s the right time to buy or not, you may be interested to know that the ASP loans offer lower interest rates than regular home loans. Moreover, if the interest rate on an ASP loan exceeds 3.8%, the state will pay part of the interest for the first ten years through the interest subsidy scheme.   

Previously, a large number of home owners were also able to deduct all or some of the interest they had paid on their home loans in taxation but this will no longer be allowed in the future.  

Hiltunen points out that ASP accounts offer a better interest rate on your savings than current accounts, which could help you save up for a home quicker.  

“The ASP scheme rewards motivated savers with interest benefits. In addition to the 1% deposit interest, you also earn 4% additional interest once you have taken out an ASP loan. Both the deposit interest and the additional interest are exempt from tax.”

First-time home buyers need less savings 

One of the biggest advantages for first-time home buyers is that you’re required to have significantly less savings when applying for a home loan compared to people who have already bought their first home.  

As a first-time buyer, you need to have 5% of the price of the home in savings, while people who have previously owned a property are required to have 15%.  

In other words, if you have owned a property before, the maximum home loan amount you can take out is 85% of the fair value of the collateral provided for the loan. For first-time home buyers, on the other hand, this loan cap is 95% at maximum if you have a regular home loan and 90% if you have an ASP loan.   

You can apply for an ASP loan when you have saved at least 10% of the home’s purchase price, which is more than you need for a regular loan. At the same time, you will benefit from a free state guarantee that you can get on up to 90% of your loan amount and you don’t need any other collateral.  

“First-time home buyers therefore only need to have saved 10% of the loan amount and they also get a state guarantee. This is one of the advantages of the ASP scheme that many young people might not know about,” Teemu Hiltunen remarks.  

Without the ASP scheme, you can only use a maximum of 75% of the purchase price as collateral. To secure the rest of your loan, you will need to provide other real collateral, such as more savings, or buy an additional guarantee from your bank.   

First-time home buyers are exempt from transfer tax  

As a first-time home buyer, you don’t have to pay transfer tax, which is 2–4% of the home’s price. This tax exemption applies to all first-time home buyers. 

“Most young people seem to know about this advantage, which results in significant savings. For example, if you buy an apartment worth 100,000 euros you will save 2,000 euros. Although first-time buyers are exempt from transfer tax, you still need to remember to file a transfer tax return,” Hiltunen notes. 

When does the exemption apply to me?

Your very first apartment or house will be exempt from transfer tax if you meet these conditions:

• You own at least 50% of the home.
• You are aged between 18 and 39 years when you sign the contract.  
  
• You buy the property to use it as your permanent home and you move in within 6 months from the date when you signed the contract. 
  
• You haven’t previously owned 50% or more of an apartment or a house.