How to get on the property ladder

Buying a house is one of the most stressful things you can do and is a daunting prospect for any first time buyer

How to get on the property ladder
How to get on the property ladder

With high house prices and lenders looking for lower risk investments it is becoming increasingly difficult for people to get their feet on the first rung of the property ladder. But it is not impossible.

Here are some initial steps you can take to ensure your search for your dream home is successful.

  • The most important step is to work out what you can afford, take everything into account and look at what you may have to cut back in order to save a substantial deposit.
  • Do not overstretch your finances, look at all your outgoings in details as buying a house is a serious financial commitment.
  • If you have not got a deposit then open a savings account and save an agreed amount per month until you reach your target. You will need at least 10% if not more, in order to get a mortgage.
  • If you can save a bigger deposit, ideally 25%, then you will be rewarded with a mortgage at lower interest rates which will be much more affordable.
  • Remember there are other costs involved in buying a property, such as: mortgage fees, valuation fee, legal fees, stamp duty, surveys, removal costs, building insurance, furniture and extras. So you need to be able to cover these too.
  • Set a budget and stick to it. Only look for properties within your budget.
  • Investigate property price trends in your target areas to see if you can realistically afford to live there. If not, look at surrounding areas which may be more affordable.
  • Find the best mortgage for you. Lenders tend not to offer actual mortgages if you've no property in place, instead you can get a ‘mortgage in principle’ (MIP), which provisionally lets you know much you can borrow, subject to finding a suitable property within a specified time.
  • Be aware that every time you apply for a ‘mortgage in principle’ it involves a credit check and you do not want to many marks on your file as this can affect your overall credit rating.
  • Do not rent if you can buy as renting is expensive, whereas buying is a long-term investment.
  • Be active and register with different estate agents and sign up to property websites such as Zoopla and Rightmove.
  • Remember that choosing the right location is as equally important as choosing the right property, as you might not stay in your first home for long so think about it resale potential.
  • Consider buying a new home as sometimes it can be more affordable than an older one

Other ways to get on the property ladder

If you are struggling to save a deposit or just can’t afford a home in your dream area, then don’t despair as there are other ways of making your money go further.

Homeownership Schemes

HomeBuy

These are two types of HomeBuy schemes to help people buy newly built homes. They are equity loan’ - where you get a loan towards the home’s purchase price that has no fees for five years and ‘shared ownership’ - where you buy a share of your home and pay rent on the remaining share.

These schemes can be the first step to buying your first home, as you need to take out a mortgage to pay for your share of the home’s purchase price. Then when you can afford it, you can pay more money, for example through savings or your mortgage, to own your home outright.

The schemes are run by HomeBuy agents, who are housing associations that have been authorised to run schemes for people who have difficulty buying a home, and are open to households with an annual income of £60,000 or less.

An equity loan means you buy your home with at least 70 per cent of the cost met by a mortgage and savings (deposit). Then the remaining cost of the home is paid for by the government and the house builder through an equity loan, which value changes based on how much your home is worth. This means the amount you owe will rise and fall with the value of your home.

With shared ownership you buy a share of the property anywhere between 25 per cent and 75 per cent of the full value. The housing association owns the remaining share and you pay rent on that share of up to three per cent of the share’s value

For further information about HomeBuy, click here

FirstBuy

The FirstBuy scheme is also available for first-time buyers across the UK who have a household income of less than £60,000. Through this scheme, the government and housebuilders together will offer first-time buyers a 20 per cent equity loan. This means that along with the 5 per cent deposit from the buyer, this will enable them to take out a 75 per cent mortgage on the rest of the property.

For further information about the FirstBuy scheme, click here

NewBuy

If you are having difficulty in raising a deposit to buy a need build home, you may qualify for the NewBuy scheme, which will help you get a mortgage of up to 95 per cent of the purchase price. In order to take part in the scheme you must have a deposit of at least 5 per cent of of the price of your home and be a first time buyer.

 

For further information about the NewBuy scheme, click here

New Home Incentives

Most builders offer generous incentives to entice first time buyers to buy homes on new developments, like offering to pay Stamp Duty Land Tax, a percentage of the deposit or even rent now, buy later schemes. So it is worth looking at what new builds are available in your area.

This option can also help you save money as you will have no major renovations or refurbishment to do, as buying a new property means you should have little maintenance to worry about.

Co-Buying

Buying a home with family members, friends or a partner can be a more economical way of becoming a homeowner as there is someone else to share the financial burden.

However, before you buy decide who is paying what and what percentage each party owns seek legal advice and draw up an agreement as to how the property will be divided to avoid any future disagreements.

If you are buying with a partner think about the implications of what would happen if you separated. Could one of you cover the mortgage payments alone if you were to buy the other out? Buying with a family member or friend is often a short-term measure, as both parties probably intend to move on in a few years time and go their separate ways.

Whoever you choose to buy with, it is important to remember that as co-owners you are both responsible for the repayments on a joint mortgage, so if one stops paying the other is still liable.

Buying at Auction

This may seem daunting for a property market novice but buying a house at auction  can provide the perfect opportunity to pick up a bargain. But be warned the buying process is completely different, so do your research and take someone with you who knows how the system works. These properties can often be repossessions or may need some work, so ensure you have the money to carry out any necessary renovations.

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