First-time buyers have it tough
A recent report by the Resolution Foundation found that “Today’s families headed by 30 year olds are only half as likely to own their home as the baby boomer generation was at the same age, and home ownership has declined across all regions and income groups.”
Millennials wishing to buy their own home are faced with rising house prices (8% per year)* and 30% of their income being spent on rent*.
It’s clear that getting a foot on the property ladder is not as simple as it once was. So how can first time buyers become homeowners in a year or less?
How to get on the property ladder in one year
1. Check your credit rating and improve it
Having a good credit score is crucial to securing a mortgage. Check your credit reports for free and correct any errors such as old addresses or joint accounts that are no longer relevant.
If your credit score is less than ideal, follow this advice to improve it.
2. Get expert advice
Speak to a mortgage qualified independent financial advisor. They will be able to help you make an informed decision and save you money. An IFA can help you to understand what mortgage amount you can realistically expect, given your income. From this, you can determine the maximum property value available to you and how much deposit you will need to raise.
Consider an interest-only mortgage for your first home, especially if you plan to sell or remortgage in a few years. You may instead choose to invest in the property cosmetically (redecorating) or structurally (e.g. an extension or loft conversion) in order to add value.
3. Do your research
Knowledge is power. Spend some time researching house prices in your area. If you can’t afford these properties (based on the IFA consultation in step 2), consider homes that are out of town, or properties that need some work.
Be realistic about what you can afford. Your first home is extremely unlikely to be your ‘forever’ home, so be prepared to make compromises and settle for less space, less light, a longer commute etc.
4. Focus on your goal and shoot for it
Now you know what kind of home you can afford and how much money you need to raise in order to cover the deposit and fees, start saving towards it. Saving is addictive. Watching your money grow encourages you to continue saving.
If you’re determined to get on the property ladder in a year or less, take a look at our post on how to save a deposit for your first home in record time.
The government ‘Help to Buy‘ schemes are a way of boosting your savings towards helping you get on the property ladder.
Help to Buy ISA
“If you are saving to buy your first home, save money into a Help to Buy: ISA and the Government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000.”
It’s worth noting that if you’re a first-time buyer, buying with someone who’s owned before, you can still open a Help to Buy ISA (however they can’t) and if you’re a first-time buyer, buying with another first-time buyer, you can both open a Help to Buy ISA. So, together, you can save £400 a month and double the bonus.
Help to Buy equity loan
This scheme is available on new build homes in England and Wales.
“With a Help to Buy Equity Loan, the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.
You won’t be charged loan fees on the 20% loan for the first five years of owning your home.”
Find out more about Help to Buy equity loans and how to pay them off at Money Saving Expert.
Help to Buy shared ownership
This scheme is available for newly built homes and existing homes available through housing association resale programmes*.
“If you can’t quite afford the mortgage on 100% of a home, Help to Buy: Shared Ownership offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. Later on, you could buy bigger shares when you can afford to.”
You can find contact details of your local Help to Buy agent here.
*Note that shared ownership properties are always leasehold.
6. Ask for a ‘leg up’ the property ladder
Could you ask your parents for a loan to help you reach your deposit? Bank of mum and dad is not available to everyone, but if you can show how you will be able to afford to repay them with interest (and they have cash at their disposal), your parents may be willing to invest in your property.
Another option to get on the property ladder, if you only have a small deposit and your parents own their own property, is to ask them to be your guarantor. This means that they promise to cover the cost of mortgage repayments if you can’t and it’s them who take on the risk. Find out more about guarantor mortgages at Bankrate.com
7. Team up
Two incomes (and potentially two Help to Buy ISAs – see above) can halve the time spent saving towards your deposit and fees. Therefore you might consider buying your first home with a partner, friend or perhaps a sibling.
If you decide to do this, you must both protect your investment. Have a qualified solicitor draw up a legally binding cohabitation agreement before you buy.
Also, note that each person will be responsible for mortgage payments. Therefore if one person fails to pay, the other person is liable to cover any shortfall. And if you later decide to move, you cannot release funds by selling the property unless your partner agrees to this.
Find more advice about buying with someone else at Money.co.uk
8. Be a little bit cheeky
Once you have secured a mortgage in principle, as a first-time buyer with no chain, you are in a great position. This means that you can try making a cheeky offer under the asking price. Don’t be afraid to haggle. The worst that can happen is that your offer is rejected and you can always counter-offer.
Remember to take a look at our post on how to save a deposit for your first home (and get onto the property ladder) in record time. Good luck!