It’s a tough time to be a first-time buyer given rising house prices

Sokrat Sokratov et al. posing for a picture: MailOnline logo

© Provided by This Is Money
MailOnline logo

Getting on to the property ladder is an aspiration shared by millions of people across the UK.

Roughly two in five UK households are in the private or social rented accommodation according to ONS figures, and many will have aspirations to buy. 

However, rising house prices mean that becoming a homeowner can seem an increasingly daunting task.

Prices increased 6.4 per cent in the last year according to Nationwide, meaning that the average UK house price is now £229,748.

a woman standing in front of a store: House prices increased by 6.4 per cent in the last year, according to Nationwide

© Provided by This Is Money
House prices increased by 6.4 per cent in the last year, according to Nationwide

UK rents have also increased by 3.7 per cent over the past year, making it harder to save. The average monthly rent now stands at £972 according to Rightmove.

Currently, most mortgage lenders require a minimum deposit of 10 per cent of the purchase price, meaning aspiring homeowners will need to come up with an average of £22,975.

On top of that, there are legal fees, valuation charges, the cost of a survey, mortgage arrangement fees, moving costs and the expense of furnishing the property.

That is before you consider stamp duty. After the current stamp duty holiday ends on 31 March, anyone purchasing a home above £125,000 will need to pay a minimum of two per cent of the value of their property to the taxman. 

Without support from the bank of Mum and Dad, an inheritance or a lottery win, saving up to buy a home can feel like a tall order.

With help from Kevin Mountford, co-founder of the savings platform RaisinBrian Murphy, head of lending at Mortgage Advice Bureau; and Charlotte Oates, head of marketing at the investing platform Moneybox, This is Money came up with the following tips for getting on the ladder. 

1) Plan ahead and save

First, create a timeline to show how long it is going to take you to save for a deposit. This will help you understand what steps you need to take in order to get there.

Then, set up a regular direct debit into a savings account each month, ideally just after payday.

By doing this, you will be less tempted to spend the money on other things throughout the month.

Some banks also provide the option of ’round-ups,’ meaning that if you spend £2.83 on a cup of coffee, for example, the account will ’round-up’ the transaction and put aside 17p in a separate pot.

2) Use all the help available

If you’re saving for your first home, there is free money on offer from the Government – albeit with certain restrictions. 

With a Lifetime ISA, you can save up to £4,000 each tax year and get a 25 per cent government bonus on top – so if you pay in the maximum of £4,000 per year, the government will top it up with an additional £1,000.

There are two types of Lifetime ISA available, both offering the 25 per cent Government bonus, with the condition that you must be under 40 when you sign up.

The Cash Lifetime ISA pays you interest and is best suited for shorter time horizons where you need more certainty around your savings.

a sign in front of a house: If you're a first-time buyer in England, you can apply for a Help to Buy equity loan. This is a loan from the Government that you put towards the cost of buying a newly-built home.

© Provided by This Is Money
If you’re a first-time buyer in England, you can apply for a Help to Buy equity loan. This is a loan from the Government that you put towards the cost of buying a newly-built home.

The Stocks & Shares Lifetime ISA invests your savings in the stock market, meaning it can grow your savings more than cash over time, but, as investments can go up or down, a longer time horizon is recommended.

Any money you save in these ISAs can only be withdrawn for a house purchase or to fund your retirement. If you need to access your cash for another reason, there is a penalty of up to 25 per cent to pay.  

Gallery: 20 lies we tell ourselves about retirement (Espresso)

a person sitting next to a body of water: We don’t know what adventures we’re in for once we reach retirement age, but you can bet that it probably won’t go exactly as you plan. As you prepare for retirement, you’re going to have to protect yourself from potential health problems, unexpected expenses and other financial hardships. Here are some lies we tell ourselves about retirement.

On top of that, you could also use the Government’s Help to Buy equity loan scheme, which could help boost your buying power yet further.  

If you are looking to buy a new-build property, you can borrow up to 20 per cent (40 per cent in London) of the full purchase price of a new-build home.

You must buy your home from a homebuilder registered for the Help to Buy equity loan. 

The current scheme is due to end on 31 March, but a new one will begin on 1 April. The most important changes are that the new scheme is only available to first-time buyers, and includes a number of regional price caps.

3) Cut back on unnecessary expenditure

Look at your bank statements and assess what outgoings or spending habits you might be able to reduce.

You might consider cutting back on takeaway deliveries, refraining from that £3 daily cappuccino or switching energy provider and reducing your bills.

You could also review your subscriptions and memberships – and if there is something you are not using, then cancel it.

a person standing in a room: Cutting back on a TV subscription such as Netflix, Sky or Amazon Prime might help you save

© Provided by This Is Money
Cutting back on a TV subscription such as Netflix, Sky or Amazon Prime might help you save

Any extra cash that you have left over can then go into your savings account.

The biggest bill most would-be first-time buyers have, however, is the cost of rent.

Although UK rents on average have increased, rents in a number of major cities across the UK have dropped. This means you might be able to find a better deal elsewhere.

If you have a good relationship with your landlord, there is no harm in explaining to them politely that you are trying to get on to the property ladder, and seeing if they can reduce your rent by even the smallest amount – or at least agree not to raise it. 

After all, even a £10 reduction per month means you can stick £120 towards your deposit for that year.

4) Get yourself mortgage-ready

If you have any outstanding loans, it’s advisable to pay these off before you apply for your mortgage and avoid taking out any more loans in the meantime.

Pay all your bills on time, whether that be your phone bill or general household utility bills, as this will prove you’re reliable and financially independent.

A simple but effective thing to do is to register on the electoral roll to vote where you live, as this makes it easy for the lender to trace and confirm you as officially living at the address.

Also, make sure any bills you have are registered to your current address, so everything is easy to trace.

a close up of a device: Improving your credit score is a great way to improve the number of mortgage lenders who might be willing to offer you a mortgage in the future.

© Provided by This Is Money
Improving your credit score is a great way to improve the number of mortgage lenders who might be willing to offer you a mortgage in the future.

This is surprisingly important, and one of the simplest ways to significantly boost your credit score.

Finally, if you don’t already, start using a credit card.

This can help improve your credit score, showing that you’re able to look after your own finances and pay off any outstanding debts within a certain time-frame.

Just make sure you register the card to the address you’re actually living at and pay the outstanding amount on time.

Can I get on the property ladder without having a deposit?

There are a few specific mortgage products designed to help first-time buyers get on the property ladder without a deposit – but you will need friends or family that are able to help you out.

A note on stamp duty

At the moment, all home purchases are being given a ‘stamp duty holiday’ up to the value of £500,000.

This ends on 31 March 2021, but first-time buyers will still benefit from zero stamp duty on purchases from 1 April 2021, up to a maximum value of £300,000.

Stamp duty from 1 April is then payable by first-time buyers at a rate of 5 per cent on the portion from £300,001 to £500,000.

The Barclays Family Springboard mortgage lets a first-time buyer borrow up to £500,000 deposit-free at an interest rate of 3.25 per cent, fixed for five years. 

But in return, a friend or relative must put their savings on the line and act as your guarantor. 

These pledged savings – equivalent to 10 per cent of the value of the home – are locked away in a Barclays fixed term savings account for five years as security for the home loan, while the home buyer pays down the mortgage.

While it’s called the Family Springboard mortgage, it doesn’t need to be a family member who provides the help. Barclays says anyone with the required deposit can act as the guarantor.

Other similar options include Family Building Society’s Family Mortgage, and the Tipton’s Family Assist mortgage.

There is also a new lender, Generation Home, that enables a first-time buyer to team up with friends or relatives who can then ‘invest’ in the property alongside them to boost their buying power.

This model effectively means buyers with a small deposit can invite others to put some cash into their home purchase and, in exchange, own a share of the property.

Rachel C. Carpenter

Next Post

The best tips for saving money at Dubai cinemas

Sat Feb 6 , 2021
© Motivate Publishing cinema feat Don’t book your tickets before reading this… It’s no secret that regular trips to the cinema in Dubai can get quite costly. But, with so many great new movie releases out every week, it’s worth noting down a few […]