Top Tips For First Time Buyers | Mortgage

by JakeStevens

Getting yourself on the property ladder is more difficult than ever in today's rapidly growing market, and buying a first home can feel daunting at the best of times. Many first time buyers are left out in the cold by the rapid increase in property prices - especially in the cities.

Although there are some mortgage products that are able to compensate for the massive incompatibility between house prices and wages, such as the 110 per cent loan-to-value mortgage and five times annual salaries, these are few and far between and they mean more risk for the buyer.

The sheer competition involved in buying a property is another big problem. This can be seen most clearly in a block viewing scenario, where groups of buyers all view a property together. This is a fairly common occurrence, and results in a race to be the first to put in a bid - and if there are professional developers present, first time buyers are often pipped to the post.

Social impact

It is entirely possible that the struggle many first time buyers are experiencing to buy their first property will hit harder than first thought. Property ownership is important, whether as a secure nest egg for retirement or as a way to make a small fortune.

Not having the security of having fully paid for your own home by the time you reach retirement can have a dramatic effect - especially with pensions not performing as well as they once did.

In the somewhat nearer future, the difficulties caused by rising house prices will cause problems elsewhere too. The economy will slow down as families, now having to save more, will have less disposable income, and as they can no longer afford to educate their children how they wish, or use private healthcare, the education system and the NHS would feel the strain too.

Where will it all end?

The government has introduced a couple of strategies to help first-time buyers. The stamp duty threshold was recently raised to 175,000, and the introduction of Home Information Packs (HIPs)was intended tohelp this group of buyers above all others - although perhaps not to the extent that was initially hoped. All local authority searches, and drainage and water searches, will be carried out by the vendor and service charges for leasehold propertiesare completely transparent. In addition, an Energy Performance Certificate (EPC) will be included, therefore enabling buyers to see how expensive it will be to run their home.

Aimed at key workers, the Shared Ownership Scheme (see below), implemented by housing associations, is a great way for low-paid employees to get their first property, in another innovative move by the government.

Despite these strategies, the onus on first-time buyers ultimately lies with the first-time buyers themselves. Getting on the housing ladder is a difficult process, but with a little innovation, research and effort, it is not an impossible one.

Ways to get on the property ladder

Despite all of the depressing facts and figures, worry not. There are still many ways that first time buyers can get on the property ladder with a little time and thought.

1. Save - Granted, this old fashioned method isn't as easy as it once was due to increased rents, but it is still achievable. Dump the one-bedroom apartment for a room in a shared house or, even better, move back in with your parents. Saving money on rent will give your savings that much needed boost and, if you are prepared to put in the extra work, a second part-time job could see them go through the roof.

2. Borrow - There are a number of options available to you if you want to take this route, including some loans which are specifically tailored for graduates and professionals as well as the offer of five times your income. More and more these days, mortgages are available over much longer terms - sometimes up to 40 years - although your eligibility for such loans will of course depend on your age. The downside to these sorts of mortgages is that you'll be paying thousands of pounds more interest over the term, but there is always the option to remortgage after a couple of years to a shorter term. If this still seems a little out of your reach, you could always consider the initial stretch of taking out a secured loan on the property as soon as you have completed. However, this will immediately land you in negative equity, and you may be stuck there for some time if the market crashes. See our Types of Mortgage Fact Sheet for more information.

3. Bank of Mum and Dad - There are a few ways that your parents can help you out with your first property purchase, and many will understand just how difficult it can be to do it on your own. Matching your savings is a great way that they can contribute towards a deposit, or they could become guarantor on your mortgage. This means that they would be liable if you were to miss any monthly payments, although in order for them to qualify to do this they must own at least 30 per cent equity in their own property. An alternative might be for them to transfer some equity into your new home - one the understanding, of course, that you buy them out as soon as you can.

4. Co Buying - There are a few things to take into consideration if you are thinking about buying with a relative, friend or even a stranger. Although it can be a fantastic way to pool your resources and reduce your monthly payments, you need to make sure that legally you are fully covered. You must get a Deed of Trust to establish legally who owns what percentage of the property as well as a watertight contract, and if you have a traditional mortgage it is important that you register as Tenants in Common rather than Joint Tenants to ensure that your co buyer doesn't automatically inherit your half of the property. There are, however, mortgages available that are specifically tailored to co buyers. All things considered, however, this is a really great way to get on the property ladder as it means you'll have much more money to put down as a deposit - as well as someone to help with the DIY!

5. Buying at auction - Buying at auction is often a good way to secure a property at a reasonable price. The days of ultimate bargains may be over, but affordable property is prevalent at auctions. The difficulty is that there are hard and fast rules to buying in this manner, and they all involve severe organisation. Once you have had an offer accepted under the gavel it is legally binding and you will need to pay the ten per cent deposit there and then - meaning that you will need to have the survey done before the auction date. An efficient solicitor is also a must, as completion takes place just 28 days later. See our Buying at Auction Guide.

6. Buy in a Different Area - If you're keen to get on the property ladder but aren't necessarily itching to move house yourself then this can be a great idea, as property in other areas of the country - or even abroad - can be a lot cheaper. Buying and then renting out the property can enable you to get a head start and ensure that you'll be able to buy more property in the future.

7. Rent-a-room - If you can afford the deposit but are fazed by the monthly repayments, consider getting a lodger. The cost of a two-bedroom home is never dramatically more than a one-bedroom property, and once settled you are entitled to earn up to 4,250 per annum on a tax free basis under the governments rent-a-room scheme.

8. Renovate - This may sound scary, but renovation on a small scale can really be a great way to save some money on the cost of your dream home. The cost of having kitchens and bathrooms fitted is a lot less than you might think, and it will add a whole lot more value to the property. Because you won't necessarily be selling your home straight away, you don't need to be put off by competition from developers - they need to buy a property at a bargain price because of all the red tape, but you however don't need to make an immediate profit. If you do it right and you're not scared of a little hard work, it can be extremely lucrative.

9. Buy off-plan - The trick to buying a home off-plan is timing. Generally speaking, buying off-plan secures you a property for the future at today's market value. While this makes good sense, there are further advantages to be made if you buy wisely. Developers rely on cash flow, and there are key times when this is more true than others - namely as soon as the project is released and when it is nearing completion. Even if the asking price is fixed, you may be able to negotiate on fixtures and fittings, not to mention the deposit and stamp duty.

10. Avoid Stamp Duty - Any property that you buy under 175,000 will be exempt from stamp duty, as this is the current threshold. While it might be difficult to do this in areas like London, there are stamp duty exempt areas - a list of which can be found on the Inland Revenue's website (www.hmrc.gov.uk/so/dar/index.htm).

11. Choose your mortgage carefully - There is a wide range of mortgages currently on the market, however there is more to choosing a product than the monthly repayments. If saving your initial outlay is your prime concern, then you need to be looking for a mortgage that doesn't have any arrangement or administration fees - of which there are plenty out there. If you can't find one that suits your needs, ask if you can add theses fees onto the mortgage itself - you may even be able to add on conveyancing fees. This will bump up your monthly repayments slightly, but will save you stumping up the cash in the beginning. See our Choosing a Mortgage Fact Sheet.

12. Negotiate - Being a first time buyer gives you quite a big advantage when buying your first property. Your vendor may have found their dream home and do not want to lose it, so in order to sell their property quickly they might be willing to accept a slightly lower offer. The fact that, as a first time buyer, you are not in a chain puts you in a great position and allows you to haggle a little on the price.

13. Shared Ownership Schemes - Aimed at key workers such as NHS staff and teachers, these schemes are occasionally operated by housing associations and trusts and offer a good way to get onto the property ladder for those who otherwise couldn't afford to. The idea is that you can buy a share in a house and pay rent on the remaining balance, and in the future buy more shares as and when you can afford to. Of course eventually you can buy the property outright. One thing to bear in mind, however, is that if you wish to sell, the housing association will have first refusal.

14. Rent-to-Buy - Not yet very common in the UK, this way of buying means that you initially rent the property - but half of your rent each month is put aside for a deposit. This is a really good idea as it means that you're not throwing money away on rent every month, and in a few years' time you'll be able to put a deposit down. It also means that you'll be able to secure the price at today's market value.

15. Ex-local authority - Buying an ex-local authority property has numerous advantages, perhaps the most attractive one being price. Recent statistics state that previously owned council homes can be up to 20 per cent cheaper than their period counterparts simply because of their "lack of character". In addition, proportions are always generous - especially when compared to today's new-builds. Finally, outdoor space is more often than not catered for, even if it is only in the form of a balcony.

16. Compromise - Lastly, consider your needs carefully and bear in mind that, if you are willing to compromise, you're much more likely to get on to that first rung of the ladder quickly. Whilst you may need a garden, do you really need a second bedroom? Could furniture or rooms be re-shuffled to compensate well for a little less space? Being able to be flexible will mean that you're more likely to find something you want for a good price, and at the end of the day this isn't going to be the home you live in for the rest of your life - but it may enable you to get your dream home one day.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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