Buying a property can be a daunting prospect, especially if you are a first-time buyer. With rising house prices, interest rates going up and a challenging economic climate, it’s not always easy to get on the property ladder. However, with the right information and guidance, it is possible to make your dream of homeownership a reality. In this article, we will provide a comprehensive guide on how to get on the property ladder in the UK.
1. Save for a Deposit
The first step to getting on the property ladder is to save for a deposit. A deposit is the amount of money you need to put down when buying a property. The minimum deposit required is typically 5% of the property’s value, but many mortgage lenders prefer a deposit of 10-20% or more. The larger your deposit, the more favourable your mortgage rates will be.
To save for a deposit, you need to have a budget in place. Analyse your income and expenses and look for areas where you can cut back on your spending. Consider setting up a separate savings account and automate a certain percentage of your income to go directly into the account. You can also look into government-backed savings schemes like the Help to Buy ISA or Lifetime ISA, which offer a bonus on top of your savings.
2. Check Your Credit Score
Your credit score is an important factor that a mortgage lender will consider when deciding whether to approve your mortgage application. It is a measure of your creditworthiness and is based on your borrowing history, debt, and payment history. The better your credit score, the more likely you are to be approved for a mortgage and offered favourable rates.
You can check your credit report for free through various credit reference agencies like Experian, Equifax, and TransUnion. If your score is low, you can take steps to improve it by paying off outstanding debts, registering to vote, and avoiding applying for too much credit in a short space of time.
3. Determine Your Budget
Before you start house hunting, it’s essential to determine your budget. Your budget will depend on your income, expenses, and the amount you have saved for a deposit. You can use online mortgage calculators to estimate how much you can borrow and what your monthly mortgage payments will be.
Remember to consider all the costs associated with buying a property, including legal fees, stamp duty, and survey costs. You will also need to factor in ongoing costs like mortgage repayments, insurance, and maintenance costs.
4. Get a Mortgage Agreement in Principle
Once you have determined your budget, you should get a mortgage agreement in principle (AIP). An AIP is a statement from a lender that confirms how much they are willing to lend you, based on your income, expenses, and credit score. Having an AIP can give you a better idea of what properties you can afford and shows sellers and estate agents that you are a serious buyer.
You can apply for an AIP through a lender or a mortgage broker. A mortgage adviser/broker can help you compare different mortgage deals and find the best one for your circumstances.
5. Look for Properties
With your budget and mortgage agreement in principle in place, you can start looking for properties. There are many online property portals like Rightmove and Zoopla that can help you search for properties in your area. You can also use a local estate agent to help you find properties that match your criteria.
When viewing properties, remember to take your time and consider all the factors, including location, size, and condition. Be sure to ask the seller or estate agent any questions you may have and get a survey done to ensure there are no hidden issues with the property.
6. Make an Offer
When you find a property you like, you can make an offer. The offer should be based on your budget and what you think the property is worth. You can make an offer through the estate agent or directly to the seller if they are selling the property privately.
The seller can accept or reject your offer, or they may counteroffer with a different price. Once you have agreed on a price, you will need to hire a solicitor or conveyancer to handle the legal side of the transaction.
7. Complete the Purchase
After your offer has been accepted, you will need to complete the purchase. This involves exchanging contracts with the seller and paying the deposit. Your solicitor or conveyancer will also carry out searches and checks to ensure there are no issues with the property.
You will then need to arrange for a mortgage offer and complete the paperwork with your lender. Once everything is in order, you can arrange a completion date and move into your new home.
Schemes Designed to Help a First Time Buyer
Buying your first property can be a daunting task, however, several schemes have been introduced in recent years to help aspiring homeowners get a foothold onto the property ladder. In this section, we’ll explore some of the schemes available to first-time buyers in the UK.
1. 95% Mortgages and 5% Deposit
In the past, many lenders required a deposit of 10-20% or more to qualify for a mortgage. However, in response to the COVID-19 pandemic and to support first-time buyers, many lenders now offer 95% mortgages, meaning you only need a 5% deposit to buy a property.
This scheme can make it easier for a first time buyer, as they can purchase a property with a smaller deposit. However, it’s important to note that higher loan-to-value mortgages usually come with higher interest rates, which can make your monthly mortgage payments more expensive.
2. The Mortgage Guarantee Scheme
The government-backed mortgage guarantee scheme was introduced in April 2021 and is designed to help first-time buyers and current homeowners purchase a property with a smaller deposit. Under this scheme, lenders can offer 95% mortgages on properties worth up to £600,000, with the government guaranteeing a portion of the mortgage.
This scheme can make it easier for first-time buyers to get on the property ladder as it reduces the lender’s risk, allowing them to offer mortgages with smaller deposits. The scheme is open to both first-time buyers and existing homeowners looking to move house.
3. Help to Buy Scheme
The Help to Buy scheme was introduced in 2013 and is designed to help first-time buyers purchase a new-build property. Under this scheme, the government offers an equity loan of up to 20% of the property’s value, which can be used as part of the deposit.
The equity loan is interest-free for the first five years and can be repaid at any time or when the property is sold. This scheme can make it easier for first-time buyers to buy their first property as it reduces the deposit required.
4. Lifetime ISA
The Lifetime ISA (LISA) was introduced in 2017 and is designed to help people save for a deposit on their first home or for retirement. Under this scheme, you can save up to £4,000 per year, and the government will add a 25% bonus on top of your savings.
The LISA can be used to buy a property worth up to £450,000, and you can use it to purchase a property within 12 months of opening the account. This scheme can make it easier for first-time buyers to get on the property ladder as it offers a government bonus on top of their savings.
5. Shared ownership
Shared ownership is another scheme available to first-time buyers in the UK. This scheme allows you to purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share. You can then gradually increase your share of the property over time through a process called staircasing.
Shared ownership is a popular option for first-time buyers as it can make it easier to get on the property ladder, especially in areas with high property prices. It can also be a good option if you are unable to secure a mortgage for the full value of a property.
To be eligible for shared ownership, you must meet certain criteria, including earning less than £80,000 per year (or £90,000 in London), being a first-time buyer or previous homeowner unable to afford to buy a property, and not owning any other property at the time of purchase.
One of the main advantages of shared ownership is that it can make your monthly payments more affordable as you only need to secure a mortgage for the share of the property you are purchasing. However, it’s important to note that you will still need to pay rent on the remaining share, which can increase over time.
Additionally, the process of staircasing can be complex, and there may be restrictions on how much you can increase your share by at any one time. It’s also worth noting that when you come to sell your shared ownership property, the housing association or provider will have the right to find a buyer for the property first.
Tips for First-Time Buyers
- Start saving for a deposit as early as possible to give yourself the best chance of getting onto the property ladder.
- Check your credit score regularly and take steps to improve it if necessary.
- Get a mortgage agreement in principle before you start house hunting to give yourself a better idea of your budget.
- Consider using a mortgage adviser/broker to help you find the best mortgage deal for your circumstances.
- When viewing properties, take your time and consider all the factors before making an offer.
- Remember to factor in all the costs associated with buying a property, including legal fees, stamp duty, and survey costs.
- Hire a solicitor or conveyancer to handle the legal side of the transaction.
- Be prepared for the ongoing costs of homeownership, including mortgage repayments, insurance, and maintenance costs.
- You might also want to check out our other article on 5 tips for people looking to buy a house.
Conclusion
Getting on the property ladder in the UK can be a challenging prospect for a first time buyer, but with the right information and guidance, it is possible to make your dream of homeownership a reality. By saving for a deposit, checking your credit score, determining your budget, getting a mortgage agreement in principle, looking for properties, making an offer, and completing the purchase, you can become a homeowner. Remember to factor in all the costs associated with buying a property and be prepared for the ongoing costs of homeownership.
Remember to keep an open mind when viewing properties and be prepared to compromise on certain factors like location or size to fit your budget. Don’t rush into making an offer and take the time to assess the property and ask any questions you may have.
Additionally, keep in mind that the property market can be unpredictable, so it’s essential to be patient and not get disheartened if it takes longer than expected to find the right property. With persistence and dedication, you can achieve your goal of becoming a homeowner and building a better future for yourself and your family.
In conclusion, the process of getting on the property ladder in the UK can be challenging, but it’s achievable with the right preparation, research, and professional guidance. By following the tips and guidelines outlined in this article, you can increase your chances of success and become a proud homeowner.
