How to get onto the property ladder
You want to step onto that first rung and buy a house but where do you start? Read our guide to find out how to build a deposit and what the options are for first-time buyers.
Buying your first property is an exciting life landmark with plenty of benefits.
As well the obvious freedom it brings, owning your own home also means you’re free from having to fork out thousands of pounds on rent, with nothing to show at the end of it.
Your home becomes your asset. And though no one can predict the future, you can be fairly confident that, over the years, your property should steadily increase in value.
For first-time buyers on a low income, though, things are tough – and getting a foot onto the property ladder can feel like a step too far.
Affordable housing isn’t easy to come by, and amassing a large enough deposit can seem like an impossible task.
But there’s lots you can do to improve your chances of buying a property.
Dreaming of those keys in the door? Follow these 10 steps:
1. Start saving
Many lenders offer mortgages of up to 95% of the property's value, so you'll need at least a 5% deposit to buy your first home.
Just be aware, though interest rates on 95% mortgage deals tend to be the highest.
The bigger the deposit you can save, the better the mortgage deal you can get, with lower interest rates and monthly payments. So, rather than rush into a mortgage, it may be a wise move to keep saving until you have more money to put down.
Go through your monthly spending and see where you can cut back. Can you live with your parents for longer or find somewhere cheaper to rent? Even small changes – less takeaways, more homemade lunches and fewer coffee stops – all add up.
2. Cut down debt and boost your credit score
Before deciding how much they’ll lend, mortgage providers assess if you can afford to meet monthly payments. In part, they do this by looking at your debt-to-income ratio.
In basic terms this is the total amount you owe every month versus the total amount you earn.
The lower your debt-to-income ratio, the more appealing you’ll be to the lender as you’re seen as less of a risk.
Look at paying off as many of your debts as possible well before applying for a mortgage.
This will also help improve your credit score – another thing lenders look at before deciding whether or not to offer you a mortgage.
Some other things you can do to improve your credit score are:
- Make sure you’re on the electoral roll
- Keep all repayments you have up to date
- Close all unused credit cards, mobile phone contracts and so on
3. Be realistic about what you can afford
Get a good idea of how much you could borrow with our mortgage calculator. It'll show you how much your monthly payments could be, depending on how much you’d like to borrow, the length of your mortgage term and the interest rate.
But you need to work out what you can sensibly afford. And don't forget, interest rates can go up.
So think about how you'd cope if you had to make bigger monthly payments some time down the line. Don’t overstretch yourself.
4. Look at government schemes
There are two main government schemes: Help to Buy and Shared Ownership.
Help to buy - The government’s Help to Buy: Equity Loan Scheme offers first-time buyers in England a loan to increase the size of their deposit, interest-free for five years. You can get a loan for up to 20% (40% in London) of the purchase price of a new-build home. You borrow the rest from a mortgage lender, but you should be able to get better deals as you have a larger deposit.
You need at least 5% deposit and there are regional limits on the sale price of the homes you can buy. For example, in the North East, the cap is £186,100; in the South East it’s £437,600.
You can find out more about Help to Buy in:
Shared Ownership - This initiative lets you buy a share of a home (between 25%-75%) from a Housing Association. You then pay a subsidised rent to the association on the remainder. You can increase your share of the property over time by buying it from the Housing Association in a process called ‘staircasing’ - and eventually own 100% of it. Or, if you want to move on, you will get back equity on the share of the property that you own.
5. Right to Buy
‘Right to Buy’ is a scheme that lets council tenants buy their council home in England at a discount. The scheme no longer runs in Wales or Scotland.
The House Sales Scheme in Northern Ireland allows eligible tenants of social housing landlords to buy their homes at a discount.
6. Open a Lifetime ISA
A Lifetime ISA (LISA) is designed to help you buy a first home costing up to a maximum £450,000. You can save up to £4,000 per annum and the government will add 25% on top.
The Help to Buy ISA works in a similar way to the LISA but is now closed to new applicants. If you already have one, you can keep paying into it, or look at transferring to a LISA.
7. Get help from a mortgage broker
Specialist mortgage brokers and advisers could help you get a good deal as a first-time buyer. Choose a broker that’s not tied to just one, or a few lenders, so they can scour the whole market.
Brokers are ideally placed to advise you on the more unusual mortgage applications, too, such as the government mortgage schemes ‘help to buy’ and ‘shared ownership’.
8. Multiple persons’ mortgages
There’s a rising trend for first-time buyer friends or siblings to club together to take out a mortgage. Pooling resources like this can mean a bigger deposit and more affordable monthly payments.
Some mortgage lenders will allow up to four people to apply together, but they may only take into account the income of the two highest earners when assessing affordability and the maximum amount they will loan to you.
Multiple persons’ mortgages are still quite rare, so it’s wise to speak to a mortgage broker used to dealing with them if you want more than two people on the property title deeds.
9. Ask the parents
If you’re lucky enough to have access to the bank of mum and dad to help with your deposit, that’s great.
Parents or close relatives can also help first-time buyers get on the property ladder with a ‘guarantor mortgage’. For this, they put up their home or savings as security. If you default on the mortgage, they will be responsible for payments. A mortgage adviser can help you decide if this is the right choice for you and your family.
10. Be prepared to compromise
Your first home won’t necessarily be your dream home, but you’ve got to start somewhere.
Be willing to widen the search if you’re priced out of your preferred postcode. Remember, you should commit only to what you can comfortably afford.