How to get on the property ladder

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For first-time buyers in the UK, getting on to that elusive first rung of the property ladder can seem like a daunting task, especially when you consider the fact that average house prices are 5.1 times average earnings.

However, some government policies have been introduced over the last year which are making things just that little bit easier for first-time buyers. For example, the average housebuyer in England and Wales is £4,500 better off since the new progressive Stamp Duty structure was introduced just over a year ago. Plus, there’s the new Help to Buy ISA, which is examined in more detail in this blog post.

We have put together this handy guide to help you work out how much you need to save for a deposit and how to go about making those all-important savings.

How much do I need to save?

Before you work out the answer to this million dollar question, find out how much you can borrow first. Working this out requires you to assess how much you can manage to repay over the length of the mortgage, also taking into account any interest rate rises. All of the major banks have mortgage calculators on their websites, as does MoneySavingExpert.co.uk. If you are going to borrow more than 80 per cent of the property’s value, Macquarie says it is likely you will be charged Lenders Mortgage Insurance (LMI), which varies in cost depending on your loan amount and the percentage of the property value.

The new Help to Buy ISA

Another policy the Chancellor George Osborne introduced to help first-time buyers is the Help to Buy ISA. It enables you to save up to £1,200 in your first month then up to £200 a month after that. The government then adds 25 per cent tax free to whatever is in the ISA when you use it for a deposit. The maximum government bonus you can receive is £3,000 and the minimum is £400, which means you would need to save at least £1,600 before you can claim your bonus.

Organise your finances

Take a look at what has been going out and coming in to your bank accounts over the last three months, then take steps to cut on spending wherever you can. All of the money you save each month on unnecessary expenses should be put aside into a separate savings account which you don’t touch – alternatively you could put it into your Help to Buy ISA. Macquarie advises that it is a good idea to set up a high earning savings account and organise an automatic transfer every pay day. Then you will not be tempted to spend that extra money on things you do not need.

Investigate alternatives

If you are still struggling to save for a mortgage, you could investigate alternative ways of buying a home. You might not want to rely on the ‘bank of mum and dad’ for the rest of your life, but the Money Advice Service says that parents might be able to help with cash gifts or more formal arrangements with the mortgage lender so that they act as a guarantor or provide part of your deposit. Another alternative is to consider buying with friends or family as this could enable you to purchase a home that is a little bit more expensive than what you can afford to spend on your own.

Help to Buy

Not to be confused with the Help to Buy ISA, this is a mortgage guarantee scheme that was first introduced by the government in 2013 to help anyone struggling to save a deposit for their first home. With a Help to Buy equity loan, you will need to contribute at least five per cent of the property price as a deposit. The government will give you a loan for up to 20 per cent of the price and you will then need a mortgage of up to 75 per cent to cover the rest.

Avant Homes has a beautiful selection of new build properties which are available for purchase using Help to Buy for first time buyers. Get in touch to find out how we could help you make the first move onto the property ladder and buy the house of your dreams.