How to Stop Renting and Get on the Property Ladder

Getting on the property ladder is a goal for many, but it can be difficult to make that first step. Saving to buy your first property can be incredibly daunting, and it’s important to start by figuring out how much you need to save.

Cost of Renting vs Buying

Consider the different costs tied to renting versus buying. Upfront costs, such as mortgage fees, can make buying more expensive than renting in the short-term, but buying a house can work out cheaper than renting over the long-term as monthly mortgage repayments can be cheaper than renting, especially with record low interest and mortgage rates.

The average monthly rent across the UK is £955 and when excluding Greater London from the data, the average is £791, according to the HomeLet Rental Index for February 2020. On the other hand, data from MoneySuperMarket revealed the average monthly mortgage payment for first-time buyers is £674. The average first-time buyer bought a house valued at £226,867 and paid a deposit of 18%, which equates to £50,174.

It’s important to consider other fees that are attached to the majority of mortgage agreements as well. A mortgage arrangement fee is a flat fee for the mortgage product itself and typically costs anything up to £2,000. Some lenders also include a separate booking fee for the cost of applying the mortgage, which can cost between £50 and £300, or it might be included in the arrangement fee.

You’ll also need to pay a valuation fee so the mortgage provider can assess the value of the property. This is to ensure the property is worth the amount they’re lending you. A valuation fee depends on the property’s value, but it’s typically between £100 and £1,000. Conveyancing fees are also an important cost  to consider and budget for. Fixed-fee prices usually range from £500 to £1,500. This often depends on the property cost and the complexity of the transaction.

Guide to Stop Renting and Step onto the Property Ladder

Buying your first property is a big step, so here’s a step-by-step guide to help you stop renting and buy your first property.

 

Save for a Deposit

Saving for a deposit is one of the most challenging parts of buying your first property. Putting together a larger deposit can help you secure a better mortgage rate. And lenders will have more confidence in those providing a larger deposit as this means you’re less likely to suffer from negative equity.

Some lenders offer mortgages with only a 5% down payment. However, a 25% deposit typically offers you access to some of the best deals. And keep in mind that the larger the deposit, the more likely you’ll have access to mortgage deals with lower interest rates.

Ideas for Saving

Create a habit of saving, and set targets of how much you want to save each month. Find a savings account or ISA that allows you to earn interest while you’re saving. Setting up a regular payment to automatically transfer a set amount into your savings account each month can be helpful to ensure you’re reaching your saving goals.

Do some research to see if you can reduce any of your bills. Are there cheaper mobile phone or broadband deals out there? Maybe you can change energy suppliers for more affordable bills as well. Look at your everyday spending and see if there’s anything that you can cut down on. There are also a range of budgeting applications you can download on your mobile phone to help you save, such as Money Dashboard and Monzo.

Check Your Credit Score

When applying for a mortgage, the lender will run a credit check on you, and this is a big factor in determining if they’ll lend you money. Before doing this, ensure your credit score is as high as possible. Get a copy of your credit report and take the time to look at it carefully. If you previously defaulted on payments, clear what you can so this won’t have a negative impact on your score. 

Pay Down Debts

Another factor mortgage lenders use in their affordability assessments is how much you spend on unsecured debt repayments per month. This includes credit cards and other loans, so pay down the debts you can. Paying down credit cards is usually best to work on first as these typically have the highest interest rates.

Looking at the debts you owe helps lenders assess how much you can afford to pay for a mortgage each month, so the less debt you have the more you’ll likely be able to afford to pay in mortgage repayments per month. 

Take Advantage of Government Schemes

A Lifetime ISA provides a tax-free way to save up for a deposit for first-time buyers aged between 18 and 39 years old. The government will add a 25% bonus to your savings up to a maximum of £1,000 each year.

Take advantage of other schemes available for first-time buyers. Help to Buy schemes, including Help to Buy: Equity Loan and Help to Buy: Shared Ownership can be helpful for first-time buyers purchasing a new-build property.

For the Equity Loan scheme, the government lends you up to 20% of the cost of a new-build home. To buy the house, you’ll only need a 5% deposit and a 75% mortgage to make up the difference. For the 20% loan from the government, you won’t be charged any loan fees for the first five years.

Additionally, first-time buyers in England pay no stamp duty on properties worth up to £300,000, which can save you up to £5,000. If you are purchasing a property between £300,001 and £500,000, you’ll pay stamp duty on the amount within that bracket. However, if you’re a first time buyer through the government’s Shared Ownership scheme, you can claim relief on properties worth up to £500,000. 

Research

It can be helpful to look where you can get more for your money. Different postcodes and streets in a specific city or town can have a wide range of property prices, so take the time to find out where the best place is to buy with the budget you have. 

Find the Best Mortgage Deals

Interest and mortgage rates are at record lows. The Bank of England recently lowered the base interest rate to 0.1% due to the coronavirus outbreak. This could cause mortgage interest rates to be lowered even further, making it more affordable to borrow. Working with a mortgage broker or advisor can help you find the best mortgage deal available to you. 

Be Realistic

It’s important to be realistic about what kind of monthly mortgage repayments you can afford and how long it’ll likely take you to save up for the deposit. You don’t want to overstretch yourself financially or be impractical about how much you can save each month.

Making That First Step onto the Property Ladder

It can be challenging to get your first step onto the property ladder, but making yourself more desirable in lenders affordability assessments can improve your chances of getting a mortgage. 

Start saving for a mortgage deposit today. And spend some time looking into the different government schemes available to you as a first-time buyer and where the best place is for you to buy with the budget you have.

Posted on 1st July 2020

More updates