Shortcuts to the First Rung of the Property Ladder

12 July, 2019

Getting onto the first rung of the property ladder is definitely harder these days with no 100% mortgages available and the average deposit needing to be about 30k ‐ but if you live in London, think 90k deposit for a two bedroomed flat. Nevertheless, on average, an amazing 250,000 first time buyers take the plunge each year, some of them using Help to Buy and other special schemes to get on the all-important first rung of the property ladder. Whilst it may seem daunting and unachievable to become a property owner some creative thinking 'outside the box' may well help you achieve your goal.  

Working out a Feasible Plan

The first thing is to do some accurate figure work so that you know exactly what you can afford ‐ and don't forget to add extra money for legal expenses, insurance stamp duty and furniture. Once you know the figure you have to play with, check what strange and unwanted properties are on the market. Sounds crazy but if they are strange/unattractive in any way, or a little further out of town, this could deem them unsaleable and mean a lower price tag. You may well discover a larger property that is not shifting and the owner is becoming increasingly desperate to sell ‐ you can always make a low offer which could well be accepted and let any spare bedrooms which will help pay your mortgage. 

Do you research and spot which properties are sticking on the market. Don't just look at them on line and study their plans, go and see them for real and you could be pleasantly surprised and find that they could be workable for you.

Break away from your idea of buying your dream house as that may come later on. In the first instance, consider buying something that is far from perfect. Sounds crazy but if you can get a place at a bargain price, you can do it up as and when you have the cash or get Mum or Dad round to help you and offer guidance. You can buy a property a little further from the town with good transport links at a lower cost. With some TLC and clever thinking, you will be able to sell at a profit in a few years.

Warning Signs

The biggest warning bell you will hear ringing is your choice to live in London as the price of a first property is likely to be £100k more than anywhere else in the south-east. Do your research well about any planned developments in the area which could impact either positively or negatively on your property and make sure that you will have good neighbours. Visit the property both during the day and evening, listen for barking dogs and knock on your neighbours' doors to introduce yourself and to assess the state of their home ‐ if it is untidy and unkempt, run.

It will pull down the value of your property. If you do have to live in London or other expensive areas such as the south east, Bath, Oxfordshire etc. try and predict the future. What areas are likely to become fashionable? If you do have to live in the capital, consider up and coming areas like Hackney and Shoreditch.  

Stay at Home Longer

There is a definite trend for young people to live with their parents longer. The latest statistics suggest that the average person is 34 years old when they are in a position to buy for the first time and 95% of first time buyers are over the age of 30. Living at home will not be free as it is only fair to contribute to the family housekeeping, but it will certainly be good value for money as you will get looked after brilliantly and that includes food and laundry. 

Ask for Help with the Deposit

The amount needed as a deposit really takes some serious saving and can delay your house purchase plans by several years. A property costing £200,000 needs a deposit payment of £30,000 plus other charges that add up to a further £2,000.  Would either your parents or grandparents be in a position to help you with the deposit money? If your parents are financially comfortable, it is well worth asking the question about buying a property together. A larger property could work well with either your parents living in part of it or renting out their share to give them a good monthly income.  In a recent report. Santander confirmed that 12% of first time buyers purchase a property with their parents.

Mortgage rates were forced down in 2018 by the strength of competition which had grown by 7%. If you can borrow a large deposit from your parents it means that you can secure a better mortgage. If you can put down a deposit of 10% for example, HSBC can offer a two year fixed term mortgage of 1.99%. Another scheme that is worth considering is the Barclays Family Affordability Plan where parents act as guarantors for a mortgage.  

The problem with this scheme is of course, if the child defaults in their mortgage repayments, the lenders will speedily pursue their parents.

Other lenders allow parents to use their equity or home as a deposit for their first time buyer, but again this needs careful consideration as there are hidden costs such as 3% stamp duty for a property deemed a second home.

Help to Buy Schemes

The Help to Buy Scheme was launched in April 2013 and continues until 2020. The main scheme is an equity loan scheme that is restricted to new build housing. Only 5% deposit is needed, the government lends 20% of the property value as an equity loan with the balance being topped up with a mortgage. When you come to sell the property, the government will recoup its 20% investment.

Help to Buy ISAs are a tax-free saving plan that can be started with just £1,000. A sum of £200 per month is saved towards the deposit and a government bonus is paid of 25% - up to £3,000 maximum.

If you have been a government tenant in a local council property for three years or more, there may be the opportunity to buy the property at a discounted price.

Consider Buying a Place with Friends

If you have not got a family member who could assist on a house building project, what about good friends? With a healthy combined income this usually means that you can afford a larger property. Even if you are good friends, it is prudent to have a three year contract drawn up initially, covering such aspects as division of household bills and whether partners can move in or not.

Buy Somewhere You Don't Want to Live

This sounds a crazy idea, but it can prove a viable one. If you buy a cheaper property in an attractive part of the country, not only can you get on the property ladder sooner, but you can rent out the property and use the rent to pay your mortgage or help towards your own rental bills. You might well be living and working in the south east, but Birmingham (for example) is the fastest growing city. With rental property in high demand in many cities,  £100,000 buys a decent property and of course the double bonus is that you will have steady rental income and the property itself will increase in value ‐ definitely food for thought.

It is worth making good research on a potentially good investment areas. Whilst London and the south east, is out of reach for most first time buyers, in Stirling for example, property is very a affordable and easily rented as it lies midway between Glasgow and Edinburgh and Stirling itself is booming. Bradford, Durham and many parts of the Lake District also have surprisingly low property prices. Keep an eye on trends too, if you hear that the 'big boy' developers are moving into an area there is definitely a reason. If top stores such as Lidl, IKEA and Waitrose are opening in an area, which is another very positive sign too.  

Consider DIY

This is definitely not an option for the faint-hearted and is a remarkable non-British thing to do, yet in many countries, buying the land and building your own home is the normal thing to do. The huge advantage is that you can employ architects to design the house of your dreams and it can and should be an ecologically friendly house that is surprisingly spacious and energy efficient to run. The best news of all I that you can build a good three bedroomed house for £1,000k... food for thought indeed.  

A few years ago, Cara Brookins, a single mum, made headlines in the UK when she built a lovely five bedroomed house using YouTube videos for a total of £113,000. There are a number of quality flat pack houses on the market that are well insulated and cheap to run and come with a price tag of £75,000-100,000. Many of the flat pack houses are modular in design, so have the added advantage, that extra rooms can be added as your family expands.

Talk with Your Landlord

If you have been in your rented accommodation for a while and have a good relationship with your landlord, it is well worth asking him/her if they are considering selling their property. Maybe they haven't considered it until you raise the question, but may well like the idea as they have another project in mind, and of course a private sale is a 'win-win' situation for everyone.

Certainly, buying a first property is the challenge posed to many people in the UK today, but it is something that is achievable ‐ with some clever thinking. Find the right area where your money will go furthest and look for a workable albeit quirky property at a good price that you can improve in your own time. It may well not be the property of your dreams, but with both feet firmly on the property ladder you will be able to slowly and surely climb the rungs and get your ideal home in years to come...

(Important note: Please take professional advice prior to deciding on your purchase or method of buying a property)