A step by step guide for first-time buyers; how to position yourself for a successful transition on to the UK property ladder.
Read time: 6 minutes.
Welcome to today’s blog. This post is all about how to get yourself onto the property ladder in today’s market. I will be giving guidance on government schemes that are at your disposal, as well as talking about how to better manage your money to help save for that all important deposit. If you’re unsure of anything in this post or would like further advice, please feel free to contact us via any of our social media channels, by email or by telephone.
Before we get started, it’s worth mentioning that all of the below comes from personal experience. I purchased my first renovation project at the age of 20 and by the time I was 22 I had owned 3 separate properties. If you can follow the below guide to the word, you’ll be a homeowner in no time.
First thing’s first – Affordability.
Before you start planning for your purchase you will need to understand what your spending limits are. There are a couple of ways to go about this; you can either approach your bank for an appointment to find out the best mortgage deal they can offer you. This will involve providing them with a host of personal information, mainly your income and outgoings This will allow them to determine your affordability. They will then inform you of the maximum amount they would be willing to lend you. This comes in the form of a document which is known in the industry as an AIP (Agreement in Principle) or a MIP (Mortgage in Principle). This needs to be kept safe as it will need to be presented to your estate agent when you are looking to make an offer on a property. This is a way of proving that you can afford the offer you’re putting forward.
Many buyers go one step further and employ the services of an independent mortgage broker. The benefit of going with an independent is that they don’t work for any one particular bank or building society and often have a much broader range of lenders to choose from. In most cases, this means you will have access to a better deal through an independent broker. If you want a recommendation on a trusted broker, then feel free to contact us and we can put you in touch with someone who can help.
Secondly, Mortgage deposit.
You’re going to need money in order to pay the deposit on your mortgage. The average mortgage lender will request that you are able to make a minimum down payment of 10% of the price of the property you are seeking to purchase. This is called your deposit (Some lenders accept a 5% deposit and if they won’t, the governments Help to Buy: Equity Loan, subject to eligibility, terms and conditions, makes it possible to purchase with a 5% deposit on selected New Build homes. You can read all about the Help to Buy: Equity Loan in our Help to Buy Guide). You’re required to make a deposit payment to give the bank a buffer against potential fluctuations in the market price of your property. Getting started is as easy as contacting your local Help to Buy: Equity Loan agent.
It is important to note that it’s illegal to use borrowed money to make a deposit payment on a mortgage. It must either be your own money or it must have been gifted to you. If the funds are coming from a third party as a gift (parents, spouse or a friend) then you must be able to provide proof that this money is a gift, and that the sender does not expect the money to be returned at a later date. The proof is usually given in the form of a signed letter from the sender, confirming that the money has been gifted rather than lent.
Now, Set yourself some goals.
Amount. You need to calculate how much deposit you need to save. In order to do this, you’ll need to research prices in the area you’d like to live to give yourself an idea of the amount of money you will need to save for a deposit. Don’t forget that you’ll need to stay within your maximum borrowing limit. It’s never a good idea to look too hard, you don’t want to fall in love with a property before you’re ready to buy. You’ll only set yourself up for disappointment.
Date. Once you’ve set a monetary goal, it’s time to set a date by which you should achieve that goal. If you don’t set a specific date then it becomes too easy to break your monthly saving objectives. Your date should be realistic so that your monthly saving target is achievable. This will give you the best chance of success.
Here’s an example: let’s assume you’ve seen a new build development that’s offering 2 bedroom semi-detached homes for £120,000 with the aid of the Help to Buy: Equity Loan, subject to eligibility, terms and conditions. You’ve decided you want to be able to start the legal process to purchase this property in 12 months time. Here’s how you break down your saving target:
Minimum Deposit of 5% £6,000
Total Deposit ÷ 12 months £500 per month
However, it’s important to remember that the price of your chosen property will probably increase by the time you are ready to buy, so you’ll need to accommodate for this. Whatever your monthly saving figure comes to, you should add an extra 10% as a safety net.
£500 + 10% safety net £550 per month
Deposit saved after 12 months £6,600
Time to hit that target. Here’s how.
12 months of saving might seem like a daunting task, but it will be worth it in the long run. Here’s the golden rule to saving towards a goal. Set your money aside at the start of the month, NOT at the end. Here are two more top tips to get yourself on track for home ownership.
1 – Help to Buy: Equity Loan scheme (2021-2023)
Applications have been available since 16th December 2020. First-time homebuyers who are eligible for this loan can borrow up to 20% of the purchase price of a new build home. In Lincolnshire, the price cap for Help to Buy: Equity Loan homes is £261,900. You can find out more information here.
If you need extra help managing your money then there is some really smart technology available to keep you on track. I’ve had great experiences with the ‘Cleo’ chatbot on messenger. It links directly to your bank account and lets you set, daily, weekly and monthly goals. Here’s a link to find out more – https://www.meetcleo.com/
2-Curb your spending
It sounds obvious, but it’s important to understand exactly what you’re spending your money on. The best way to find this out is to grab a pen and mini-notepad small enough that you can take it everywhere you go. You need to keep an expenditure diary and log every single purchase you make over the course of a month. This includes any direct debits that automatically debit your bank account. The benefits of being able to review your spending habits in black and white are amazing. It allows you to filter through the things you really don’t need to be spending your money on, like a £4 coffee, or a £20 trip to the cinema. All of these items seem trivial at the time but as soon as they can be seen mounting up on paper, they trigger the feeling of guilt, and this is the first step to changing your spending habits. You should always be thinking about ways to save money. Packed lunch is a must. You can reduce your daily food bill drastically by preparing each of your own meals.
3-Tell some close friends and family what you’re doing
It’s best not to brag about buying your first house, but it helps to tell people close to you about your goals. Your close friends and family can support you through the process of saving money. It also less likely that they will try and tempt you into social situations where you may spend money unnecessarily.
You’re ready to buy!
If you’ve stuck to the above plan for the full duration of your saving plan, you should now be ready to start looking for property for sale in your area. It’s time to take to Rightmove to find that dream home. Alternatively, you can make contact with a dedicated estate agent to help you with your search. At The New Homes Agent, we are more than happy to arrange a free property consultation for anyone looking to buy their first home. We can advise you on the availability of each of our current developments and offer guidance on the rest of the buying process to make your experience as straightforward as possible.