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5 tips for getting onto the property ladder

We look at five helpful tips for first time buyers.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

More than a quarter of people were helped onto the property ladder by friends and family according to the 2019-20 English Housing survey.

But it’s not the only option for first-time buyers. In fact, the number of new buyers getting help from family and friends has dropped dramatically since 2017. While the number using savings has soared.

Whether you’re going it alone or getting a hand from someone else, here are five tips for getting a leg-up onto the property ladder.

This article can give you helpful tips, but it isn’t personal advice. Tax and Lifetime ISA rules can change, and their benefits will depend on your personal circumstances. If you’re not sure whether something is right for you, ask for finanical advice. An adviser can help you understand what’s right for you.

1. You can get free money from the government

If you’re aged 18-39 you can open a Lifetime ISA and pay in up to £4,000 a year (up until age 50). The government then tops up all your contributions by 25%. So if you max it out, you’ll get £1,000 of free money from the government every year.

Once you’ve held it for at least a year, you can use it to buy your first home, as long as it costs no more than £450,000. Or you can withdraw it once you’re over age 60.

Although it’s a great way to save for your first home, it’s important to know if you withdraw money for other reasons, you’ll usually have to pay a 25% penalty on the amount you withdraw, so you could get back less than you put in.

You can choose to hold the money in your Lifetime ISA as cash or invest the money. If you’re planning to buy within the next five years, cash is usually the most sensible option. Overwise, it’s at least worth weighing up the pros and cons of investing your deposit. Remember though, the value of investments can go down as well as up, so you could get back less than you initially invested.

Find out more about Lifetime ISAs

2. You can buy with a 5% deposit

In April 2021, the government started providing guarantees to lenders to encourage them to offer more 95% mortgages.

If you have a 5% deposit, you might be able to buy now. But you might need to be quick as the scheme only runs until the end of December 2022.

You could also look at the help-to-buy equity loan. You’ll only need a 5% deposit and can borrow 20% from the government (40% in London), and the rest through a mortgage. But you need to be a first-time buyer looking for a new build property, and you really need to understand what you’re getting into.

Repayment of the government portion of the loan is a particularly thorny area – it could cost more than you think. So, make sure to do your research so there are no nasty surprises further down the line.

3. You can get a family mortgage

Most people know about guarantor mortgages – where a family member will guarantee to pay your mortgage if you miss any payments. But it’s a major undertaking for the guarantor, so isn’t right for everyone.

There are alternatives though, and more banks are starting to offer family mortgages. Some have family offset mortgages, which allow your family’s savings to offset your loan, so less interest is due.

Others allow a family member to use their savings as a 10% deposit. As long as they leave it in a linked account for at least five years, and you stick to your repayments, they get it back with interest.

You need to understand the commitment your family is making, and make sure they’re comfortable with it. But it gives you alternatives.

4. It might be easier to get a bigger mortgage soon

The Financial Policy Committee is revisiting the stress test built into mortgage applications. The idea is that people shouldn’t be able to borrow on cheap mortgages without being able to continue to pay their bills if mortgage rates rose.

So, you have to be able to afford for your mortgage to revert to the standard variable rate and then for that standard rate to rise 3%.

In practice, because fixed rates have fallen and standard variable rates have remained remarkably sticky, it means having to prove you can afford a very expensive mortgage in order to be able to get a lower cost one.

In future, the stress test is likely to be much less demanding. But it’s important to make sure you can still afford to get by day to day if you are taking out a larger mortgage.

5. You don’t need the end in sight to make a start

It can feel like you have a mountain to climb to get onto the property ladder, especially at a time when prices are rising through the roof. But it shouldn’t stop you making a start by putting away whatever you can afford as soon as you can afford to do so.

You might be able to boost your deposit through a Lifetime ISA. If you have a time horizon of 5-10 years or more, you could think about investing at least some of this deposit. Investments have the opportunity to grow in value by more than cash over the long-term. However, unlike the security of cash, investments will rise and fall in value so you could get back less than you put in.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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