Ten steps to getting on the housing ladder
1. Unless you win the lottery/bump off a rich relative, you’ll need a mortgage. These days, most are on a repayment basis. If you make all your monthly payments then, at the end of the mortgage, your home is 100% yours.
2. Before even thinking about buying, you’ll need the money for a deposit. Put money away in a savings account and it will grow (slowly, given current low rates). For a boost, look at Help to Buy Isas – the government adds an extra 25% to your savings – and look at Lifetime Isas.
3. The bigger the deposit, the better the home-loan deal you can get. You’ll usually need 5%, but you’ll get a better interest rate if you have a larger deposit. Set aside some of your savings to pay the stamp duty on homes over £125,000 and fees charged by solicitors and lenders.
4. If you’ve not got much saved, you could ask your parent(s) to act as guarantor so they underwrite your repayments with their collateral (such as money in a savings account). Both sides need to aware of the downsides: take advice before proceeding.
5. Shared ownership and help to buy schemes are sometimes offered on new developments. You could also get an equity loan from the government for 20% (40% in London) of new-builds up to £600,000 but this scheme ends in 2021.
6. How much you can borrow will determine what property you can buy. Lenders will want to know your income and outgoings (such as student loan repayments) and will also take into consideration whether you could still afford repayments if interest rates rose.
7. How do you find a lender? You can either go to a mortgage broker (some are fee-free) or direct to a lender – a bank or building society. We like London & Country which has a good calculator for mortgage costs on its website here.
8. The interest rate on a mortgage deal can be fixed, variable, capped, tracker or discounted.
9. Fixed rates are a good idea for first-time buyers on tight budgets because you know what the rate will be for the whole of the contract – usually two to five years. With the base rate (the bedrock borrowing cost set by the Bank of England) currently low, fixed rates look a bargain. BUT you will have to pay an arrangement fee – this could be £1,000 or more – and a penalty if you pay off the mortgage early.
10. Variable rate mortgages go up and down in line with the base rate and are normally a couple of percentage points above it. Capped rates are variable deals but with a cap above which your interest rate can’t go. Discount deals offer a percentage off the variable rate. Tracker rates move in line with a set interest rate, usually the base rate. With most of these, the offer lasts for a set period - there are some lifetime trackers - then your lender puts you onto the standard variable rate or you pick another mortgage deal.
- Track down the best mortgage deal at a comparison website such as Money Supermarket here.
- A guide on government help is here.
- Money Saving Expert explains how Lifetime Isas work here.
Last updated 12 March 2018.