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Getting that first foot on the property ladder can seem out of reach for many people today, particularly for those at the start of their careers. However, owning your own property is attainable with careful planning and sensible saving.

SAVING FOR A DEPOSIT

The first step is saving for a deposit. By putting some money aside each month and keeping unnecessary spending to a minimum, you should be able to start to grow your savings. Help too may be available through shared ownership with a friend or looking at some of the newer options such as our own Family Mortgage which allows family assets to be considered as security.

HOW MUCH WILL YOU NEED TO SAVE?

The minimum deposit you will need to get a mortgage is 5% of the purchase price. For a mortgage on a property costing £200,000 that would mean saving at least £10,000. This is a significant amount of money, so the earlier you start saving the better. And of course in addition to the deposit you will also need to set aside money for a number of other fees involved in purchasing your home, notably:
  • Mortgage fees
  • Valuation and survey fees
  • Searches
  • Legal costs
  • Stamp Duty
  • Insurance
  • Moving costs

LOAN TO VALUE (LTV)

If you buy a property worth £200,000 and you put down a deposit of £20,000, the amount you need to borrow (the mortgage) would be £180,000. In other words you would have paid 10% of the total cost, while the mortgage lender provides 90% of the total. The 90% is known in the property business as the Loan to Value (LTV).

The greater the LTV amount, the bigger the risk for the mortgage lender, so this will result in a higher interest rate on your mortgage. If you are able to save between 20% and 40% of the deposit, you should be able to get a lower mortgage interest rate.

OPTING FOR FREEHOLD OR LEASEHOLD

If your property is freehold, you own the land and the building and can decide what to do with them (subject to legal restrictions). With leasehold you just buy the right to live in the property from whoever owns the freehold for a set period of time. Often the lease is for 99 years.

However, as a leaseholder there are restrictions on what you can and cannot do with the property. Typically you will also pay ground rent, annual management charges, service charges and a proportion of repair bills to the freeholder.

SAVING CHOICES

Opening a dedicated savings account is the easiest way to start saving for your mortgage deposit. Regular savings accounts pay a higher interest rate than current accounts, providing you pay money into the account each month. However, in return for the higher interest rate you normally have to pay in for a set period of time (typically a year) and there may be restrictions on withdrawing money.

A good way of boosting your savings is by opening an Individual Savings Account (ISA). In the 2017-18 tax year a sum of £20,000 can be put into cash or stocks and shares. ISAs and any interest or growth you receive is free of any personal liability to Income or Capital Gains Tax.

Remember, however, that the value of an investment in a Stocks & Shares ISA may fall as well as rise and is not guaranteed, so you may get back less than you invest.

The tax efficiency of ISAs is based on current rules, and the current tax situation may not be maintained. The benefit of the tax treatment depends on individual circumstances.


HELP TO BUY ISAS

A Help to Buy ISA is a type of tax-free savings account designed to help people save for a deposit on a property. You can open a Help to Buy ISA with £1,000 and then pay in up to £200 per month from then on; the Government will boost your savings by 25% – so for every £200 you save, you’ll receive a £50 bonus.

You get the bonus once you have bought a property costing up to £250,000 (£450,000 in London). If you open the account with £1,000 it will take you around four-and-a-half years (55 months) to save up to the savings limit of £12,000 and get the maximum bonus of £3,000.

FINDING A PROPERTY TO BUY

To make that first step towards owning your own home, you’ll have to find one first. Buying a property is likely to be the most expensive thing you ever do so it’s important to be sure.

Before you start looking you have to decide what you need from your new home. These are the easy things, like location, size and budget. How will your new home help you live the life you want to live, now and over the next few years? Always bear in mind that you can change almost everything about a property except for its location, so don’t be put off by a well located property that may need a bit of work or isn’t decorated to your taste.

Once you start visiting properties, you’ll get a feel for which ones sit well with you and, when you find one you love, you may be tempted to put in an offer right there and then. Before you do this, consider these questions:

What is the area like? Do the neighbours seem nice and is the neighbourhood well kept?
What will the area be like? Are there any plans for development and will they affect you negatively or positively?
How much is the property really worth?

NEGOTIATIONS

Having researched the market and looked at similar properties in the same area, you should have a good idea of what represents good value. So if you believe the property is over-priced or has problems that will cost money to rectify, be prepared to negotiate on the price. Pay particular attention to the survey results and any expert reports indicating repair work that may be required.

Don’t be afraid to ask the seller to include extras within the price such as white goods, furniture, or fixtures and fittings as it may be easier to leave them behind than to take them.

GAZUMPING

Gazumping is where a seller originally accepts an offer from a buyer, and then later accepts a higher offer from another buyer. This is legal everywhere in the UK, except in Scotland.

If you are gazumped, you can choose to offer a higher price to retain the property, but you could be gazumped again if the second buyer raises their original offer. Gazumping can lead to you losing not just the property but also the money you’ve already spent on fees, searches and surveys.

You can protect against gazumping, or the sale falling through for other reasons, by taking out home buyer’s protection insurance.

TYPES OF MORTGAGE

There are two main types of mortgage: fixed and variable rate. Fixed rate mortgages are, as the name suggests, set at a fixed interest rate for typically anything between two and five years, whereas a variable rate mortgage can move up or down at any time after the mortgage has completed depending on such factors as the Bank of England rate, for example.

Mortgages are set for a specified number of years during which you have to pay back all the money you have borrowed, month by month. Typically the mortgage duration is 25 years, but can be shorter or longer.

BORROWING GUIDELINES

The amount you can borrow depends mainly on how much you earn and the size of your deposit. However, mortgage lenders also need to be sure you can afford to make the mortgage repayments each month, taking into account your household expenses, any existing debts and whether you could cope if interest rates rise in the future.

To work out how much you could borrow with a mortgage you can use our mortgage calculator.

What’s the difference between a repayment mortgage and an interest only mortgage?
  • Repayment mortgage: You pay back some of the amount you borrowed plus the interest, so the loan is paid off in full at the end of the mortgage period.
  • Interest-only mortgage: You pay just the interest and not the money you borrowed, so by the end of the mortgage period you still owe the same amount as when you started.

An interest-only mortgage is suitable if you also have a realistic way of repaying the money at the end of the mortgage. For example, a savings fund or investments that will grow sufficiently to pay off the outstanding amount. However if your savings or investment plan doesn’t cover the full amount, you’ll be responsible for paying the difference.
Family Building Society
Ebbisham House
30 Church Street
Epsom
Surrey KT17 4NL
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