Steps and tips to make buying a home feel attainable (Picture:Getty/Metro.co.uk)
Buying a house is a goal that feels like it’s getting more unattainable each year, given that the average UK house price is now a hefty £286,000 and £526,000 in London.
Did we mention the significant increase in mortgage rates over the past 18 months? The journey to your first home can feel pretty bleak sometimes.
But if your New Year’s resolution is to save your money and get on the property ladder, then Metro has you covered with all the tips and info you could possibly need to (hopefully) reach your goal by 2025.
We’ve sought out the expertise of Confused.com mortgage expert Claire Flynn, who has the low-down on the property market and how you can make your finances work for you.
Know your options
First thing’s first: you need to know your budget. By this we mean a realistic budget for a home that means lenders are likely to give you the money.
Claire says that a mortgage in principle, also known as a decision or agreement in principle, will help you work this out.
Saving for a deposit will help you get the keys to your new home (picture: Getty Images)
‘A mortgage in principle is an indication of how much you will be able to borrow from your lender, and estate agents may ask to see yours to check you’re serious about buying,’ says Claire.
‘For example, if you are offered a mortgage in principle of £140,000 and you have saved a £20,000 deposit, your estimated budget for a new home is £160,000.’
But this isn’t a guarantee a lender will accept your application and lend you that amount. However, you can always apply to another lender.
An online calculator like Mojo Mortgages will also give you an idea of your property budget ,but a mortgage in principle from a broker or lender will be more accurate.
But what determines your budget? Claire says: ‘While your deposit, credit score, length of mortgage and other factors will play a role, your current income is the biggest contributor to the amount you can borrow.
‘Lenders normally let you borrow around 4.5 times your annual income.’
Saving for a deposit
Next, it’s time to think about saving for that deposit, if you haven’t already started.
Claire says: ‘Most lenders will typically expect you to have saved a deposit worth at least 5% of the property value or price (whichever is lower).
‘The average deposit for first-time buyers is estimated at 20%. The average house price for first-time buyers in the UK was around £302,000 in 2022 – a 20% deposit for this amount is around £60,000.
Shared Ownership is just one of the ways you can get on the property ladder (picture: Getty Images)
‘The average house price for all buyers was a little less at £285,000 – a 20% deposit for this would be £56,000. But there are mortgages available for lower deposits, such as 5% and 10%.’
Don’t be disheartened at the eye-watering deposit figures though. Property prices vary hugely depending on location and type of property, so research house prices in the area you want to buy in before setting your deposit savings goal.
The cheapest places in the UK to buy are as follows: Aberdeen, Dundee, Kingston–Upon–Hull, Glasgow, Durham, Sunderland, Preston, Bradford, Stoke on Trent and Doncaster.
We aren’t forgetting there’s a cost of living crisis either, so Claire shared some simple tips to help you be able to save more.
She says: ‘It’s a good idea to track your outgoings. This will help you identify areas where you could cut back. See if you can reduce your spending on things you don’t need, and check your standing orders and cancel any you don’t use.’
A no spend month, while not sustainable for the whole year, could really help you save a chunk of money in just four weeks.
Claire adds: ‘Rethink your living situation if you are able to. Could you move in with a family member to pay less? Could you downsize or rent in a cheaper area?
‘If you don’t have a Lifetime ISA yet, consider setting one up to get a 25% tax-free bonus on savings. But there are terms and conditions involved, so make sure you read these before setting one up.’
Remember the key is ‘manageable savings targets’ for each month which will all add up and help get you your first home.
The Right To Buy scheme is another way you could get on the property ladder (picture: Getty Images/iStockphoto)
How to get a mortgage without a deposit:
Claire says: ‘Applying for a mortgage without a deposit means you’re asking to borrow the full value of the house you want to buy. A no-deposit mortgage is commonly known as a 100% loan-to-value (LTV) mortgage.
‘100% mortgages are quite rare these days, but Skipton Building Society recently launched a 100% LTV mortgage to help first-time buyers who can demonstrate regular rent payments.
‘Many other 100% LTV deals are guarantor mortgages. These require a guarantor who owns their own property to be named on your mortgage.
‘They need to agree to meet any repayments you miss. Crucially, they need to use their own property or savings as security. This means your guarantor’s own property or savings are at risk if you fail to make your repayments.’
Schemes to help you buy a property
Shared Ownership: A scheme where you buy part but not all of a property.
Claire says: ‘Shared ownership allows you to buy between 10 and 75% of a property. You then pay rent to a landlord on the rest. It allows you to buy a home above your current budget or with a lower deposit.
‘You can then work towards owning it outright by buying more shares over time.’
First Homes: A scheme where you can buy certain homes for less than their value.
Claire says: ‘The First Homes scheme is available in England and offers certain homes to first-time buyers for 30% to 50% less than the market value.
‘The properties either need to be a new-build or bought from someone who originally purchased it as part of the scheme.’
Essential workers who live in that area and earn less will have priority for First Homes but the scheme is available to those over 18 earning less than £80,000 per year or £90,000 per year in London.
‘You also need to be able to get a mortgage for at least half the value of the home,’ says Claire. ‘The homes cannot cost more than £420,000 in London, or £250,000 anywhere else in England, after the discount has been applied.’
Right to Buy: A Scheme where you can purchase the council home you live in.
Claire says: ‘Right to Buy allows those currently living in council houses to buy their council home at a discounted rate. You can apply to buy your council home if it’s your only home, is self-contained, and you’re a secure tenant with a public sector landlord for 3 years (this doesn’t need to be a consecutive 3 years).’
It’s important to research property prices in the area you want to buy, so you can work out your budget (picture: Getty Images)
Deposit unlock: A scheme to buy a new build property with a 5% deposit.
Claire says: ‘The Deposit Unlock scheme helps first time buyers and home movers buy a new build home with a 5% deposit, and applies to first-time buyers and home movers.
‘Developers pay to insure the mortgages, making them more comfortable with accepting lower deposits. To be eligible, you’ll need to find a new build home offered under the Deposit Unlock scheme.’
Lifetime ISA: A scheme awarding a 25% bonus each year on your savings.
Claire says: ‘A Lifetime ISA allows you to save up to £4,000 each year up to age 50. The government adds a 25% bonus to these savings each year.
‘Saving the maximum £4,000 per year means you can receive a top-up of £1,000 from the government each year.
‘You must make your first payment into your ISA before you’re 40, and you can’t use the money on a house purchase over £450,000. You also must have had the ISA for at least a year before using the money to buy a home.’
You can only use the money to purchase a home or as retirement funds. Withdrawing this money for other uses means you usually lose the bonus money and may have to pay additional penalties.
Get a mortgage as a self-employed worker:
Claire says: ‘There is no specific self-employed mortgage. If you are self-employed you apply for the same mortgages as anyone else.
‘You do normally have to provide more evidence that you have a reliable income during your affordability check though. Additionally, you will need to provide extra documents to prove your income.
‘This can include two or more years of certified accounts (ideally prepared by a qualified accountant), an SA302 forms or a tax year overview from HMRC for the last 2 to 3 years.’
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This could be the year you set yourself up for success.