For many first-time buyers, the property ladder can seem like an insurmountable obstacle. However, with careful planning and the right strategies, it’s possible to overcome these challenges.
For many first-time buyers, the property ladder can seem like an insurmountable obstacle. However, with careful planning and the right strategies, it’s possible to overcome these challenges. Here are five tactics that our featured first-time buyers have found helpful.
Using Government Schemes and Savings Plans
One effective way for first-time buyers to get on the housing ladder is by using government-backed schemes and savings plans. For example, Cameron and Georgia Smith used a Lifetime ISA (LISA) to save for their £320,000 home in Hertfordshire. The scheme allows 18-39 year olds to save up to £4,000 per year, with a 25% government bonus, as long as it’s used to buy a home under £450,000.
Government-backed schemes refer to initiatives launched by governments to support various sectors, such as business, education, or healthcare.
These schemes often provide financial assistance, tax benefits, or subsidies to encourage growth and development.
According to a report, 70% of countries worldwide have implemented government-backed schemes to boost their economies.
Examples include the US Small Business Administration (SBA) loan program and the UK's Enterprise Finance Guarantee Scheme.
Another example is Daniel Price, who used a Help to Buy ISA to top up his savings and eventually bought a three-bedroom home in the South Wales Valleys. The scheme provided a £3,000 maximum bonus, which helped him reach his deposit target.
A Help to Buy ISA is a savings account designed to help first-time homebuyers save for their deposit.
It's a tax-free savings account that allows individuals to save up to £12,000.
The government contributes a bonus of 25% of the savings, capped at £3,000.
This means that if you save £12,000, the government will add an extra £3,000 to your deposit.
To be eligible, savers must have a minimum income and not own any property.
The account can only be opened by first-time buyers who are purchasing their primary residence.
Income-Boosting Mortgages
For some first-time buyers, income is a major obstacle when it comes to getting on the property ladder. However, by using an ‘income booster mortgage,’ they can increase their borrowing power. For instance, Abas Rai used this type of joint mortgage to buy his first home in Suffolk.
An income-boosting mortgage is a type of loan that allows homeowners to borrow more money based on their potential future earnings.
This can be beneficial for individuals with variable incomes, such as freelancers or entrepreneurs.
By considering future income projections, lenders can provide larger loan amounts, increasing the homeowner's purchasing power.
However, this type of mortgage comes with higher risks, making it essential for borrowers to carefully assess their financial situation and ability to repay the loan.
The scheme works by combining the incomes of two people, even if one of them is not living in the property. This allows lenders to offer bigger loans and increases affordability. However, it also comes with risks, such as liability for a parent’s age or health.
Relocating for Affordability
Many first-time buyers are finding that relocating to an area with lower house prices can help them get on the property ladder. For example, Alex Bonfield and her husband moved from Oxfordshire to Manchester to buy their first home. The difference in average house prices between the two areas was significant, making it more affordable for the couple.
According to Santander UK, 67% of first-time buyers over the past two years have relocated to get on the property ladder. This can be a good option for those who feel priced out of their local area or are struggling with affordability.
Shared Ownership and Lodging
Another strategy used by some first-time buyers is shared ownership. For instance, Oliver Jones bought a 25% share in a £500,000 two-bedroom flat in London and sub-lets to a long-time friend. This arrangement allows the buyer to purchase a portion of the property while paying rent on the rest.
Shared ownership schemes can be more accessible than traditional mortgages but come with complexities, such as service charges and limited resale flexibility. However, for some buyers, it provides a cheaper alternative to buying the entire property.
Slow, Steady Saving
Finally, many financial experts recommend that first-time buyers take a slow and steady approach when saving for a deposit. Tom Francis, head of digital advice at financial advisers Octopus Money, suggests breaking spending into three buckets: essentials, desirables, and indulgences. This can help individuals prioritize their savings and make the most of their budget.
Sarah Tucker, CEO of The Mortgage Mum, also stresses the importance of seeking professional advice from mortgage brokers before making a decision. ‘There’s nothing better than speaking to a professional,’ she says.
