A First Time Buyers Guide – Stepping Onto The Property Ladder

For many young people buying their first home can be extremely difficult. In the last two decades young people owning their homes has fallen substantially, with a whopping 40% of people no longer being able to afford the cheapest home in their area. Research has shown that young adults with middle incomes felt the pressure of rising house prices more than any other social group. In England property prices have risen, whilst in terms of pay rises, more than 10 million workers received a pay rise of 1% or less last year, according to the Office for National Statistics. Expensive rents have meant that potential first-time buyers are unable to save a big enough deposit in order to be able to buy a home.

For those people struggling to buy a property for the first time, here are some practical solutions to potentially help secure the first step onto the property ladder:

Buy a property with a friend – Buying a property with a friend can be a practical way of getting onto the property ladder.

There are many advantages to buying a property with a friend, the most important factor being that the individual financial burden that home ownership can bring, is reduced. Together as friends you will be sharing the cost of; the mortgage payments, the deposit, household bills (council tax, utilities etc.) and the purchase costs associated to the legal transaction (stamp duty, legal costs and survey costs etc.).

Reduction of outgoings – One of the ways to assist in boosting your savings for that all-important deposit, is to simply cut down on existing outgoings. This could involve making your lunch at home rather than eating out and skipping the takeaway coffee each morning. Over a period of time, these little savings can make a difference.

A more radical approach, if possible, is to move back to parents, as this would enable a larger sum of cash to be saved, or alternatively consideration could be given to moving to a cheaper rental property.

Using a government savings scheme– In order to assist first time buyers the government offers a ‘Help to Buy Equity Loan’ and a ‘Help to Buy ISA’.

Help to Buy Equity Loan – What is required:

  • You will only be required to provide a 5% deposit as a minimum
  • The government will lend up to 20% of the purchase price (up to 40% in London)
  • A mortgage of only up to 75% for the purchase price (up to 55% in London) is required
  • The property must be bought through a registered Help to Buy scheme

In terms of eligibility, the property being purchased is required to be a new build; the property purchase price must be less than £600,000, the purchaser must not own any other properties and the property is not allowed to be sub-let or rented out.

Help to Buy ISA – The Help to Buy ISA works by the Government boosting a first-time buyer’s savings by 25%, to assist in the purchase of a new home. For every £200 that is saved, the government will provide a contribution of £50. The maximum government bonus that can be received is £3,000; in order to receive that sum, £12,000 will need to have been saved.

To qualify for this ISA, the person must be a first-time buyer, must not own another property and the purchase price must be under £250,000 or under £450,000 in London.

Ensure that you advise your solicitor or conveyancer to apply for your government bonus once your offer has been accepted.

The bank of mum and dad
Sometimes the only way people can buy their first property is with the assistance from the bank of mum and dad. Parents providing cash gifts to their children whilst they are alive, as opposed to leaving them in their will as part of their estate, has become increasingly common. However, is it advised to consult a solicitor in relation to the potential tax implications of such a gift.

A final option to explore, is the option of parents acting as a guarantor of their child’s mortgage. Although a favourable option for a child, from the parent’s perspective this may be considered too risky, as essentially the parents are taking on their child’s debt, including being legally responsible for any missed mortgage payments/mortgage arrears. In this instance parents need to be clear as to all of the financial and legal obligations of a guarantor, before deciding to help a child onto the property ladder.

If you require legal assistance with buying your first property, or with any legal property related matter, please contact Aurora Dedja-Lika in the Property Team at The Sethi Partnership Solicitors.

Aurora Dedja – Lika
T: (0)20 8866 6464
E: aurora@sethi.co.uk
The Sethi Partnership Solicitors I The Barn House I 38 Meadow Way I Eastcote I Ruislip I Middlesex I HA4 8TB

“This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.”