First time buyers: how to get on the ladder

Purchasing a property for the first time is a dream of many, however acquiring the funds to do so can be a huge struggle. Here’s a quick guide on how you might look to save the money you need to get yourself onto the property ladder.

Help to Buy ISA

The help-to-buy scheme was set up by the government to help first time buyers get a step on the property ladder, through saving their cash. The government provide a 25% bonus when you reach a certain amount in your ISA, meaning a monetary grant to help you take that step.

But is the seemingly faultless scheme worth it?

+ Government bonus: A help-to-buy ISA means the government will provide a 25% bonus on top of your savings, better than any other current interest rates.

+ One account each: If you’re buying with a partner, opening one ISA each allows you to have a maximum potential bonus of £6,000

+ Hands on your cash: You are able to withdraw your savings as well as the tax-free interest along side it, however do this before purchasing your home and the government bonus will be deducted.

– In for the long haul: Saving with an ISA can be slow, with a cap of £200 to deposit a month, to claim the max bonus of £3,000 would thus take 4 and a half years.

– For the few: This type of ISA is only available for one type of buyer, first time. This may seem obvious, yet the alluring bonuses prove the envy of seasoned house buyers.

– Flat bonus: You don’t receive interest on the government bonus, only the money you’ve paid in between the £1,600 – £12,000 range will receive interest.

95% mortgage and finding a cheaper mortgage

Banks will often offer different mortgage rates depending on the size of the down payment you can cough up.

For example, a 10% deposit may result in a lower mortgage rate, but this means spending more time saving and less time searching for your dream home.

There are a few steps you can follow to find the cheapest mortgage deal:

  • Your bank will never offer you the lowest possible deal, they are a business trying to sell a service, so if you do find your bank offering the lowest rate, take this as a rarity.
  • There are plenty of comparison sites that will compare thousands of deals across the web that could find a cheaper deal for you.

Is there anything wrong with holding back and saving more?

This is a pretty personal decision, if you have found a house that you love and is at risk of selling to another buyer then the outcome is simple. But keeping in mind that the larger the deposit, the better the mortgage rate would make you question whether long-term that is the better decision.

Currently, mortgage rates are at a 10-year low. If you spend another few years saving the additional funds to save you money, if rates rise again, the saved money would simply be spent in the same way, but on a higher mortgage – meaning the fruits of your savings will never be felt.

Saving v investing

Interest on your savings is now paid out tax-free, but with interest rates at an all time low, you need to ensure your money is stored in the best possible account for you.

As well as this, you can invest your money for profit return at a later date, however this option comes at a risk.

To weigh up both options you need to know the clear difference between them:

Saving: You will store your money away with a bank and are able to withdraw it all, potentially with interest.

Investing: Your cash pot with grow at a faster rate, however you risk losing some along the way if risky decisions turn sour.

The choice between both forms of saving should be considered along side your current financial status. If you are starting on low funds, it would be safer to save (as through investing you could potentially end up with fewer funds than originally began with), meaning what funds you have are secure and always growing, even if it is slower.

Savings on stamp duty

If you’ve been close to getting the funds in place, then the recent changes to stamp duty will certainly help get you over the line.

Stamp duty is a tax that buyers will have to pay if their property is over a certain amount. The price of your stamp duty will then vary depending on the value of your property from the set cost.

If you are a first time buyer and your property has a value of up to £500,000, you pay no tax on the first £300,000. For anything above this you will pay 5%.

Saving for a deposit in a year

Jessica McDonnell and her husband saved enough money for a deposit on a home within a year, without financial support, at the age of 27.

The couple established a set of rules that could be used to help you do the same as them:

Set a target: The couple set themselves the goal of saving for their deposit within 12 months. Even though seemingly impossible, Jessica claimed having a deadline helped to motivate them to curb their spending habits.

Budget and plan for the future: The couple were still paying rent on a property, meaning they had to look inwardly to reduce their spending and save more money. Try switching to more budget supermarkets, or reducing the amount of branded items you purchase on a weekly basis. As well as this, try meal planning, it will encourage you to only buy the food you need.

Help to buy ISA: as a couple they were first time buyers, meaning they could deposit an additional £200 into a safe space, which was being topped up by the 25% government interest.

If you have queries relating to purchasing a property, or you are a first time buyer who needs legal assistance, don’t hesitate to call DBS on 0800 157 7055.

Get your fixed-fee property quote today