Homeownership can seem like an unrealistic dream to many people. While it has become a lot more of a stretch for the current generations, it is not completely out of reach. In this article, we will give you tips on how to get onto the property ladder. We will also cover how to climb the property ladder once you’re on it!
How to Get On the Property Ladder
Getting on the property ladder can seem like a mammoth task, but if you follow these tips you will get on the property ladder sooner. Remember, the sooner you get on the property ladder, the sooner you can start to climb the property ladder.
Stay at home a little longer to save
If your circumstances allow, consider living at home a little longer so you can save a deposit much quicker. Discuss with your parents if they are comfortable letting you live rent fee and contributing towards bills, or allowing you to pay a small amount of rent in exchange for helping out around the house. Rent is a huge portion of living costs, so by being able to keep this cost down or non-existent, a bigger portion of your money can go into savings. It may affect your social life a little bit, but it will put you in a more secure financial position a lot quicker than most of your friends.
Some people may not be able to stay at home, that is fine too; instead, you should look to live well below your means and share accommodation with others. This could mean sharing your flat with friends or entering share houses for a few years while you pay for a deposit. While it is tempting to rent a one-bedroom apartment of your own, the extra couple of hundred in rent can mean thousands of pounds each year that you are not saving.
Build a credit history
Most first-time buyers will need a mortgage. To ensure you get the most favourable mortgage terms, you need to build your credit history. This means you take on small amounts of debt, like a credit card and paying them off on time. Missed payments will mean a lower credit score, so set up automatic payments to ensure you do not negatively impact your credit score. The following will build credit:
- Credit card
- Phone bill
Moving home regularly will also impact your credit score, so keep that in mind when you’re renting.
Joint accounts and joint bills that have your name on them can also impact your credit. Ensure that you only link your credit to people who are financially responsible and check bills and accounts regularly to ensure they are being paid on time. If you suspect you have joint bills or a joint account with someone who is regularly missing payments, then consider paying off the debt and closing the account to improve your credit score.
Live below your means
Lifestyle creep is the term given to the increase of spending that comes with increased income. Often when people get pay rises or start higher-paying jobs, they will upgrade their lifestyle, so that very little of that extra income goes into savings. Fight the urge to do this so you can save up your deposit much quicker.
The best way to combat lifestyle creep is to set up automatic payments into separate savings accounts and bills accounts. That way, your spending account will have the same amount of money in it, and you end up saying the additional money.
Don’t try to skip rungs in the property ladder
It can be tempting to save up until you have enough for a three-bedroom house with a lovely yard, but that is skipping rungs in the property ladder. The housing market increases at a much higher yearly rate than your wages ever will. So by waiting to get on the housing ladder, it will take you much longer to buy your dream house than if you saved for a one-bedroom flat and build up equity.
Buy the worst house on the nicest street
When you are buying a house or a flat, purchase one that needs renovations on a lovely leafy street with high-value properties. By doing this, the minute your renovations are complete; you will have gained significant equity in your home. You can borrow against this equity or keep it in the property so that when you sell, you will have a higher deposit for the next house you buy.
Use help to buy schemes
There are a number of help-to-buy schemes out there for new buyers where you can get higher interest rates on savings, lower interest rates on mortgages, or even free money. To start with, research Help to Buy ISA Accounts which are high-interest savings accounts that allow you to deposit a certain amount of money tax-free every year. The government will match your deposits to help you to get on the property ladder faster. If your bank or financial institution offers mortgages, then they will have information about current help to buy schemes. Pick up a brochure and start researching. Make sure you shop around for ISA accounts to ensure you get the best deal.
Create an extra income stream
While you should be looking to cut extra expenses from your budget, you should also consider looking for ways to increase your income. In the easiest form, this is talking to your boss about a raise. However, you should look at bringing in additional monthly income in the form of a side hustle. A side hustle is a side project or business that brings in extra income and also increases your skills. This could be a passion project, like baking bread to sell to your neighbours or using your skills to consult for small businesses. There is a wealth of knowledge out there on side hustles. Even £300 extra a month would add up to an extra £3,000 a year into your house deposit fund.
Don’t forget to look into taxation and entity formation requirements when creating a side hustle. Otherwise, the penalties could cost more than the profit your side hustle makes.
How to Climb the Property Ladder
You’ve bought your first property, congratulations on being a new homeowner. Remember, this is the very first rung of the property ladder. Over time you will be able to climb the ladder by selling your current property and purchasing one of higher value. It is best to wait at least 5-10 years between moves, as the longer you stay in a property, the more the value of the property is likely to increase. Get a valuation every 5-10 years to evaluate the strength of your position.
People will often climb the property ladder because their life circumstances change, and they want to start a family, move to a different area, or they are retiring and want something easier to maintain. Whatever your reasons for climbing the property ladder, here is how to do it.
Save for your deposit
Yes, you need to save another deposit, and this one is often much higher than the deposit for your first home. Because your money is currently tied up in your property, you will not be able to access it until you sell your first home. Deposits are calculated as a percentage of the purchase price of the home, so you will need to budget at least twice the deposit you paid for your current home.
If you are moving from a flat to a house, the deposit necessary could be bigger still; look at house prices to create a ballpark savings goal for your deposit.
Don’t forget stamp duty
First-time buyers will receive no or reduced stamp duty depending on the cost of their property. However, second-time buyers have to pay for stamp duty. Research the current stamp duty rates (they change regularly) to know how much you need to put aside for these. Stamp duty is paid upfront, so you need to have the funds ready when you purchase a property.
Think About Your Location
If you can stomach a slightly longer commute, you are likely to find more reasonable prices outside of the city centre. Most second-time buyers will purchase property on the outskirts of major cities or move to cheaper cities so they can get more house for their money. There are many benefits to this; you will often have a much roomier house and will more likely to have a backyard too! Consider this when moving up the property ladder.
You will be asking to borrow a considerable amount more money when you move up the property ladder. Financial institutions will go through your finances with a fine-tooth comb to ensure you can afford mortgage repayments. Just like you cleaned up your credit score for your first property, spend time getting your finances in order when you are planning to move up the property ladder. Talk to your current mortgage advisor about what things they look for and use it to clean up your finances.
Don’t forget to shop around for mortgages for your second home. Don’t assume that your current lender will offer you the best rates. The nature of your mortgage will have changed considerably, so get a number of quotes before you settle on a mortgage.
Rinse and Repeat
Once you have made the second step on the property ladder, rinse and repeat as many times as you need. Your second step may have already been to a family home, but you may need to upgrade in the future as your circumstances change. You might even just decide to move location or upgrade as you move up the career ladder.