Owning a home is a pipedream for more than half of millennials who don't think it will ever happen for them. Getting on the property ladder is an expensive business, but it’s not impossible. Here are our top five tips to being able to afford your own home:
Get in control of your finances
Buying a property is a huge financial commitment so it’s crucial to get your money matters in order. One of the first steps to feeling more in control is to monitor your spending. If you think there’s too much going out unnecessarily, identify things you could cut out. Make sure you’re not overpaying for utilities such as energy, TV subscription, credit card debt and insurance by using a comparison website .
Save, save, save for a deposit
Once your financial affairs are straight, it’s time to start saving. It pays to save as much as you can, as the bigger the deposit, the lower the interest rates on offer for a mortgage. This is because the lender is putting less money at risk, and rewards you with cheaper rates.
Those already saving can assign more money into their deposit fund that would previously have been earmarked for stamp duty. First-time buyers will pay zero stamp duty on the first £300,000 of any home costing up to £500,000, and only 5% on any proportion between £300k and £500k.
Choose the right savings account
Finding a decent account for your hard-earned savings is important to boost your deposit. Some first time buyers might use current accounts to save for a house deposit. Yet most current accounts don’t pay any interest at all.
If you are a first-time buyer, you can apply for a Help-to-Buy Isa which is a tax-free savings account with a Government bonus. A maximum of £200 a month can be saved, plus an extra £1,000 in the first month. Saving £12,000 over 55 months will gain the maximum £3,000 bonus for homes costing up to £450,000 in London and up to £250,000 elsewhere.
Alternatively, there’s a Lifetime ISA which offers a Government tax-free bonus of up to £1,000 each year. For every £1 you save into the account, the Government will contribute another 25p tax-free. On the maximum £4,000 a year contribution, the tax-free bonus will be £1,000. The money can be put towards buying your first home (or towards your retirement savings). The property you are buying must cost no more than £450,000 anywhere in the UK. You can also use a regular cash Isa where you can save up to £20,000 in one tax year and interest is tax-free. You may find better rates in a standard savings account where basic rate taxpayers are entitled to £1,000 of tax-free interest - or £500 for higher rate taxpayers. Just make sure you compare accounts to get the highest rate.
Check your credit report
When applying for a mortgage you will be credit checked, so now is the time to check your credit report and ensure all the information it contains is accurate and up to date. By understanding your credit report early, you can get on the front foot and start to talk to a mortgage advisor about the best options out there for you.
Equally, a mortgage application can be held up if there is a problem, which often arises when credit records are inaccurate. Make sure it’s squeaky clean - and correct - before you start. It could save you lots of time.
Find the right mortgage
With a deposit saved, your credit report gleaming and your financial affairs streamlined, you might be ready to start looking for a home. Even if you haven’t found the right place, you should do some research on what mortgage you can apply for. Finding the right one for you is not just a matter of finding the lowest interest rate. There’s more to it. First you need to decide what type of mortgage is best for you - fixed rate or variable and how long for. It’s also crucial to consider the overall cost of the mortgage – including all fees and incentive packages such as cashback.
A Help to Buy mortgage is designed for those with smaller deposits. There are plenty of 5% deposit rates available in the mainstream mortgage market, however they can be more expensive in the long run. Once you find the right deal - either with the help of a comparison website or a mortgage broker - you can apply.