Graduates are especially keen to get a foot on the ladder after finishing their studies and gaining independence out in the working world.
For many, home-ownership will be the next landmark achievement to tick off the list but with student debts and house prices continuing to rise, this may seem like an impossible challenge.
However by using the next ten steps as a guide, first-time buyers could well gain enough ground to leap up and onto the ladder:
Clear your debts
Any existing debts (including store cards, credit cards and personal loans), will be taken into account when applying for a mortgage, so make a start in paying them off. Ensure that any cash you can repay goes towards the most expensive debt first – for example pay off any credit or store cards, which generally have higher interest rates, before your student loan.
Economise
For the first time in three or four years most graduates will now have a regular income, and the temptation to splash out after years of scrimping will be strong. However, the more you can save, the quicker and easier it will be to get on the housing ladder, so try to retain some of those student values and economise. A take away pizza can easily cost £10, compared to buying one for £3 at the supermarket and although the free office coffee might not taste as nice as the coffee from Starbucks, addicts could easily spend £40 a month getting a daily fix.
Work out a budget and stick to it
Start as you mean to go on. Work out how much net pay you will receive, deduct any monthly rent and bills and set yourself a fixed amount for both spending and saving – and stick to it. If you know you want to go on holiday once a year save one twelfth of the cost each month and accrue some money to cover annual expenses – like getting your car taxed and having an MOT. Sign up for internet banking and keep a close eye on what you’re spending.
Save for a deposit
Save, save, save! An average first time buyer now spends £154,394 on their first property, which means you need to save around £8,000 for a 5 per cent deposit. 100 per cent mortgages may seem like a tempting offer, but having just a 5 per cent deposit can make a difference of over £150 a month on a £150,000 home.
So save as much as you can afford – if by some miracle there is any cash left in your bank account at the end of the month move it to your savings account and start the next month afresh – every little helps!
Avoid a higher lending charge
A higher lending charge is a fee some lenders charge for borrowers with a small deposit. Although the borrower pays this fee, they receive no direct benefit as a result, it simply enables them to borrow a higher loan to value (LTV) proportion from some lenders.
In 2007, Nationwide predicts borrowers will spend a staggering £220 million unnecessarily on higher lending charges. Nearly 110,000 borrowers will be affected with each borrower paying, on average, a charge of around £2,000. This can easily be avoided by choosing a lender who doesn’t have a higher lending charge.
Don’t overstretch yourself
Before committing to a mortgage, work out what you think you can realistically afford to spend on repayments each month and keep the figure in mind when house hunting. Most lenders’ websites will show you how much you can borrow and what the repayments for that amount will be.
Lenders will take into account any loans or debts that have to be repaid when calculating what they will lend, but only you will know how much spare cash you’d like to have left for shopping, socialising and going on holiday – don’t overstretch yourself and miss out on other exciting opportunities.
Shop around for deals
When looking for a mortgage make sure you compare more than just the rate. A low rate deal could end up costing more if there are large fees. Make sure you compare reservation fee, valuation fee and solicitor’s costs. Ask lenders to calculate the total amount payable over the life of the deal you have chosen and use these figures to compare – they will give an accurate reflection of what the mortgage will actually cost.
Don’t be lured by ‘graduate’ offers
Some lenders offer exclusive mortgage deals just for graduates – but check the small print before you commit, as they might not always be the best option. Some lenders, like HSBC for example, require graduates taking out the ‘graduate mortgage’ also have a graduate bank account – which pays just 0.10 per cent interest per month.
Consider which type of rate will suit you best
Buying a house is an expensive business and it doesn’t stop once you’ve moved in. Furnishings, utility bills and unexpected costs always crop up. One option available to help gain some certainty is to opt for a fixed rate. You will know exactly what you’ve got to pay back each month, rather than finding yourself worse off if interest rates rise and your payments do too.
Alternatively, you can opt for a tracker rate and find yourself with some extra cash to spare if rates go down – although don’t forget you always risk being exposed to larger repayments if rates increase.
Buy with a friend
If you’re desperate to get on the property ladder but can’t afford to go it alone consider buying with friends. A lot of lenders now offer mortgages for friends who want to buy together as it becomes far more commonplace. It can be a cheaper and less stressful way of getting started, and, after years of sharing in student digs you’ll be used to a house full of friends already – although do be warned that you need to have 100 per cent trust in the other mortgagees as it’s not a decision to be taken lightly.
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