Friday, 5 July 2013

How To Get Your Foot On The Property Ladder

MPs are not convinced that Chancellor Osborne's Help to Buy scheme is the best way to get young people onto the property ladder. A BBC article reports, "Mr. Osborne has said the housing market is still not functioning properly after the 2008 financial crisis, with the number of purchases by first-time buyers down 40% in the past five years." To tackle this downward turn in the property market he suggests that "loans from High Street lenders for house purchases of up to £600,000 would be underwritten by the government", making it easier for those to buy a property to access loans. The Treasury Committee has concerns that the Help To Buy scheme will make "the government an active player in the market with a financial stake in propping up prices." A Telegraph article claims that economists "have warned that it risks inflating another unsustainable property bubble and repeating the US error of subsidising sub-prime lending."

In this turbulent time, when policies are being made that could cripple the economy even further, it's difficult to know which way to turn. With new schemes popping up and incentives being handed out, could taking advantage of an economy in desperation send you into a similar position?

The old fashioned way

Most economists would agree that saving for a deposit is still the best way to enter the property market. Marian Bell, a former member of a rate-setting committee isn't sure what the Help to Buy scheme is trying to achieve, she states, "they shouldn’t be helping to increase household debt, or encourage risky lending."

What's more, schemes like this are likely to push average house prices up by up to 30% by the end of 2015 according to Fathom Consulting's Monetary Policy Forum, which would result in yet another housing crash.

Saving 10% for a property over £100,000 means that you have put away at least £100 per week over 2 years, not an easy task when most of us are struggling with rising living costs. Many people try moving back in with their parents to save on rent costs which is ideal for those living alone, but for couples it can be difficult. However, if you're in a partnership, it means you only have to save £50 each per week to achieve a decent deposit within 2 years.

While it might mean giving up holidays, nights out and new clothes, saving up the hard way will also set you up for a lifetime's security. It's also the best way to prepare for life with a mortgage and get used to living with much less disposable income.

Share the load

If you're looking to invest in property but can't afford it alone, why not look into investing in a share ownership scheme or going in with a friend or group of friends? explains , "a shared ownership [or shared equity] scheme allows you to purchase part of a property [usually between 25%-75%]  and rent the rest from a local authority or a housing developer." This means that you need much less deposit and can maintain a much smaller mortgage than normal.

If you don't want to share the risk with a stranger, why not consider asking friends and family if they'd like to invest in a property together? By being a stakeholder, you'll get the benefits of investing in property without having to take the full risk or cost. Parents looking to help out their children might consider this a viable option, or couples who want to invest but can't afford it might see sharing the burden as an affordable compromise. When entering into these more intimate agreements it's critical to set up the commitment in a fair-minded and above all, legal fashion. says there are two ways of buying a property with in a partnership, "if the mortgage is held in joint names then you are both equally responsible for paying the full mortgage and if either party dies the other would retain sole ownership and liability for the mortgage. Alternatively you can be listed as tenants in common where you each own 50% or the property and are separately responsible for paying your 50% mortgage payments."

Get a guarantor

Another way for parents to help their children get a foot hold on the property ladder is to become a guarantor on the loan. Ed Cumming from The Telegraph says that this is a "good option for parents who own property themselves, but don’t have the lump sum for a deposit. "

Having a guarantor will mean that the bank has added security on your mortgage. The extra security means that you will most likely either be offered a smaller deposit or become eligible to borrow more than your deposit normally allows.

No matter which path you choose to get your foot onto the property ladder, don't lose sight of the fact that you're aiming to commit to a mortgage. While you might have overcome the first hurdle of securing a mortgage, be sure you can actually afford the loan and all it's little extras like legal fees, moving costs and stamp duty. While saving might seem like the hard way in, it will best prepare you for life as a homeowner.

… written by William Masters with an established career as a highly sought journalist for topics of international economics and personal finance. After years of investigation into the topic, William recommends Eccount Money, a leader in the field of companies specialising in helping people with debt. His main aim is to inform readers about the pros and cons of new financial technologies - not to condemn them by default.

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