I felt compelled to reflect on how I got on the property ladder, after reading that according to the Office of National Statistics **, 1/3rd of men and 1/5th of women, between the ages of 20-34 are living back at home. The report of this press release seem to be quite negative, portraying this generation as lazy, good for nothings, who can’t stand on their own two feet. To me, this is a complete misreading of the situation.
I (like a lot of twenty somethings) lived with my parent’s in law to save for the deposit for my first flat and I managed to save £15,000, in less than a year, largely thanks to this strategy. But not forgetting … juggling my full time job, with a Wednesday night shift working at a tennis club and a further two shifts per week in a local bar. The tips became my fun money and the “day job” was my saving money. I know that some people just aren’t able to do this, but I also believe that a lot of those living at home are doing just the same.
So if getting on the property ladder is your main financial priority, the first thing to work out is: why do you want to buy? What’s important to you and what will make you happy and support your lifestyle rather than impede it? There is no point being holed up in a shoebox if it saps up all your money and leaves nothing disposable for your hobbies, holidays or whatever is important to you.
Here are a few tips to get you on your way:
- Mortgage Rules of Thumb
Unless you are really lucky, it is likely that you are going to need the help of a mortgage to work your way up the property ladder. Here are a few rules when it comes to mortgages to help you work out how you are going to do it and what you need to save:
- The maximum that you can often borrow is 4 or 5 times your earnings.
- If you are buying with someone else you may be able to borrow 4 or 5 times joint earnings.
- The amount of deposit that you put down will impact how good the mortgage rate that you get is.
- The general cut offs are 5%, 10%, 15%, 25% and the very best rates are available for those with 40% deposits. Therefore if you have a 13% deposit, you might find you are better off waiting that little bit longer to save that little bit more.
- A good independent mortgage broker will help you to work through the maths.
- How Will I Ever Get a Deposit Together?
There is no instant fix to getting a deposit together other than making short term sacrifices. I decided that I was happy to make big short term sacrifices to ensure that I got my deposit together as quickly as possible for my first flat.
If you are not keen on the more difficult short term saving strategy that I adopted and feel the sacrifices are a step too far, I think you have to make sure that you stay motivated. It will be important to remind yourself regularly why you are doing this, so that temptations don’t become irresistible!
You also have to learn to be honest with yourself. So many people tell me that they are saving for a house, however, as we start to discuss it the reality is that they are saving when they get paid, but, when they get towards the end of the month the pot gets raided. This is a perfect example of how people convince themselves that they are saving, but conveniently forget that they are also then drawing it out at the end of the month when their credit card bill arrives.
This summarises the difference between those who’re on a mission to achieve their goals and those who are giving it a go. Temptations are always going to always crop up, but that is exactly what they are….. temptations! They need to be avoided by imagining how you will feel when you first put your key in your own front door!!
- The Bank of Mum & Dad
Getting a helping hand up the ladder is an amazing gift if you can get it. However I often see people trying to stretch themselves too far to be able to help out their kids. So here are a few tips to help make sure a generous gift doesn’t lead to a falling out!
- Don’t just assume that you will get help. If you think you may get help or have heard it mentioned in passing, be brave and have the full conversation.
- If family members are willing to help, how much are they offering and what will the terms of the help be? Do they want you to pay it back? If so when and how much. Will you be charged interest?
- Will you get it drawn up legally? This could be important if you are buying with a partner or friend and things go sour between you.
- What are the worst case scenarios? What situations would lead to the money needing to be repaid and how would this be dealt with?
- Has inheritance tax advice been sought? This is especially important for large gifts
Using A Mortgage Broker
I encourage all of my clients to use the services of an independent mortgage broker for the following reasons:
- They will be able to search the whole market to get you the very best mortgage for your situation.
- They will take your full financial situation and future plans into account when suggesting a product and term.
- If your situation is not straight forward they will be able to speak directly to a range of lenders before applying to make sure that when you apply you will actually get accepted. This will avoid you getting any black marks on your credit report which may spook future lenders.
- They do all the hard work for you!
In my view, they are always worth it! Most importantly make sure they are independent rather than only able to sell certain lender’s mortgages. Finally find someone that you like and you know will have your best interest at heart. Asking friends and family for recommendations is probably the best place to start.
A final word of warning! Not all mortgage brokers are equal! Make sure that you are aware that different lenders will pay brokers different levels of commission for a mortgage of the same value. Less contentious ones may be swayed by the higher commission rather than your best interests. There can also be a broker fee too – so make sure that you ask what this is too.
So good luck with your property purchase and if this wasn’t really one for you, please pass on to those that will benefit.
Lots of Love
Miss Lolly xx
*your home maybe repossessed if you do not keep up repayments on your mortgage.