Moving up the property ladder
Turning the property dream into reality
How can you put yourself into the best position to climb the property ladder, or even take the first step up?
So maybe you have outgrown your current home. Or you have been renting for a number of years and now want to buy something of your own. Perhaps it is now time to move on from the family home. You have managed to save up a deposit and now the time feels right to start looking.
Owning a home can be a good investment. If you get it right it could be the best investment you ever make. But remember as with all investments there are “downs” as well as “ups”. If you judge right and buy in a price dip you will eventually get a tax free gain. There is no capital gains tax on the increase in value when you sell the home you live in (your “principle private residence”).
However, as with all investments, don’t buy something you can’t afford to hold onto – for example, if the value drops temporarily. Generally, private housing increases in value over the medium term so be prepared to ride out short-term dips. Never “borrow short to buy long”.
Do your research and pick an area that suits your needs, and bear in mind the investment potential.
Here are some tips on the things you need to think about:
- How much is your deposit
Generally, the higher the deposit as a proportion of the loan, the lower the interest rate will be, and the better the terms overall. But don’t overstretch yourself – remember you will need funds to pay removal costs, legal fees, stamp duty etc.
- Watch rate rises
Don’t be afraid to stretch yourself and borrow as much as you can. But bear in mind we have got used to a period of low-interest rates. Make sure you will still be able to meet the payments if there is an interest rate hike in the future. Hopefully your earnings will have increased by then, but do try to take this into account.
- The bank of mum and dad
Anecdotally more than one in three buyers in the UK are helped out by their parents. It’s something you should discuss if need be. They could even take out a second mortgage on their own home to help. Potentially this is a way of helping to pass wealth down – but that has to be looked at in conjunction with overall tax planning arrangements.
Also, think about borrowing from your parents. They may be getting very little interest on money in the bank. If they have surplus funds you could pay them more interest, instead of making profits for a bank.
- Government-backed schemes
Have a look at Help to Buy and Shared Ownership schemes. Help to Buy applies to new builds where the government provide loans. Shared Ownership is a hybrid where you part own and part rent. Basically different courses will suit different horses – see what is right for you.
- Check your credit score
Even before you apply for a mortgage, make sure you are not going to get turned down because something is wrong on your record, maybe for no fault of your own. There are many online providers you can check with.
- First-time buyer
There is a stamp duty saving if you are a first-time buyer. There is now NO stamp duty on purchases below £300,000, and 5% on £300,000 to £500,000. If the property costs over £500,000 you lose the relief and pay more tax – so if you are near the margin it’s well worth negotiating downwards.
(There are special terms applying to this relief, including that this must be a home for private use and that if there are joint purchasers, neither of them has had a previous property interest. We recommend taking proper advice when needed – a solicitor will be able to tell you how much stamp duty applies, see also 7 below.)
- Get proper legal advice
A home is probably the biggest purchase we ever make. How many of us carry out more research and spend more time choosing a car! Take care and get proper advice. We would always advise that you use a qualified and experienced solicitor.
If it’s a lease on a flat you are buying, check the length and have someone who knows check it out fully. Whether a lease or a freehold, you need to be sure the person selling has full and good title to the property – i.e. they can sell it on to you without any recourse.
You need to find out if there are any new developments or other changes planned in the area you are looking at. A good legal adviser will carry out local “searches” and check out if anything is coming up that might affect you, and also if there are any past problems that could come back to cause you problems.
Finally, get a proper and appropriate agreement drawn up if you are buying with someone else, whether a partner or a friend. It will save a lot of difficulties if you “split” for any reason.
All this may sound worrying. But it should be very worthwhile. There will always be hurdles to overcome but hopefully, if you follow our advice these will be minimised and you will put yourself in the best position to step up that property ladder. Good luck!
For further advice existing clients email us at support@anytime.uk.com or call 03333 110 230
For new enquiries contact us now
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