Your first move onto the property ladder

Annabel Denham
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UK HOUSE prices saw their biggest fall for a year in the three months to July 2012, according to the Royal Institution of Chartered Surveyors (Rics). But the capital is bucking the trend. London property prices grew by 6.5 per cent over the last year, according to last quarter’s Greater London Authority London Housing Market report.

These figures make for uncertain reading for anyone considering buying their first home in London. When is the right time to buy? How can you make your deposit stretch to the best possible purchase? It’s more important than ever for first-time buyers to carefully plan their first step onto the property ladder.

First-time buyers are often driven by their hearts rather than their heads. But each new buyer should seriously consider whether their income will comfortably support their mortgage payments. It’s not always easy. According to Rics research, 16 per cent of Londoners see dreams of home ownership shattered by problems accessing mortgage finance.

There’s no harm in waiting to save for a bigger deposit, according to Mark Harris, chief executive of SPF Private Clients. In the short term “you are unlikely to be priced further out of the mortgage market,” he says. The best advice for first-time buyers is to save, save, save. And ask your parents for help, if they are in a position to do so. Ideally, a first-time buyer needs at least 10 per cent of the purchase price or more if they want to access the best mortgage rates.

You shouldn’t stop planning, even once you’ve come up with the money. Make sure you’re choosing the right property for the right reasons. Before a viewing, write down a list of questions. “There are bound to be things you’ll forget”, says Julien Mills, director at Savills. Estate agents don’t have to tell you everything but, if asked, they can’t withhold anything.

Find out how far the property is from the nearest Tube station (you may not mind, but it is the first thing future purchasers will ask). It’s also crucial to find out the position of the seller and whether the property you are buying is chain free. It is also important to factor in additional costs like survey fees, valuation fees, stamp duty, land tax, Land Registry fees and solicitor’s costs, to name but a few.

Recent Savills research found that renting is cheaper than buying across all but two of the UK’s 376 boroughs, despite strong rental growth and historically low base rates. However, renting is far from being the preferred option. Rics research shows that 47 per cent of potential first-time buyers in London see renting as a forced choice. They simply can’t afford to get a foot on the first rung of the property ladder.

But if having your Englishman’s castle is a life-long dream, there are innovative new schemes on offer. The government’s NewBuy scheme, which encourages lenders to offer 90-95 per cent mortgages, offers a possible solution. First-time buyers can purchase a new home for up to £500,000 with a deposit of just 5 per cent. The scheme, which former housing minister Grant Shapps described as “a valuable alternative to the Bank of Mum and Dad”, provides first-time buyers with an equity loan of up to 20 per cent, provided jointly by the government and the house builder. Buyers can use an up-front deposit of just 5 per cent to secure a 75 per cent mortgage at a reasonable rate. First-time buyers in London may find the top price of £280,000 a challenge, however, says James Hyman, head of residential sales at Cluttons.

Consulting a mortgage broker can be money well spent, as they know which lenders will suit the purchaser’s circumstances. Lenders are often looking for clean credit histories, but this doesn’t mean no debt. Many first-time buyers think that they are more attractive if they have no credit cards, for example. But, if you don’t have a history of paying off debt, a lender won’t know if you are a good credit risk.

Lloyds research has found that Kensington and Chelsea is the least affordable local authority in the country, with Brent and Hammersmith & Fulham close behind. So where should you be looking?

Areas most likely to benefit from a disproportionate increase in value are those that are currently cheaper than their surrounding areas, or areas that will soon see new infrastructure, like Crossrail, or the development at Nine Elms, says Mills. Alternatively, Bermondsey still offers good value for money, as does Elephant and Castle, according to Hyman.

However, buying somewhere that appreciates in value should never be your main concern when buying, advises Harris. Up and coming areas can take an awfully long time to arrive.