There is no easy answer to the problem of how to get on the property ladder, and rising levels of student debt can only mean young people will be forced to delay even longer getting their foot on the first rung. Currently the average age of a first-time buyer is 27 but is likely to rise to 30 over the next few years. If you are serious about becoming a property investor and making your million then get on the property ladder you must and as soon as possible. This chapter intends to explore ways in which you can take that first step.

Mortgages

The Council of Mortgage Lenders believes banks and building societies will have to adapt their mortgages to encourage first-time buyers into the property market. This could involve introducing shared mortgages or mortgages where the loan is guaranteed by a parent or guardian. A useful website to compare mortgages can be found at www.thisismoney.co.uk.

Guaranteeing The Loan

The traditional loan from a mortgage company is three-and-a-half times the applicant’s annual salary and this has presented a problem for first-time buyers. Some mortgage companies will now offer more than this, as long as a parent guarantees to cover repayments. Other mortgage companies only ask parents to cover the extra amount their child is borrowing above the normal three-and-a-half times salary.

Parents’ Income

Another scheme offered by some banks includes the parents’ income when calculating what amount can be offered as a loan. This means that parents can purchase the property together with their child, although the parents’ name will not be on the title deed to the property. This enables the child to borrow four times the highest wage, be it either theirs or their parents’.

Helping With The Deposit

Some parents are re-mortgaging their house in order to use the capital raised to help their offspring with a deposit. If the parents re-mortgage carefully, their monthly payments may not rise that much and in some cases, if they get a better deal, the repayments may actually fall!

Using Savings

Schemes are available from some building societies in which parents do not earn any interest on the money they pay into their offset account. Instead this interest is deducted from the value of their child’s mortgage, before interest is calculated.

Joining Forces

If siblings or friends decide to buy together, it does not necessarily mean that they will have to live together. One could live in the property whilst the other rents out their room in the property, to pay for the mortgage. This enables the mortgage to be calculated on two incomes. When the property is sold, the profits can be divided into equal shares and can be used to finance deposits on individual properties.

Renting To Students

Some parents are choosing to buy a student home for their child. They take out a buy to let mortgage and rent the student home to their offspring and other students, in order to cover the repayments. At the end of the student’s university career, the house can be sold and any profits can be used to finance another deposit.

Deed Of Gift

If parents buy a property for a child and their names are on the deed, they will have to pay capital gains tax when that property is sold. It is more tax efficient for students to raise a mortgage using their own names, in one of the ways explained above. Equally gifts of cash may be subject to inheritance tax, if the parent donor dies within seven years of the gift being made.

Shared Ownership

Shared ownership means that you buy a share of a property, with a housing association owning the remaining share. You pay rent on the share that you don’t own. Some housing associations specialise in low cost shared ownership and can offer properties for sale at as low a price as 30% of their market value. It is worth ringing your local housing association to see if it is involved in any shared ownership schemes. If it does operate such schemes, ask what criteria need to be met for you to be eligible to participate in the scheme.