How to climb your way on to the property ladder

Bypassing the traditional housing market and estate agencies could help you find your dream home.

if you are one of the thousands of homebuyers or sellers trying to work out when best to throw their hat into the property ring, the latest price surveys won't have helped.

In the past week, the Department of Communities and Local Government has claimed that house prices rose by 0.7 per cent in May, contradicting almost all the other major indices.

Then the Halifax reported a drop in prices of 0.6 per cent in June. Finally, the Royal Institution of Chartered Surveyors (Rics) said 10 per cent more surveyors had reported a rise than a fall in property prices over the same period – down from a net balance of 22 per cent in May.

Buyer numbers are, unsurprisingly, waning as we all take a step back to watch and wait. But more and more people are bypassing the housing market altogether, and some of them are making huge savings.



Private house sales

For vendors, making the most out of a property is becoming a challenge in this climate, especially when estate agents take their 1.5 to 2 per cent cut if you do sell. But with a dramatic rise in the number of private home sales websites, thousands of owners and buyers are shunning estate agents in favour of do-it-yourself transactions and pocketing the savings in fees and charges. You could list your home on tepilo.co.uk and pay absolutely nothing, although you will need to plan your advertising, create your advert, take photos and arrange viewings and negotiations yourself.

Alternatively, homeowners can buy advertising space on private sites such as thelittlehousecompany.co.uk from as little as £89. This includes the listing itself, four photos of your property and live viewing statistics. Details of the property are sent to registered users and you can edit your advert at any time. For £359, you will also get an independent valuation, energy performance certificate, a for-sale board and a floor plan.

If you are thinking of going it alone, the most daunting decision is what price to put on your home. One online research site – houseladder.co.uk – offers free listings of prices of homes sold in your area. Although it is tempting to ask for a high price, specialists suggest it is better to be realistic and prompt action from potential buyers.

If that doesn't appeal, online estate agency packages can take care of almost everything for your. The Little House Company's full service, priced at £499 plus VAT, includes multi-agent advertising, management of negotiations and completion. Tesco has also waded into the private sales market recently with its iSold service at tesco.com/isold. The premium package –including professional photos, a virtual tour with your listing and open house events – costs £1,298.



Buying at auction

About 300,000 properties are sold at auction every year. Numbers rose during the recession partly because of the high level of repossessions. While the property market is now stabilising, the growing profile of auctions has meant that many vendors now choose them as a mainstream way of selling a property, especially corporate sellers such as housing associations or local authorities.

"Auctions are becoming an increasingly popular way of buying and selling property in the UK," says James Cokayne, the director of Mustbesold.com. "In recent years, auctions have become more widely accepted as homebuyers look for alternative routes to get on to the property ladder. For buyers, buying a property at auction has grown in popularity as they allow for a fast sale and also the guaranteed nature of the transaction that you do not get when buying by private treaty through an estate agent. This means there are no opportunities for gazumping or sellers changing their minds."

Interested buyers must contact the auction house for a catalogue and arrange the usual viewings and surveys beforehand. The key difference is that bidders must have a 10 per cent deposit to hand over on the day and the remaining balance within 28 days. There may also be administration costs of about £150, and a buyer's premium paid to the auctioneer of up to 1 per cent.

Even with these costs, advocates claim that buyers could save up to 40 per cent on the purchase, but David Hollingworth, head of communications for London and Country Mortgages, warns that auction rooms are not for the faint hearted. "The process is much the same in selecting a product as it would be normally," he says. "However, the real difference is that once the hammer falls then the buyer is committed to the purchase, parting with a deposit and usually expected to complete within the month.

"It is therefore vital that a buyer does their homework in advance of the auction and has surveyed the property before bidding. This will of course carry cost and the bid may not be a winning one. However, a worse outcome would be that the property has major problems and a mortgage lender will not even lend against the property."



Buying with friends and family

Most lenders will accept up to four borrowers on a mortgage, so pooling your money (particularly your deposits) will open up more borrowing options at better rates.

"Clubbing together and buying with friends and family could be the solution struggling first-time buyers need to get on the housing ladder," says Melanie Bien, a director at the mortgage broker Private Finance. "More of you will contribute to the deposit and monthly mortgage payments, making it more affordable. But it is important to think carefully about the practicalities before taking the plunge."

If one owner wants to pull out of the deal, the others may be able to buy out his or her share, but if not the property may have to be sold. Make sure you get a legal document drawn up stating how large a financial contribution everyone is making and setting out what will happen if one of you wants to sell up, Ms Bien adds.

Then there is the question of how the property will be owned. "The borrowers will be jointly and severally liable on the mortgage, which means the lender can chase each borrower for the full amount," Mr Hollingworth notes. "However, the property ownership can be structured as a joint tenancy or 'tenants in common'. Friends [buying together] may prefer tenancy in common because shares can be specified and their share can be passed by will rather than survivorship."



Self-build

Of course, building your own home is not a decision to be taken lightly and shouldn't be considered simply as a solution to short-term house price fluctuations. However, the average self-built home – typically a detached house – costs £147,000 to build, with about one third of the total budget spent on the plot of land, according to the land agency SelfBuildabc.co.uk. It claims that on average a self-build property appreciates by 25 to 30 per cent as soon as it is completed.

It goes without saying that a lot of work, planning and research goes into a self-build, including when it comes to funding. "Self-build mortgages will generally release the funds in stages once the build reaches specified points," says Mr Hollingworth. "This means capital will be needed that can be ploughed into the project so as to reach the required point for further funds to be released. This can often mean the current home needs to be sold in order to release the capital to fund the new build. The borrower will therefore need to think where they will live during the build.

"Different lenders release funds at different times – some can lend against the land while others will want the building to be well under way before releasing funds."

Case study

'I thought it would be a hassle but it was very quick'

Emma Armitage, 30, from Glasgow, recently bought a two-bedroomed flat at auction through www.mustbesold.com The property, part of a Victorian terrace in Darvel, near Kilmarnock, East Ayrshire, had been valued at £38,000 but Emma paid just £28,000 for it.

"I had never bought at auction before and I was worried it would be a hassle," she says. "But I have really changed my ideas since doing it myself because the process was very quick compared with buying on the open market.

"I'm planning to live in the property myself and hope to make a profit when I decide to sell it. I'm interested in property developing for some extra income, and once I sell this one I think I will look at doing the same thing again."

More information

* The Essential Information Group offers a property auction search service at www.eigroup.co.uk

* To find an independent financial adviser operating in your area, visit www.unbiased.co.uk

* Buildstore is a specialist in self-build homes and can offer loans with advance payments. For further details visit www.buildstore.co.uk

* A helpful, independent advice portal for sellers is at www.theadvisory.co.uk

* The government website www.directgov.uk offers more information about the buying or selling process, as does the National Association of Estate Agents, www.naea.co.uk

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