A foot on the ladder is still possible

Prices may have hit daunting levels, but the first-time buyer has plenty of options left, says James Daley
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Getting a foot on the housing ladder in the current crazy market is no easy task. With house-price growth having far outstripped the pace at which people's pay packets have been growing in recent years, first-time buyers are struggling to afford the kind of properties in the kind of areas in which they want to live.

Getting a foot on the housing ladder in the current crazy market is no easy task. With house-price growth having far outstripped the pace at which people's pay packets have been growing in recent years, first-time buyers are struggling to afford the kind of properties in the kind of areas in which they want to live.

According to the Nationwide Building Society, current levels of first-time buyers are at a 30-year low - and with interest rates on the rise, the situation is not getting any easier.

But if you're hellbent on getting yourself on the ladder, then there are still ways and means. Here, we run through the options - from the straightforward to the obscure.

Having a deposit is no longer a must for first-time buyers. A number of lenders, such as Future Mortgages or Mortgage Express, are willing to lend 100 per cent of the property's value, while Northern Rock will lend up to 125 per cent, providing you with cash to cover costs, as well as a little bit extra to put towards enhancements to your new home.

The amount you'll be able to borrow is also increasingly generous. Most lenders will give you at least three times your salary and some will offer up to five or six times. Many banks and building societies have done away with looking at salary multiples in recent years, deciding instead to focus on affordability.

If you are a qualified or qualifying professional, you will also find you can borrow a lot more. Scottish Widows Bank, for example, offers a professional mortgage of up to 110 per cent loan to value, allowing you to borrow up to four times your salary - or even more in certain circumstances. To qualify, however, you have to be a doctor, dentist, accountant, solicitor, teacher or vet.

Alternatively, if you live in the south-east of England and you are what the Government calls a key worker - ie a policeman, teacher, nurse, prison officer, town planner or social worker - you could get Government-subsidised loans to help you out. For instance, the Government will lend you up to £50,000, which will not be repayable until you sell the property. There is no interest to pay, but you do have to let the Government share any upside (or downside) in the capital value of the property.

Even if you have got a deposit, there is still no guarantee that you will be able to borrow enough to buy the house you want. So for many first-time buyers, the family is the first place to turn in a bid to raise some extra funds.

David Bitner of The Market Place at Bradford & Bingley, the financial advisers, says: "Recently it has been increasingly popular for people to try to tap their parents or grandparents to help them raise a deposit. We are seeing first-time buyers coming in with increasingly large deposits which have been gifted to them by their families."

If your parents can't afford, or don't want, to give you money to put into your property, another option is to ask them to be guarantor for your mortgage - an easy way to borrow more from your lender.

Scottish Widows and New- castle Building Society are among those who offer these sorts of deals - both only asking your parents to secure the amount which your own income won't cover.

Newcastle also offers an option for the more reluctant parents. With its offset package, your parents can put their savings into the property as a deposit, which they can then redeem once you have paid off a sufficient amount of the mortgage.

Rick Kendall of Newcastle says: "A lot of parents want to give money to their children which they can put down as a deposit, but if they do, that money is basically lost to them. With an offset, they can help their children get on the housing ladder, but also keep hold of their savings."

Mr Bitner says that if you have got a deposit, then you can afford to be a bit more discerning about which lender you decide to go for. Charges vary dramatically across the banks and the building societies in the UK, so it is worth looking out for the one that will give you the cheapest deal.

"If you can raise a deposit, you may want to look for lenders that don't charge mortgage indemnity insurance - such as Cheltenham & Gloucester, Nationwide and Northern Rock," he says. "This tends to be about three per cent of what you're looking to borrow, and it only protects the lender, not the borrower. All the lenders used to charge it but many of them have abolished it now."

It stands to reason that the more people you can get together to buy a property, the less affordability becomes an issue. The risk here, however, is that if you fall out with your friends, or want to sell up when they don't, you can find yourself in a tricky situation.

Most lenders will consider applications from people who want to buy with their friends. However, Britannia Building Society has come up with a specially tailored package for groups of graduates who want to club together.

Its Share to Buy mortgage allows up to four friends each to borrow up to three times their salary, although you must be able to come up with a 10 per cent deposit between the lot of you. Britannia ensures that a comprehensive legal agreement is drawn up between the buyers, to make sure it is perfectly clear exactly who owns how much of your new pad.

Tim Franklin of Britannia says: "With many graduates and young professionals having built up sizeable debts as students, we are seeing a real influx of twentysomethings to the big cities, drawn by the prospect of a sizeable salary. But even with a sizeable city income, these young people are struggling to purchase a home at big-city prices, particularly with student debts to clear.

"With many young people feeling that rent to a landlord is money down the drain, it is becoming more acceptable for friends to club together in order to purchase a property."

If you're a dab hand at DIY, then you might fancy buying a rundown place at knockdown price, which you can do up. A good place to look for this sort of property is at auction. If you decide to take this road, you'll need to draw up a rough but realistic budget before you buy the property.

You might not need to have all the money up front - less urgent upgrades, such as getting rid of the flowery wallpaper in the second bedroom can probably wait. But you will probably need to have a certain amount of cash ready to make the necessary immediate changes. Plumbing, electrics, central heating are all the kind of thing that you will want sorted out before you move in.

If you cannot afford to buy in the area you want to, but you are still set on getting some direct exposure to the property market, you could take a look at buying in a cheaper area as an investment and letting the property out to pay the mortgage. This route is filled with its own set of risks, which you need to consider carefully before committing to anything.

For a start, you need to do your research into the area where you are buying, and check that rental demand is sufficiently strong. If the property is far away from where you live, then you will almost certainly need to employ an agent to manage the property and deal with any problems your tenants might have. This comes at a cost.

You'll also need to ensure you've got some money set aside to pay for any unexpected hiccups - such as a broken boiler or burst pipe. These are all things which you will be responsible for as a landlord.

It is also worth remembering that once you are committed to a buy-to-let property, you may find it difficult to get another mortgage if you decide you want to buy for yourself a couple of years later. If you have a good track record of keeping the property let and the mortgage paid, you should not have a problem; but at worst, you may have to sell your investment property before you can buy your own home.

A variation on the buy-to-let concept, is to buy yourself a holiday home abroad, which you can aim to let for several months a year to pay the mortgage.

Property in many European countries is much cheaper than it is in the UK - so you may be able to get away with a relatively small mortgage, which you can cover by ensuring that you find holidaymakers willing to rent it for just a few months a year.

As a bonus, you will also have rent-free accommodation for your own holidays whenever you want. Buying abroad is another risky strategy but it appeals to the brave-hearted (see case study above).

Getting a small mortgage to buy abroad should not pose too many problems if it is for a property within an EU country, but it is worth finding a specialist adviser who can alert you to all the potential pitfalls. If you are looking at your property as an investment, remember that there will be an added currency risk, which could work either in your favour or against you over the time that you hold the property.

Buying a property is a big commitment, so make sure you give plenty of thought to any decision before you go through with it. With UK house prices seemingly at a high, it is worth bearing in mind that in a worst-case scenario, the market could see a sharp downturn over the next few years. So if you are gearing yourself up to the maximum, be sure you are buying a property you would be happy to live in for several years. If house prices fell sharply and you didn't put much of a deposit into your property, then you will not be able to sell up until the market recovers.

Also, always keep an eye on interest rates. Economists are expecting the UK base rate to be put up again next week - for the fifth time in nine months - to 4.75 per cent. Some are predicting that it will reach 5.5 or 6 per cent in the next year, so make sure that you can afford your mortgage at that kind of rate.

And while you may be anxious to get on the ladder because renting seems like a waste of money, don't forget that renting stops you having to worry about a whole raft of costs. Maintenance charges, ground rent and repairs will all fall to you once you've got your own place, but as long as you are renting, they are your landlord's responsibility.

David Bitner says: "It's very much a matter of looking at your own individual circumstances, taking a view on the property market, and deciding which option will be the best for you."

'We can't afford to buy in the UK'

After struggling to get on the property ladder in the UK, Gavin George and Sam Emmons decided to put their £25,000 deposit into a piece of land (including a rundown stonewall barn) in St Yrieix la Perche, near Limoges in France.

The plot is some 10 acres in size, and they plan to knock down most of the property and to build their own new house on the site. The project is a long-term one but once they have finished, they hope to either rent it out or pack up and move over to live in France.

Gavin, who works for a UK flood-defence company, and Sam, an artist and teacher, say they have struggled even to come close to affording property near where they live in Hampshire.

"If you want a two-bedroom place near where we live, you're looking at upwards of £200,000," says Gavin.

He and Sam now hope the UK property market will cool off, eventually giving them a chance to buy a home in Hampshire too. As Sam is a teacher, she hopes that she may get some help from the Government through its key worker scheme, to put together a new deposit.

Meanwhile, she and Gavin plan to plough any more savings they can get together into building their dream home in France. "We don't like a lot of modern houses," says Gavin. "So a self-build really appealed to us - especially as we can make it a truly green and environmentally friendly house.

"Having 10 acres is brilliant. In Hampshire, you would pay about £200,000 for just one."