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What you’re not told about getting on the property ladder

Posted on 22 October, 2019

It is possible

Negative media stories make it seems like it’s impossible to get on the property ladder; especially in London.

A lot of the articles you see start along the lines of, “ the average property price is now £500 million” (small exaggeration maybe). Don’t forget the key word here is “average” that means they have included mansions worth 100 million right down to flats worth £150,000. Don’t buy into the scaremongering and always strive to do your own research.

Our blog on, how young Londoners got on the property ladder without help from their Mum or Dad may just inspire you and show you it is possible to do.

It’s not cheap

There are several costs associated with buying a property and owning a property.  The costs are not as straight forward as mortgage and utility bills!

We’ve listed some of the key costs below.

*FTB buying a home worth up to £500,000 will not have to pay stamp duty on the first £300,000)

Section 20 – Major Works

There are several additional costs that can come with owning a leasehold property.

The term major works, or “qualifying works” is the term used to describe large ‘one off’ projects to a leasehold property. Major works can include repair, improvement or maintenance of a building. Examples of major works could be replacing windows, replacing roofs or repairing lifts.

The costs of these works is not paid from your service charge, and is normally an additional charge. If there is a “reserve fund” or “sinking fund” built up this can be used to pay some or all of the cost, depending on the cost of the work and the amount built up.

NB. If buying under the Right to Buy/Right to Acquire scheme, your landlord must provide an estimate of any service charges for major works and cyclical works you will have to pay during the first five years of your lease.

Under Section 20 of the Landlord & Tenant Act 1985 freeholders must consult with leaseholders if any major works are set to cost any one lease holder over £250.

Service Charges

If you own a leasehold property it’s very likely that you will have to pay a service charge.

A service charge is the contribution payable by a leaseholder typically to a landlord, for a share of the cost of insuring, maintaining, repairing, cleaning, etc. the building.  New build properties tend to come with extras such as concierge, gym rooftops and even cinema rooms. Whilst these additional facilities are attractive, the costs associated with these features are reflected in your monthly service charge.

You can query service charges

As a leaseholder, you can apply to the First Tier Tribunal if you dispute matters such as:

  • Service charges
  • Extending your lease
  • Buying the freehold of your building
  • Changing the management of your building

The tribunal is independent and can decide if a charge is unreasonable, or if changes made to the lease are fair.

You can overpay on your mortgage

Most lenders let you overpay on your mortgage. Some charge a penalty fee and some will have limits for how much you can over pay by (normally 10%)

As part of the 2019 Which? mortgage lenders satisfaction survey 3,587 homeowners were asked if they overpay their mortgage.

  • 77%) of respondents said having the option to overpay was important
  • (46%) said they had overpaid in the past year.
  • 25% of homeowners overpaid on a monthly basis
  • 22% said they did so as a one-off payment.

Research from Which found that based on a £200,000 loan over 25 years, if you overpaid your loan by £250 every month for 3 years, you could knock nearly £10,000 off the overall balance.

Data from Moneyfacts shows that of the 6,747 residential mortgages currently on the market, 78% (5,317) allow overpayments of up to 10% of the balance per year, with the majority allowing both lump sum and/or monthly payments. Just 6% of deals allow no overpayments at all.

You can get consent to let

Consent to let is when your mortgage lender lets you rent out your property for a certain period of time despite the fact you have a residential mortgage.

NB. Lenders may charge an extra percentage rate on top of your normal rate or there may be a fee to gain consent. Some lenders may even charge both. The cost of consent to let varies from lender to lender, so you may need to call your lender to ask if they allow consent to let and what they charge. NB. Bare in mind, that if you use consent to let you will still technically have a residential mortgage. Therefore, you will not get the same high rental yield that you would likely get with a BTL mortgage.

*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

Need a mortgage advisor? Complete this form to get a free initial consultation with our impartial mortgage brokers Arne Grey

Need a conveyancer? – Complete this form to get a quote from our carefully selected Conveyancing partner Mullis & Peake.

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