Despite recent falls in house prices, taking your first step on the property ladder is still very difficult.
With the best mortgage deals typically only available to those who have a 25% deposit or even a 40% deposit, many First Time Buyers (FTBs) are struggling to find a mortgage deal they can afford.
The best solution to this is to wait, and save up a big deposit.
But if you don’t want to do this and you can’t get an affordable mortgage with your current deposit, what are your other options?
Get a little help from your parents
While this may not be an option for some people, it isn’t uncommon to solicit assistance from the Bank of Mum and Dad. Surveys show that two-fifths of FTBs get help from their parents -- usually in the form of a deposit. If your parents can afford to give or lend you a lump sum to help you bridge the gap between the price of a home and the mortgage you can support, take them up on it!
Another option is to buy a home with your parents, on the understanding that you will buy them out of their share later. This could be when your financial situation improves, or you could plan to take their share out of any proceeds when you sell up.
Finally, if your parents are willing you could ask them to act as guarantor for the mortgage. We would advise caution with this, though, as it would mean a big commitment on their part -- if you fail to meet your mortgage payments your parents will be stuck paying off your debt.
Friends that buy houses together…
So you can’t afford a whole mortgage or deposit… but if you could manage half or one-third of one, why not go in with a friend or two in the same position? As a natural extension to flat-sharing, co-buying is becoming more and more popular, but there are some risks.
You will need to prepare for all eventualities, such as what happens if one person wants to sell but the other doesn't – and you will need to do this in writing. It may seem excessive, but each of you should have your own solicitor to look over any legal agreements to ensure you are fully protected from your co-owner should the friendship go pear-shaped.
As for legal status, ensure you buy your shared property as "Tenants in Common". This protects your interests in the event of your death, as it means your share will become part of your estate, rather than passing automatically to your co-owner.
Get a longer mortgage
Although most first-time mortgages have a term of 25 years, many people upgrade to their next home within several years of getting on the ladder and take out another mortgage for the same length of time. When you think about it like this, a 30-year mortgage doesn’t seem so crazy.
In terms of the amount lenders are willing to loan, there has been a move to affordability over income multiples. For many would-be buyers, three or four times your gross salary isn't much use if you’re looking to buy in a more expensive area. But a larger mortgage spread over a longer period would allow lower monthly payments, making that purchase possible.
Our best advice for any FTB considering a 30-year mortgage is to make sure your mortgage allows you to overpay after that initial lock-in period. The longer the mortgage, the more you'll pay overall, so if you overpay as much as you can as often as you can, you will reduce the length of your mortgage term.
Get a lodger mortgage
If you’ve got a spare room going, you can earn up to £4,250 a year under the Rent-a-Room Scheme. You don’t have to pay tax on this income, so it could make just the difference when it comes to affordability, as it’s possible to get a mortgage which takes account of the expected extra income from a lodger. So even if you don't earn enough to manage the mortgage by yourself, it may be feasible with help from a lodger.
Bear in mind however that few lenders will take this income into account – you may need to demonstrate to the lender that you can support your mortgage payments by yourself, even if you plan to get a lodger.
Could you take part in the Right To Buy Scheme?
If you are a local authority tenant, take a look at the Right To Buy scheme. It enables local authority secure tenants with at least two years' tenancy to buy their homes at a discount price.
Are you eligible for the Key Worker Living Programme?
If you work in the education, health, police, fire or prison services, you could try the Key Worker Living Programme, which helps key workers who can't afford to live near to where they work. It also helps first time buyers and homeowners who need to buy a larger property to meet their household needs (eg because their family has grown).
The programme offers a variety of help in the form of subsidised loans or shared ownership depending on the type of scheme being offered in your local area. At time of press this programme was only available in London and the South East.
Could the HomeBuy Scheme help you?
The HomeBuy scheme is a government-led initiative offered by the Housing Corporation. There are three sections to this scheme:
The New Build HomeBuy option allows you to share ownership of your home with a housing association and pay rent for the proportion you do not own.
The Social HomeBuy option enables housing association and local authority tenants are helped to buy their current home.
With the Open Market HomeBuy, you part-buy a property and get a loan from a housing association for the rest.
In 2005, the First Time Buyers' Initiative (PDF) was also added to the HomeBuy scheme, with an aim to make 15,000 homes available over five years, primarily to key workers. This is a shared equity scheme, with English Partnerships owning the remainder of the equity up to a maximum of 50%.
In summary…
It’s not necessarily easy to get on the property ladder, but it can be done. And while some of the options we’ve outlined may not be appealing or even possible, they all offer relatively short-term solutions to a relatively widely-spread problem. If one looks suitable for you and your circumstances, fantastic – now all you need to do is figure out when and where to buy…
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