Five ways you can afford a home

Given up hope of ever getting on the property ladder? Check out these five ways you may be able to afford a home after all...

How long would it take most people in their 20s to save for a deposit on their first-home if they squirreled away every single penny they earned?

Two years, according to new research on the Home Builders Federation. It conducted a report on first-time buyers and basically found that, in order to get on the housing ladder, people in their 20s would have to give up eating, drinking, renting and generally, well, breathing for 24 months. But still manage to go to work. What a fun way to spend your 20s, eh?

Now wait a second. If you’ve just gone: “Aaargh! Not another doom-and-gloom story about first time-buyers!” – then you’re groaning at the wrong screen. We know most of the media seem to think it’s helpful to publish these sort of depressing statistics without putting forward potential solutions, but here at lovemoney.com, we think that’s kind of pointless. We’d prefer to try to be positive, if we can.

So, before all you first-time buyers out there ring up your landlord to tell him you’re ready to sign a 30-year tenure, read what we have to say. Here’s a list of five – yes five! - ways you can afford a home, after all:

HomeBuy Direct

HomeBuy Direct is a scheme developed to help out first-time buyers who can’t afford to buy their first home. If your annual household income is less than £60,000 then you are eligible to apply.

Buyers have to secure 70% of the property price through a mortgage and the rest comes from a government loan. So, if the property you’ve set your heart on is £250,000 you need to take out a mortgage for £175,000 while the government will lend you a further £75,000.

The loan must be repaid in full after 25 years, unless you sell in the meantime.

Be aware though that, when you repay the loan, you don’t repay £175,000. You give back the same percentage you borrowed. So if you make a profit on your investment, the government does too.

New-build Homebuy

Formerly known as ‘Shared Ownership’, New-build Homebuy allows wannabe homeowners to buy a share of a new build property.

Unlike HomeBuy Direct, where you own the property outright, with New-build Homebuy you only own between 25% and 75% of it.

Each month, you’ll have to make a mortgage payment for the share of the property you own and also pay rent to your local housing association for the part you’re still renting.

If you want to increase your share to 100% of the property, you can do so. But be warned: additional shares are priced according to the market value of the property at the time you buy them. So if the property goes up in value, you will pay more for each share than you did before.

Furthermore, you may find that your monthly outgoings are quite high as remember you will have to pay rent as well as the mortgage – so you may find it difficult to save. And finally, be aware that these properties can be difficult and time-consuming to sell as you are not the sole owner.

Again, you’re only eligible if your household income is less than £60,000, and social tenants are given priority, followed by key workers.

Rent to HomeBuy

The Rent to HomeBuy scheme is a Government scheme which allows you to pay a reduced rent on a new home until you can afford to buy it. You’ll pay 80% or less of the rent so long as you save the remaining 20 or so percent to put towards a New-build HomeBuy property. You’re only eligible to be in the scheme for up to five years though so you’ll need to tighten your belt and kiss goodbye to your social life to make the most of it.

As with the other Government schemes, you can only get help if your household £60,000 a year or less and you can’t otherwise afford to buy.

Buy with friends

If you live with friends, you sometimes find yourself arguing about trivialities like empty milk bottles in the fridge and who’s turn it is to take the rubbish out. Trust me, I know.

But if it means you can finally get on the housing ladder then it may be worth biting your tongue once in a while. There are a number of lenders out there which offer a joint mortgage for up to four people, including Nationwide and Santander.

It’s a more complicated process than applying for a standard mortgage, so just be aware it might take a while. And make sure you and your friends know where you all stand legally when it comes to the finances and where you are all going to go next. Because selling a share of a shared house won’t be easy for you or the people you live with!

Ask mum and dad

It’s a little bit contradictory to want to seek the independence buying a home offers but to rely on your parents to do it.

However, most first-time buyers are forced to go cap in hand to the Bank of Mum and Dad nowadays – and some of them get a nice juicy deposit as a result, no-strings attached.

But what if your mum and dad aren’t exactly loaded themselves? They can be a lot of help when it comes to helping you get on the ladder.

First things first, when you’re saving for your deposit you should consider moving back home with your parents for a while to save some money. It might not be fun, or easy, but it will save you hundreds of pounds a month. Put that money straight into a high-interest savings account!

If you’ve got a deposit together and your income is too small for you to afford to buy, consider whether you’d be comfortable asking your parents to be guarantors for your mortgage. Your parents would not have to provide any money upfront, but their income will be taken into account by the lender when deciding how much to lend to you.

Just be aware that, as guarantor, your parents are assuring the lender they will cover the mortgage payments should you run into difficulty. That means they are putting their own home potentially at risk if you suddenly find you cannot afford the upkeep on your mortgage and they cannot manage to cover your payments by themselves.

Make very sure you can afford to meet the payments by yourself, in other words.

Alternatively....

As you can see, there are pros and cons to each of these methods, and none of them are ideal. But if owning your own home is your dream, then hopefully, one way or another, you will soon able to turn it into reality. Good luck – and don’t forget to check out Buy your first home in eight easy steps first!

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