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.
John Fitzsimons explains why the best mortgages offer you a bit of flexibility
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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Richmoll I don't totally disagree with what you are saying, I just think that there are some fundamentals of the housing market which people place too much stress on, like housing shortages. I just happen to think that mortgage funding and the availabilty of money is the most important - by a long way. The reason for this is that most people need to borrow money to purchase a house and when it is done against a background of loose lending by greedy banks that have targets to meet to please the city, and loose regulation, then you are cooking up trouble. We saw that trouble emerge in 2007-8 and since then banks have tightened up. Prices have stayed steady, hardly fallen, but little is selling. We know that banks now require people to come up 25-40% deposits, this is what I call the crash element of the cost of a property, because as the banks went back to more tradional mortgage lending, the gap between 2007 prices and what banks are prepared to lend is for the most part between 25 and 40%, the crash that so far hasn't happened. Against this background you can call for more house building, but if they were to be built and a 2007 price put on them, who could afford it? Mass building of affordable housing is unlikely to happen, because as I indicated before, there is not the political will for this. If you were to build a million affordable homes over the next 5 years at say no more than 3x salary, the rest of the property market would collapse in price against it. How could prices stay at current levels against such affordable properties? No Government wants to see that when there are votes to be had from existing property owners. The market is now under stress as sellers hold out for the 2007 (approx) price, and buyers cannot meet those expectations and need lower prices. I think it is slowly swinging towards a buyers market and as long as the banks stay tight on mortgage lending and the FSA don't budge on regulating the market, I can see much lower prices ahead. Either that, or little will sell.
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SevenPillars I agree about the empty houses. They should form part of the solution but one of the reasons that they are empty is often because they are in very poor condition or areas that in such a serious state of social deprivation that you wouldnt want young families to be forced to live there. Nevertheless it is one area that action is required.http://www.emptyhomes.com/index.html is the website of a charity that tries to make things happen. We still need to build more new houses though and for that we need to simplify planning and accept that unfortunately we need to build on some greenfield land. I don't want to see this, I have no interest in this , I simply believe that it is necessary if ordinary people are going to be able to access decent housing.
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Richmoll It is estimated that there are somewhere between 700,000 and 1,000,000 empty or vacant properties in the UK at any one time, so much for their being a shortage. There is just not the political will to do anything about this. Do a search on the Housing Act of 2004 and you will find the Empty Dwellings Management Orders. This gives Local Government the power to take control of empty properties in their area and rent them out. You know how many EDMO'S had been taken out by 2009? 20. Yes that's right, a grand total of TWENTY!!!! The politicians talk a good talk when it comes to doing something about the housing shortage, but there is not the political will to resolve it. They know where their bread is buttered, with the property owning voters and they don't want to be seen as the big, bad state taking control of property. There is also no will to build cheap housing and hasn't been since Thatcher stopped Councils building back in the 80's . Prescott failed miserably and so will Grant Schaps. They don't really want too much cheap housing for obvious reasons.
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04 November 2010