FOOL'S EYE VIEW
Getting On To The Property Ladder

By Jane Mack (TMFJane)
September 9, 2003

A few weeks ago an article I wrote about buying-to-let versus pensions upset a Fool who has been struggling to get on to the property ladder. He pointed out that buy-to-let landlords are contributing to spiralling property prices putting them out of reach of first-time-buyers such as himself. 

To paraphrase he said it was all very well for the current generation of home owners to be sitting on huge amounts of equity in their homes but the generation to follow will pay for this 'smugness' by not being able to afford such assets themselves.

I'm not surprised he was angry - being a first-time-buyer can't be much fun these days. However, I felt I was justified in pointing out that many of us who already were on the property ladder had stretched ourselves to the limit when we first bought (myself included) and that I wasn't sure I should feel guilty for reaping the rewards of the considerable risk I took at the time. Beside, I don't feel smug, I feel thankful.

The fact is, buying your first home is a risk – it's a question of whether you're prepared to take it. But I can understand that it can be very hard to save up enough for the deposit, let alone being earning enough to afford the sort of mortgage that might be necessary. So let's look at some alternative ways of getting on the property ladder that might be worth considering.

Buy With A Friend

You might not be able to afford to buy by yourself but you could possibly manage it if you went halves or even thirds with a friend or two in the same position. A young couple I know did this with a mutual friend last year and eight months later it's working out just fine. They'd shared at university so they knew they got on and so far there have been no arguments about people not paying bills on time. An added bonus for them is that they have all benefited from the increase in local house prices.

There are considerations though (like what happens when one person wants to sell but the other doesn't) and it makes sense for each person to have their own solicitor and to agree the ground rules before signing on the dotted line.

Get a Lodger Mortgage

It's possible now to get a mortgage which includes the expected extra income from a lodger. So even if you don't earn quite enough to manage the mortgage by yourself, it may be feasible with help from a lodger. You can earn up to £4,250 a year under the Inland Revenue's Rent-a-Room scheme without having to pay tax on the income so this could be an option worth considering.

Get a Graduate Mortgage

If you qualify you could apply for a graduate mortgage which enables you to borrow more than the standard amount based on your salary with the help of a guarantor such as a parent. The guarantee is only for the portion of  the mortgage that is over and above the standard amount and not the whole mortgage. The guarantee lasts until the borrower is earning enough to cover the whole loan at which point the guarantor is released. So if your parents aren't in a position to guarantee the whole mortgage, they might be able to back up part of it. As long as you can afford the actual  repayments yourself, they shouldn't be out of pocket.

Shared Ownership Scheme

The Shared Ownership scheme is offered by the Housing Corporation and it enables you to buy a proportion of a property from a registered social landlord, i.e. a Housing Association and pay rent on the bit you don't own. As and when you can afford to you can buy more of the property until, eventually, you own it outright.

Priority is normally given to existing public sector tenants or those on local authority or social landlords' waiting lists but, if you qualify, you can buy as little as 25% of the property to start off with. Rents for Housing Association properties also tend to be cheaper than those on the private market and as the whole idea of the scheme is to make buying a home more affordable, this could be a route worth looking at.

Homebuy Scheme

The Homebuy scheme is also offered by the Housing Corporation and it applies to existing tenants of registered social landlords and local councils or those on housing waiting lists who are nominated by their local council as being in housing need. The aim is to help you buy a home on the open market thus freeing up social housing for others.

You have to fund 75% of the mortgage yourself but the registered social landlord will lend you the remaining 25%. There are no monthly repayments - you just pay them back 25% of the value of the house when you sell. You can repay the loan before then, of course, in which case it'll be based on the value of your home at the time you pay it off.

Starter Home Initiative

If you're a nurse, a teacher or in the police force, you could try the Starter Home Initiative. It's sponsored by the Government and is geared towards key workers who can't afford to live near to where they work. It offers a variety of help in the form of interest-free loans or shared ownership depending on the type of scheme being offered in your local area. Bear in mind that, as it's aimed at areas where house prices are considered to be prohibitively  expensive, the scheme is only available in London and parts of the South and South West of England.

Remember that buying any property entails taking a risk that you're doing the right thing at the right time. But if you want to own your own home, then it may be a risk worth taking even if you have to start off by sharing with a friend or lodger or by buying only part of a house to start with. In time, it could pay off.

Find out more about Homeowning. If you have a mortgage, consider switching to the Offset variety.