FOOL'S EYE VIEW
How To Get On The Property Ladder

By Jane Mack (TMFJane)
March 30, 2004

Recent news that Britain's housing stock has almost doubled in value over the last five years will come as no surprise to first-time buyers who have been struggling to get on to the property ladder. According to the Halifax in some parts of Greater London it has even tripled making homes even more unaffordable.

It's not surprising that first-time buyers tend to be older these days - it takes longer to save for a deposit for a start - but perhaps expectations are higher than they were when their parents were buying their first home too. With nigh on 70% of the adult population owning their own home, it's understandable that those new to it expect to be able to do the same. But the housing market has changed considerably over the last thirty years and first-time buyers need to change and adapt too.

So, setting aside the question of whether now is the 'right time' to buy (ie: will prices will continue to rise or are we facing a market crash?), what can the first-time buyer (FTB) of today do to achieve their goal of owning a home?

Get help from parents

This is not an option for some people but according to a recent report about 17% of FTBs are getting 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, then don't turn down such an offer if they can afford it.

Alternatively, they may be happy to buy the house with you on the understanding that you will buy them out of their share later when you can afford it or that they get a share of any growth in value when you sell up. You could ask them to act as guarantor for the mortgage but that would mean a big commitment on their part - if you fail to meet your mortgage payments they'll be lumbered with them.

Get a Graduate Mortgage

Following on from parental help, you might find that you qualify for a graduate mortgage. These enable you to borrow more than the standard amount based on your salary with the help of a guarantor such as a parent. They're different to standard guarantor mortgages in that the guarantee is only for the portion of the mortgage that is over and above the standard amount as opposed to the entire 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.

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. This method is becoming increasingly common - after all, if you've been renting a flat with your best mate from university for the last couple of years, why not continue sharing but in your own home.

There are major considerations though (such as what happens when one person wants to sell but the other doesn't) so make sure you agree, on a legal basis, the ground rules before signing on the dotted line. 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.

Get a Lodger Mortgage

It's now possible to get a mortgage which takes account of 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 and this extra income might just make the difference when it comes to affordability. If you ask a friend to be your lodger it won't be much different to renting a flat with them. Otherwise, choose your lodger carefully!

Get a Longer Mortgage

The usual length of a first time mortgage is 25 years which sounds like a scarily long period of time. But it's not unusual for people to upgrade to their next home a few years later and take out a new mortgage for exactly the same length of time. So the idea of looking for a 30-year mortgage in the first place, or maybe even longer, needn't be dismissed out of hand.

These days some lenders are looking at affordability rather than straightforward income multiples (the Halifax and Abbey National for example). Being offered three times your gross salary isn't much use if you live in an area where house prices are rather higher than that. But if you could get a mortgage that was spread over a longer-than-usual period so that your monthly payments were lower, it might make it more affordable.

The crucial thing to look for is that, even if there is an initial lock-in period, you subsequently have the facility to overpay when you can afford to. The longer the mortgage, the more you'll pay overall so your ultimate aim should be to overpay when feasible thus reducing the length of the mortgage term.

Key Worker Living Scheme

If you work in the education, health, police, fire or prison services, you could try the new Key Worker Living Scheme which starts on 1st April. It replaces the Government's Starter Home Initiative but works along the same lines in that it is geared towards key workers who can't afford to live near to where they work.

The Government is pumping £690 million into the programme which will offer 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. Bear in mind that, as it's aimed at areas where house prices are considered to be prohibitively expensive, at the moment, it is only available in London and parts of the South East and East of England.

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 it 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.

Some of the above options may not be appealing or, even, feasible in your own circumstances. But, it is a rare homeowner who will tell you that they managed to get on the property ladder without making any initial sacrifices of any kind. These options all offer possible solutions that are comparatively short-term and you may spot one that hadn't occurred to you. If so, investigate further and then wrestle with the troublesome question of what the housing market's going to do and whether now is the right time to buy! 

Find out more about Homeowning.