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3 barriers to home ownership (and how to beat them)

3 barriers to home ownership (and how to beat them)
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Buying a home is one of the most important investments many of us will ever make. Not only does it provide a home, it also provides an asset that can be passed down to family members. However, for many, especially those with low and moderate incomes, home ownership is becoming an increasingly distant dream. Let’s explore a few of the most common barriers to home ownership and see how you can beat them.

1. You can’t afford the deposit

Some first time buyers believe that they must be able to raise a minimum deposit of 20% to access a mortgage. Considering that the average cost of a house in the UK is £232,000, according to the Office for National Statistics, this can be a hefty sum to come up with and it be a major barrier to home ownership.

It is true that some lenders might ask for a relatively high deposit (especially for first time buyers). However, many consumers actually overestimate the minimum deposit required.

Not every lender will ask you to raise a 20% deposit. Some might offer a type of mortgage known as a 95% mortgage, whereby you only put up a 5% deposit. Though this type of mortgage is not typically open to all and is dependent on meeting certain requirements (such as a good credit score and a decent income), it is still worth exploring. 

The UK government’s Help to Buy scheme could also be an option if you’re struggling to raise a deposit of more than 5%. Here, after raising the 5% deposit, the government will lend you an additional 20% (or up to 40% if you live in London) interest free for the first five years. This means that you will only have to take out a mortgage for 75% of the property’s value.

However, given the relatively high price of property in the UK, a 5% deposit might still be an impossible amount to raise for some. One way to overcome this is to look for extra ways of boosting your savings.

2. You have a poor credit score

A poor credit score or the lack of any credit history can be a major barrier to home ownership. If you are a young person who, for example, does not have a solid history of using credit, or if you have history of late or missed repayments, you might find it difficult to get a mortgage.

You can overcome this barrier by taking some time to rebuild your credit and improve your score. It might also be useful to carefully go through your credit report and check for any errors or unusual activity. You can then take the necessary corrective action including alerting the authorities (the police and credit reference bureaus).

Increasing the size of your deposit, if possible, can also help you overcome the issue of poor credit. Some lenders might be willing to overlook bad credit if you offer to put down a greater deposit. By doing this, you are essentially lessening the risk involved in lending you the money.

3. You don’t have job security

When deciding whether to give you a mortgage, lenders will take your employment history into consideration. If you have not held a stable job for the last couple of years and do not have a steady income, this can be a barrier to home ownership.

Indeed, since COVID-19, many prospective buyers (65%) have cited job insecurity as their biggest barrier to buying a home, according to a report by the Building Societies Association. Some people have lost their jobs due to the virus and others are relying on the government’s furlough scheme. Most are not certain they will have a job to go back to once lockdown measures are lifted.

If you are currently experiencing job insecurity but still desire to own a home, it could help to get your other financial ducks in a row. This means cleaning up your credit, building up your savings to cover the deposit and some of the repayments and reducing your current debt to bring down your debt-to-income ratio. Doing this will demonstrate financial responsibility, something that can convince lenders that you are not a lending risk.

Final word

Between bad credit, job insecurity and raising a deposit, you might be thinking that home ownership is out of reach for you. However, there are ways to overcome these barriers to home ownership and make your dream of owning a home happen. It all starts with being financially responsible and doing some research to identify all available options.

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