8 min read

How first time buyers could get on the property ladder faster

It seems like it’s never been harder to own your own home. House prices today are more than 100 times higher than they were in the 1960s, while the average UK salary has only increased 33-fold over that period.

Person clasping hands over small of a house

That means it’s now three times harder for the average person to get on the property ladder than it was back then, according to mortgage broker Trussle. But it’s not impossible. Here are some tips and tricks that could help first time buyers get on the housing ladder faster.

Bank of Mum, Dad and grandparents

One of the biggest obstacles would-be homeowners face is saving a large enough deposit to get a mortgage while still covering their everyday rent and bills. Some people move back in with their parents to be able to save the cash faster, while others rely on gifts or loans from family members.

In fact, the Bank of Mum and Dad is one of the UK’s biggest mortgage lenders, getting involved in one in four housing transactions this year to the tune of £6bn*. While not an option for all first time buyers, parental help can be invaluable when you’re trying to get a leg up on to the property ladder.

Guarantor mortgages

Family members can also act as a guarantor on your mortgage if you only have a small deposit or your credit record isn’t squeaky clean. It means they are legally responsible for your mortgage payments if you can’t meet them.

They might use their savings to offset your loan, or allow a charge to be placed on their own property. This means they risk losing their home if you and they fail to meet payments, so you need to ensure you can meet the payments.

Low deposit mortgages

If you’re struggling to build a deposit, there are some mortgages on the market which allow you to borrow at 95% or even 100% loan to value, meaning you would only need 5% or less as a deposit. But the downsides are these mortgages are likely to be more expensive and you risk going into negative equity if house prices fall.

Lifetime ISA

There are also several government schemes in place to help first time buyers. The Lifetime ISA is designed to help people save towards a first home deposit or retirement. The government scheme offers a 25% annual bonus on everything you save, restricted to a £4,000 annual limit.

With the Lifetime ISA you are awarded the 25% government bonus yearly, meaning you actually get the additional money in your account so you can use it towards your first-home deposit.

Help to Buy ISA

The Help to Buy also offers a 25% government bonus. However savers do not receive the additional money until completion of their house purchase, so it can’t be used towards the buyer’s deposit. It’s also worth noting that the scheme is closing to new customers next year (2019).

Help to Buy Equity Loan

There is another strand to the Help to Buy scheme, the Help to Buy Equity Loan. Under this scheme, the government lends you 20% of the cost of a new build home (40% in London), so you only need to find a 5% deposit in cash and you don’t have to pay any fees on the loan for five years.

Starter Homes scheme

There’s also a new government initiative in the pipeline, the Starter Homes scheme. It’s designed to let first time buyers buy new build homes at a 20% discount, up to a maximum property value of £250,000 (or £450,000 in London). The scheme is not open yet but you can register your interest here.

Shared Ownership

Shared Ownership might also be worth considering. The scheme allows you to buy a chunk of a property, typically between 25% and 75%. While the property developer or housing association owns the rest and you pay rent on it.

You then have the option to ‘staircase’ or increase your share until you own up to 100% of the property. Although not all schemes allow you to go up to 100%. But you are still liable for all maintenance even if you only part own the property.

There may be service charges, you may need permission to redecorate, and it can be hard to sell on shared ownership properties if you need to move. Plus there’s no guarantee your rent won’t rise.

Buying with friends

Buying a property with friends can bring home ownership within reach. It allows you to split the deposit, mortgage payments, legal fees, survey costs and monthly bills between more of you, reducing the cost. Combining your incomes might mean you can borrow more overall, ideal if you want to live in an expensive city.

You could draw up a legal co-habitation agreement detailing everyone’s share in the property and what will happen if circumstances change, there’s a dispute, or one of you wants to move out. Could you afford to buy out your housemates?

While it sounds good on paper, buying with friends can be complicated and requires a high level of trust because buying a property together means you are linking your credit records. Take professional advice before you make the leap.

Saving towards a house deposit is a difficult task. But making use of the schemes and saving products available could help prospective first time buyers get on the housing ladder a little faster.

Written by Hannah Smith – Financial Journalist


Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decision. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.