First-timers take 'staircase' to first rung of the ladder

Each year, the bottom rung of the property ladder edges further out of reach for many would-be first-time buyers.

The cost of the average starter home in Britain has now climbed to £141,832, according to Nationwide building society. On the mortgage multiples offered by most lenders, that price would require a salary of nearly £40,000 if only one person were paying the mortgage. And clearly this is way beyond the incomes of most young people, given that the age of the average first-time buyer is 34.

One solution to this problem is to split the cost by buying with a family member or friend. Where this isn't possible, a number of schemes have been introduced to pep up the market for hard-pressed first-timers.

The first of these was "shared ownership", where you find between 25 and 75 per cent of the cost of a property while the remainder is bought by the local housing association. Low-cost rent is paid on the part of the home you do not own, and you can also buy back shares from the housing association - a process known as "staircasing" - until you own 100 per cent.

However, the scheme is open only to "key workers" in the public sector, such as nurses and firefighters, as well as priority first-time buyers like current social housing tenants. It is also restricted to certain properties or developments.

Then, last October, came the Government's shared equity scheme, Open Market HomeBuy. Here, you must get a loan for at least 75 per cent of the property price; the rest is stumped up in equal measure by the Government and a participating lender.

There are no staircasing opportunities here, just the potential for a rise in the value of your 75 per cent stake when you come to sell.

But although Open Market HomeBuy is available for any property, again only key workers and priority first-timers will qualify.

For those outside the public sector, another option emerged last year: buying with strangers. Websites such as www.shared-spaces.co.uk work as an introductory service to pair would-be homeowners.

This idea may have been the inspiration for another new scheme, launched last month, which allows people to buy a share of any property, anywhere in the country, and then staircase their way to full ownership.

It comes courtesy of a company called Joint Equity, which acts as a middle man between property investors and first-timers. Buyers, known as "owner-partners", are expected to buy between 25 and 75 per cent of the home, while the "investor-partner" puts up the remainder.

"As long as the property is under £250,000 and the applicant's credit rating is up to scratch, there is a 99 per cent chance a willing investor-partner will be found, regardless of location," says Brad Bamfield, Joint Equity's chief executive.

There are plenty of costs to be met, though. First, the two parties must each put down a 10 per cent deposit on their relative shares.

Second, while the investor is not a landlord - so rent isn't payable - the owner-partner must pay an annual "investor return" of 6 per cent of the investor partner's original share.

Buyers can staircase only after two years, and once they arrive at 75 per cent ownership, the next step is a large one - straight up to 100 per cent. And when the time comes to sell, there's a fee to Joint Equity of 1 per cent of the value of the owner-partner's stake.

If house prices fall, the investor-partner will always be legally entitled to the value of his initial stake as well as the 6 per cent annual returns.

Mortgage brokers are sceptical. "You have to stay in the property for two years or face paying a penalty if you move, and that's unusual," says Melanie Bien of Savills Private Finance, adding that there are only two home loans on offer with this scheme.

These are a two-year fixed-rate deal at 6.44 per cent, or a two-year tracker pegged at 1.26 per cent over base rate (for a current pay rate of 6.54 per cent). Both deals are available only through broker Mortgagebeaters.

Rob Clifford of broker Mortgage Force also warns of the costs but says the idea is worth considering. "Any fresh scheme that aims to bridge the growing afford- ability gap for first-time buyers should be welcomed in principle. It could be a better alternative than borrowing more than you can afford to repay."

Lyndsay Roberts, who works for the National Theatre, wants to put her £800-a-month rent towards a mortgage by using the Joint Equity scheme instead.

She has been told by the company that, given her earnings and the deposit she can raise, she would qualify for a 50 per cent stake in a £150,000 property.

"It will still be hard to find this in London but I'd prefer to use [a service like] Joint Equity, rather than buy with a friend, as I'd feel more secure in the sense that it's a business arrangement."

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