Getting on the housing ladder has become prohibitively expensive over the past couple of years – as house prices have continued to soar and interest rates have crept up. According to the careers website Prospects, the average university graduate will start work on a salary of just over £23,000 this year, while the average price of a flat in the UK is now around eight and a half times that, at £196,000.
Although bank and building societies are lending more to first-time buyers than they ever have before – an average of 3.38 times their salary, according to the latest figures from the Council of Mortgage Lenders – this often still falls short of what's needed to buy one's own pad.
"The problem for most first-time buyers is that they simply can't borrow enough," says David Hollingworth of the mortgage broker, London & Country. "You can now typically borrow just above four times your salary, but that's still not enough to buy in many areas of the country – unless you're on a very high salary or have a big deposit."
Increasingly, those who are managing to buy are children or grandchildren who are lucky enough to have come into some inheritance or a family gift – or those who are in higher-earning jobs.
However, whether you have little or no deposit – and regardless of your income – it is still possible for almost anyone with a salary to get on the ladder.
But Mark Porter of SPF Sherwins, the specialist advisers on affordable housing, warns that buyers should make sure any purchase is affordable.
The good news for frustrated first-time buyers is that the Government is on your side. Last year, it launched a scheme called HomeBuy – offering would-be buyers an interest-free loan for part of the property, to make buying more affordable. The open market HomeBuy scheme sees the Government stump up 12.5 per cent of your property value, and a private lender put up another 12.5 per cent – leaving you to take out a mortgage for the remaining 75 per cent. The Government and lender are paid back their stakes when you sell the property – the lender will expect to receive at least what it lent you, the Government will accept a smaller repayment if your house price falls.
Porter says buyers are locked into HomeBuy on five-year mortgages with one of four lenders – Halifax, Yorkshire Building Society, Nationwide and Accord – and warns that rates are not quite as competitive as those you can get elsewhere on the open market. He adds that while HomeBuy has helped those outside the South-east, it tends to not provide enough financial support for people in the Home Counties. If you're earning £30,000 a year, for example, you may be able to get a lender to give you four times your salary – but with the additional loans, you would still only be able to afford a property of £160,000. Without a hefty deposit, you're unlikely to find anything in the capital.
HomeBuy is targeted at "key workers" such as teachers, nurses and policemen, but Porter says that it's possible for most people to take advantage of the scheme, if they're willing to persevere with the arduous application procedure. Other ways to qualify include getting yourself on the waiting list for accommodation with your local housing association.
Earlier this year, the Government launched another shared ownership scheme – GLO (Government Loan Only) – where it lends up to 17.5 per cent of the property value, but allows you to shop around for mortgages with other lenders – not the four appointed HomeBuy companies.
Finally, there are also a few shared equity schemes that allow you to buy a smaller share of a property while paying a low rent on the remainder. Under the Government New Build Homebuy, for example, you would initially buy a 50 per cent stake and pay a small rent – typically between 2 and 3.5 per cent of the stake's value – on the remainder. When you were able to afford it, you could then buy out the remaining share. A handful of private associations – such as the Asset Trust – offer these as well as the Government.
Another option for first-time buyers is to get a relative to act as a guarantor on your mortgage – whereby their salary and debts will be assessed when deciding how much to lend, rather than your own.
Hollingworth says that many of the big lenders – including Abbey, C&G and Nationwide – will now consider accepting a guarantor. But he warns that the guarantor – usually parents of the purchaser – need to be in a relatively strong financial position, with little or no existing mortgage of their own.
"The issue is, in a lot of cases, parents may still have their own mortgage, and will have to prove that they can cover both with their own income," he says.
Hollingworth adds that Bank of Ireland offers a product that allows the parent and child to become joint owners of the property. In this case, both of their financial positions will be taken into account, which can help if the parent still has significant debts.
BUYING WITH FRIENDS
Spreading the financial burden of a mortgage with some friends is another option. Hollingworth says that most lenders will consider up to four names on a mortgage, although many will only take the incomes of two into account.
However, Melanie Bien, of the independent mortgage brokers Savills Private Finance, says a handful of lenders, such as Britannia, Skipton and HSBC will take the incomes of up to four joint buyers into account.
OTHER WAYS TO GET ON THE LADDER
If it's a deposit you're lacking, there are now plenty of lenders who are willing to advance you 100 per cent or more of the value of the property that you want to buy. But Bien warns, however, that taking more than 100 per cent puts you instantly into negative equity, and may "trap" you in your new home for many years if prices fall.
"The other problem with borrowing such a high loan to value (LTV) is that you are regarded as being higher risk by the lender so you have to pay a higher rate of interest than you would if you had a 5 or 10 per cent deposit," she says. "Bradford & Bingley has a two-year fix at 6.59 per cent, available up to 100 per cent LTV with a £699 fee. For a £999 fee, Cheshire Building Society has a 5.49 per cent rate, available up to 95 per cent LTV. So if you had a £150,000 mortgage on an interest-only basis, it would cost you £824 a month with B&B or £686 with Cheshire, a saving of £138 a month for having a 5 per cent deposit."
She adds that some lenders will also charge "higher lending fees" to people who borrow more than 90 or 95 per cent of their property's value.
If you think you're going to struggle with your mortgage payments in the early years, another solution to keep the cost down is to opt for an interest-only mortgage. The idea with these types of loans is that you save in a separate account to pay off the capital of your loan. However, increasing numbers of people are taking the loans out without a separate savings plan. "Interest-only can be useful in terms of keeping the cost down in the early years, but the danger is that you never get round to starting a savings plan to pay off the capital," warns Hollingworth. "You need to have discipline if you're going down that route."
'We've bought a six-bedroom house between the three of us'
Andy Pearson, a solicitor from London, decided to team up with his friends Dave Hollow and Barney Asprey to get a foot on the housing ladder a couple of months ago.
Although the trio are all between 24 and 26 years old, and have only been working for a couple of years, they each managed to scrape together a bit of money to cover costs and a deposit, and also persuaded Dave's father, Mike, to join them – bolstering the amount that they were able to borrow.
They ended up with a large, six-bedroomed, house in Harlesden, and are now renting out each of the three spare rooms, which is helping to keep the cost of the mortgage down.
"We'd already all been living together in the same part of London," says Andy, "and we all liked the idea of buying a property, but wanted to be able to still live with a big crowd of people.
"Most people end up buying a small flat when they're trying to get a foot on the housing ladder, but we wanted to live in a bigger place."
Andy says that the trio decided to opt for Harlesden as they all know and like the area, and already had charity and church commitments in the neighbourhood.
Although they struggled at first to find a lender who was willing to accommodate their slightly unusual set-up, Andy says he eventually turned to the internet and discovered www.sharetobuy.com – a specialist adviser for those looking to buy with friends, or looking at shared-ownership schemes.
"They were very helpful and mobilised themselves quite quickly after we'd found the place we wanted," he says.
The friends were careful to draw up an agreement setting out exactly how the house would be run, who owned what share, how long they were committed, and what would happen if one of them wanted to move out, or was to die.Reuse content