Escape the rental trap

A tough mortgage market and rising bills are making it harder than ever for first-time buyers. But there's more than one way to get a foot on the ladder, says Helen Monks
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The Independent Online

You could be forgiven for thinking that the UK's falling house prices offer some much-needed relief for first-time buyers. But the realities of today's tough mortgage market, coupled with rising costs, continue to ensnare tomorrow's homeowners in the rental trap.

"With most lenders asking for a 10 per cent deposit and with the uncertainty over prices, few first-time buyers are looking to buy at the moment," says David Hollingworth of broker London & Country Mortgages (

And while would-be buyers wait it out, demand for rental property pushes up rent levels and makes it even harder for them to save for a deposit.

Recent figures from the Association of Residential Letting Agents show rent rose by an average of 4 per cent for houses and 2 per cent for flats in the three months to March. For those facing these rising costs and caught in the rental trap, we suggest five escape routes:

Shared ownership

With this government-assisted scheme, the deposit and repayments are generally lower than buying normally.

There are three elements to the scheme: new-build HomeBuy, where you share ownership with a housing association; open market HomeBuy, where you buy a property outright, funded by a mortgage plus an equity loan; and social HomeBuy, where social housing tenants may buy their current home.

To qualify, buyers need to be social housing tenants, key workers or those belonging to groups identified as priorities by regional housing boards. These groups of individuals tend to have household income of more than £60,000.

The draft Queen's Speech last week included plans to extend shared ownership to more low-income groups, but at the moment, the eligibility criteria can be fairly narrow. Visit to track down a HomeBuy agent and for more details.

New-build properties

Market analysts say developers have never been keener to shift their stock: "There are packages out there where first-time buyers' legal fees, stamp duty, survey and furniture are paid for and packages are between 5 and 10 per cent cheaper than this time last year," says managing director, David Bexon.

It is worth noting, however, that many lenders no longer offer mortgages on new-build flats, because of problems determining the true value of these properties once all the incentives have been taken into account. New-build house buyers will find it easier to secure a mortgage, but fans of apartments are advised to go to an independent mortgage broker to finance their move.

Pick up a bargain

One way to make your deposit go further is to buy at a knockdown price.

As more homeowners struggle to maintain their mortgages, repossessions have risen, fuelling the supply of properties coming on the market at auction. In March, the number of residential lots offered rose more than 9 per cent compared to the same month last year, to 2,704 properties, according to Essential Information Group.

Although you might be able to buy cheaply at auction, property portal warns new buyers not to be seduced by the rock-bottom guide price listed next to a property. This is not what the auctioneer expects it to go for and is merely an indication of the minimum at which the auctioneer can sell the property. Popular lots can sell for double this reserve.

If buying on the open market, the advice is go in with a low offer: "Buyers are scarce, meaning many sellers are now willing to consider offers of 5 per cent off the asking price," says Miles Shipside of

Ask the family

The bank of Mum and Dad has become the go-to lender for many first-time buyers, but not all parents can dole out large lump sums for a deposit.

If this includes your parents, there is still a way they can help. The First Start mortgage from Bristol & West ( is a joint home loan that takes their income into account, too, so the amount you could borrow could be significantly increased.

To get an idea of how much you might be able to borrow together, deduct your parents' annual mortgage repayment and all other annual credit repayments from their income, multiply this figure by four and a half times, then add your income.

David Hollingworth also makes the point that First Start is one of the few mortgages around that still offers 100 per cent borrowing.

Club together

In the UK, up to four people are allowed on the deeds of a property, which means that you could club together your deposits and borrowing clout with up to three friends.

Tips on making this arrangement work include renting with your friends (if you haven't done so already) to ensure you can all live together happily and drawing up a legal agreement before signing-up. This should state the amount of deposit contributed and how much each will pay to the mortgage. It should also cover what will happen should you die.

Remember, those who buy together are jointly liable to keep up repayments, so that if one of you struggles, the mortgage lender will expect the rest to pay.

A view from the ladder
Interviews by Toby Green

Lotte Dunford, 26, a lawyer, bought a one-bed flat in Angel, London, in April last year
There needs to be more help for first-time buyers: my parents gave me half my deposit, but not everyone is that lucky. I couldn't have bought without them. In some ways, I regret buying. It's really stretching me: my spending patterns have changed and I can't live as extravagantly as my friends who rent.

Marcus Fairhurst, 27, works in recruitment. Bought a three-bed terrace in Hackney with David Hartley 26, a media consultant and John Arnold, 27, an engineer
We met at university, and always planned to buy a house together, so we arranged a shared mortgage through I can't imagine it would be right for everybody – perhaps it's unusual, but we've never had a cross word between us.

Amy McCollam, 30, an administrator, is moving in to a three-bed flat in Reading
We've bought through a shared-ownership scheme, which I qualified for because I'm registered with social housing. We own half the property and the rest is rented to us. It has worked out really well. In the long term, we would like to own it outright, but currently it suits where we are financially.

Kato Harris, 28, a teacher, bought a one-bed flat in Lee, London, September 2006
I had a 103 per cent mortgage because everyone told me that if I didn't buy now, I would never get on the property ladder. But because Lee is cheap, I feel it'll be one of the last places to be hit by the slump.