It has been well publicised that getting on the property ladder is becoming a more difficult proposition for first-time buyers as lenders abandon the standard model of 10% deposit and a mortgage. We take a look at some of the alternatives on the market for purchasing that elusive first property.
Shared ownership involves purchasing a share of a property (normally between 25%-75%) and paying rent on the remaining unowned portion.
Shared ownership sales are a subsidised system which only applies to new-build developments. Run and managed by individual providers, each will have their own requirements to confirm that you qualify. Applicants are means tested to ensure they can make the repayments to the scheme provider.
The benefit of a shared ownership property is you’ll be purchasing a share of the property for a lower price, therefore, your mortgage and deposit will be smaller than purchasing the entire property. In addition to this, you have the freedom to remain at the property for as long as it is required and if your situation changes you can purchase a higher share of the property through ‘staircasing’.
The downside to shared ownership is that, alongside your mortgage payments, you will be required to pay rent (normally limited to 3% of the share of the property) as well as the standard costs that are incurred in leasehold/managed properties such as service/maintenance charges. When you come to sell your share in the property the proceeds are split in accordance with your ownership share.
Through the Help to Buy scheme, you can apply for a government-backed equity loan to help you with your deposit. You will still need to raise 5% but you can get an extra 20% meaning you only need a 75% mortgage. The loan is interest-free for five years; after that interest is 1.75% – which is a cheaper (and less risky) option than most mortgages.
The Government’s Help to Buy scheme (helptobuy.org.uk) was set up in 2015 and allows first-time buyers to buy a property with a 5% deposit. It is now offered by most high-street banks who provide their own guidance on the scheme.
You could also look at using a Help to Buy ISA alongside an HTB mortgage. Help to Buy ISAs allow you to take advantage of tax-free savings and receive a 25% government bonus on amounts saved between £1,600 and £12,000 when you buy your first home.
For first time buyers stuck in the catch-22 of ever-increasing rental charges, making saving a deposit extremely unlikely then a 100% mortgage allows you to purchase a property without having saved a deposit.
There are one or two smaller lenders (such as Aldermore at 5.48% or Bath Building Society at 5.29%) who will offer 100% loans allowing you to purchase the property without having to save for a deposit.
In return for providing the entirety of the purchase funds, lenders often tend to charge higher interest rates and usually demand another party (usually your parents) to act as guarantors for the debt which means that if you default on payments they will have to step in. It is worth noting though that, for the increased risk of lending more funds, the rates on the mortgages are far higher than those available on the market at the time of writing.
Auctions offer a competitive way of purchasing a property that may have fewer parties bidding for it. Smaller demand normally means an increased opportunity for a bargain.
With the housing marketplace so congested and properties being sold as soon as they hit the market, it may be worth considering alternatives to help find a bargain. However, be aware – purchasing a property at an auction is risky and you should investigate the property listing and the legal pack before you attend the auction. Auction houses can provide you with email updates of their upcoming listings and you can make appointments to visit the desired lots.
Potential purchasers of auction properties should proceed with caution; the auction house normally makes it a condition of the contract that the property is exchanged when the gavel falls and completion must occur within 28 days. As a result, you will need to have 10% deposit ready for payment on auction day, when the contracts are signed and access to the remaining 90% within 28 days.
If you require mortgage finance you would need to arrange a mortgage in principal with a bank or building society before buying at auction. You could lose your 10% deposit if you fail to complete within the time given (normally within 20 working days).
For further legal advice for first-time buyers and how to get on the property ladder, Pinney Talfourd’s Residential Property Solicitors are here to assist. We have an experienced and dedicated team of specialist property lawyers based in offices across Essex and London.
We have late night and Saturday appointments available in our offices in Brentwood, Hornchurch, Upminster, Leigh-On-Sea and Canary Wharf for those that find it difficult to make appointments during working hours.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.