For anyone starting 2020 intent on getting on the property ladder, the task ahead may seem daunting – even by the standards of notoriously hard to stick to New Year’s resolutions.
House prices rose 33% in the last decade, according to the Nationwide Building Society, and an incredible 117% in the ’00s. As prices rise, so too do deposits, which are normally around 15% of the asking price for first-time buyers. According to the Land Registry, the average price of a house in the UK is £235,000, and £475,000 in London.
Salaries, meanwhile, have singularly failed to keep pace. “While house prices have risen, there has been a lack of movement in income,” says Paul Stockwell, managing director of mortgage broker Bonaventure Finance. “That is especially a problem in London and the south east – and youngsters tend to flock to the capital to make their fortune.”
Add to that a lack of properties coming onto the market – demand has long outstripped supply in the UK – and getting on the housing ladder may feel a resolution too far. The good news, however, is that some help is available.
Family - the bank of Mum and Dad
Research carried out last year by Legal & General found that the average parental contribution made to homebuyers was £24,100. Collectively, parents gave their children £6.3bn in 2019 towards buying property.
“Particularly in London, it’s very nearly impossible to get onto the housing ladder without some help,” argues Jeremy Leaf, a north London estate agent and former residential chairman of the Royal Institution of Chartered Surveyors, the industry body. “That’s unlikely to change, unless there’s a massive correction in prices or people’s earnings go up. It’s just supply and demand.”
If parental help is not an option, the Lifetime ISA may be worth checking out. This replaces the Help to Buy ISA, which was closed to new accounts last year (although you can keep saving into it until November 2029). It operates along similar lines, but is a bit more generous, allowing you to save up to £4,000 per year with the government topping your savings up annually by 25%. A Lifetime ISA can be used to help buy a home worth up to £450,000 anywhere in the country, but you need to be aged over 18 and below 40 to open one.
Help to Buy Equity Loan
It’s one of the best-known schemes for first-time buyers, but you only have a couple more years to take advantage. The buyer puts down a 5% deposit; the government will then lend 20% of the property price (40% in London) interest free for five years. After that, the buyer is charged interest of 1.75%, which increases every year by the rate of inflation plus another 1%.
There are restrictions: homes must be new builds, they cannot be let out and must cost no more than £600,000.
“Schemes such as Help to Buy have aided over 200,000 home purchases, many of them first-time buyers,” says Russell Quirk, a property expert at PropergandaPR.
Help to Buy has come in for criticism, however, for artificially supporting house prices while boosting the profits of home builders. “A lot of people in the industry view Help to Buy as Help to Sell,” concedes Leaf. “It’s concentrated on the supply side.”
Help to Buy will be replaced next year by a new scheme open to first-time buyers only, which will run until March 2023 and introduce new regional price caps.
Under Shared Ownership, you can buy between 25% and 75% of the property from a council or housing association and pay rent on the rest. Over time, you gradually buy more shares – known as staircasing – until you own it outright. It means a smaller deposit and smaller mortgage. You are eligible if your household earns £80,000 or less a year (£90,000 in the capital).
First Home Fund
The Scottish government launched the £150m pilot First Home Fund in January. Buyers will receive help of up to £25,000, with the government taking a stake in the property in exchange. It will apply to new builds and existing homes. The £25,000 is capped at 49% of the valuation, however. Buyers also need a 5% deposit.
In Northern Ireland, co-ownership allows you to buy a minimum 50% share of a property, up to a maximum 90%, with rent paid on the remainder to the Northern Ireland Co-ownership Housing Association. You then increase the amount you own in chunks of 5% or more until you own it outright.
Buying with friends
If you’re not eligible for any of the state-backed schemes, buying with friends or siblings allows individuals to share the cost of the deposit and mortgage payments. Experts stress the importance of drawing up a contract to cover all eventualities, be it one party getting married or a falling out. And of seeking independent legal advice.
Lenders have acknowledged the role parents increasingly play with products such as the snappily titled joint buyer sole proprietor mortgage. This is where parents go on the mortgage but not the property deeds – only the child does. Also popular are mortgages which will do away with the deposit if parents place their savings with the bank for a fixed period of time.
Paul says: “The idea of these types of products is that it’s a step up: that over time, as the child’s income goes up, they will no longer need them. You just need to get onto the ladder – give it time and everything will get sorted out.”
Getting on the property ladder is tough, but some help is available. Plus 2020 could be a relatively good year for first-time buyers: house prices are expected to rise, but modestly, while interest rates could fall further. The average rate for new mortgages was 5% in 2009; it is now 2.4%. Income, meanwhile, should continue rising.
“We have come out of the more difficult times now, and the banks are willing to lend; after all, lenders have to lend,” says Paul. “They are really trying to help this part of the market, and so it’s not a bad time to buy right now.”
Maybe this might be the New Year’s resolution to stick to after all.
The above is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.