Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Alternative ways to get your own home
Annie
16th Jan 2020
Buying your first home seems to be harder than ever before. High rents make it hard to save, wages aren’t great, and the strict demands of mortgage providers can make it seem like you’ll never get your own property.
Never fear!
There are ways to get onto the property ladder that don’t involve hefty deposits. You’ll still need some cash behind you – but you could own your own home much faster with one of these options.
- Help to Buy and LISAs
- Forces Help to Buy Scheme
- Shared ownership
- Buying your council house with Right to Buy
- Buying with a friend/ partner
- Auctions
- Building your own home
- Buying with the Bank of Mum and Dad
Help to Buy
The Help to Buy scheme closed to new applicants on 30 November 2019. However, if you opened a Help to Buy ISA on or before this date, you can still make the most of the Government scheme.
Help to Buy ISAs offer first-time buyers the chance to receive a 25% cash injection on top of their savings. The Government contributes up to £3,000 per Help to Buy ISA (so if you’re a couple, that’s £6,000) on top of your savings.
This lump sum can forms your deposit on an eligible Help to Buy property.
LISAs
Didn’t open a Help to Buy ISA in time? Don’t panic!
Lifetime ISAs (LISAs) replaced the scheme. You can pay in up to £4,000 a year and receive up to £1,000 a year (25%) Government bonus on your savings.
The big difference here is that you can use the money for two things:
- To buy your first property, or
- To save for your retirement.
Unlike a Help to Buy ISA, which was only for first-time buyers, a LISA offers you the option of saving money between the ages of 18-50 that you can access (with a 25% bonus) from the age of 60.
You can open a LISA if you’re aged between 18-39 and pay in up to £4,000 of your overall £20,000 personal allowance each year. Unlike a Help to Buy ISA, LISAs are a separate type of ISA to cash ISAs. That means you could pay in the rest of your allowance into a cash ISA in the same year.
You can’t access your money for the first year of holding the LISA. After that, when you’re ready to buy, your solicitor will arrange to release the funds as part of the deposit on your new home.
If you decide to use the savings account as a retirement fund instead, you can’t access your money until you’re aged 60. (Alright, you can, but you face a 6% fine and won’t get the 25% bonus).
However, unlike pension pots, the money in a LISA is always going to be totally tax-free. So, you could end up with a nice lump sum for your 60th birthday.
Veterans Help to Buy
This is a scheme to help military personnel invest in their own property. It was recently extended to at least December 2022.
Eligible military personnel can borrow up to half a year’s salary (up to £25,000) entirely interest-free to help them buy a home. The loan can be repaid over a period up to ten years, and is designed to help soldiers, naval personnel, airforce personnel, and their families to own property.
It can be used to buy a first home, move home, or extend and upgrade an existing property.
Visit the Gov.uk website for more information about the Forces Help to Buy.
Shared ownership with housing associations
This is where you buy a share of your home and pay a small rent on the rest, usually sharing ownership of the property with a local authority or housing association. You pay rent to the landlord for part of the property and a mortgage on the rest. You’ll usually be able to buy further shares in the property at a later date.
- To qualify for the scheme you’ll have to be a first-time buyer.
- Priority is given to local authority or housing association tenants but other people in housing need may also be considered for the scheme so it’s worth a try!
This scheme does have a few downsides apart from eligibility.
- You’ll have to sign up to a housing association, which may have an extremely long waiting list.
- And you’ll still need enough money for the mortgage and deposit on the share you’re buying.
You can find a list of housing associations here.
More information about shared ownership is available from Homes England, local authorities or housing associations.
Shared Ownership for Over-55s
If you’re aged 55 or over, you can get help from another scheme called ‘Older People’s Shared Ownership’. This works in the same way as the shared ownership scheme, but you can only buy up to 75% of your home. Once you own 75% though, you won’t have to pay rent on the remaining share. Happy days!
The homes charity Shelter has some useful information here too.
Shared Ownership Via Council Schemes
Run by local authorities, you no longer have to buy an ex-social housing property from the council to qualify for the scheme.
Councils now offer wider shared ownership schemes to help you buy a property in the area on the open market. Not all councils offer this, however, so check the area you’d like to live in first.
For example, York City Council’s Shared Ownership Scheme is available to those with a household income under £80,000 a year who haven’t owned a home before (or used to but cannot afford one now).
Rather than limiting the properties you can buy, the Council will give applicants a price bracket offer. This is what they’re willing to pay for a share of a property on the open market. You have to find the difference with a shared ownership mortgage, and prove you can cover the £2,500 purchase fees, too.
Buying your council house with Right to Buy
If you’re a tenant of a council property then you may well be entitled to become the owner of your home.
Since the 80s many people have been buying up their homes and successfully being part of the property ladder.
What’s more, these houses are being sold at a friendly discount! The size of the discount varies according to how much the house is worth, where you live and how long you’ve been a tenant.
However, you do have to be careful.
- Some council properties, particularly those in large, poorly-maintained blocks, may be very difficult to re-sell and won’t hold their value.
- You might also find it hard getting a mortgage on certain properties as well as having to pay a large amount to get things fixed up.
- But these discounted prices may be up to 70% so it could well be worth it!
Find out more on how you could buy your council house with Right to Buy here.
Buying with a friend/Partner
Two wages are better than one, especially if you’re looking to get a fairly large mortgage, but when you bring money into the equation with a friend or partner it can lead to problems.
In fact, some joint mortgage lenders now allow up to FOUR people on one mortgage! The two highest salaries will be taken into account for lending decisions. However, this could mean several friends buying a house together for a QUARTER of the cost of their own property!
Four incomes means: lower bills, a higher mortgage allowance, and being able to pay off the property faster than on a single income. However, you’ll have to only do this with friends or family you really know and trust. Money can turn relationships sour very quickly!
- Make sure you’re very open and frank with each other when working out the logistics of this.
- You need to make sure you can each fund the venture and are planning to be in on it for an agreed amount of time.
- Obviously, you need to know you can stand living with them day in, day out.
Even if they’re wonderful, you should get things set out clearly by a legal expert first to protect you both in a legally binding document like a declaration of trust or co-habitation agreement.
According to the law, you can own a house with someone else either as joint tenants or as tenants-in-common and it’s a very important distinction.
Joint owners
Married couples are most commonly joint tenants. They both equally own the house: if one dies, the other automatically inherits the deceased’s share. Even a will left by the deceased counter to this is very difficult to enact.
You’re both on the title deeds and have a right to take out secured loans on the property. If you divorce, unless you have a financial agreement, the house value could be split 50/50 even if one of you paid the entire deposit or is the sole payer for the mortgage.
If one of you doesn’t make mortgage repayments on time, the joint financial link can affect the other person’s credit score. You’re both jointly responsible for repayments.
Tenants-in-common
You both own half of the house (or a different percentage depending on what you agree). If one of you wishes to leave your share to someone else, you can do that.
Your partner can’t just sell the house and get all the money. It’s dependent on percentages. So, if you’re co-habiting, or are just friends trying to save money by living together, this protects you both. If one wants out the other owner will have the option of buying up their share of the property too.
Co-habitation will certainly save you money.
You’ll be sharing the deposit, household bills, maintenance costs, transaction fees and mortgage repayments. However, whatever you do, don’t rush into this.
For a joint application on a mortgage you are both jointly liable. If one person defaults then the lender will be chasing you both, and both of your credit ratings will be affected. Make sure you really trust the person you buy the place with.
Your credit history links to theirs. When either of you has a bad score, this link affects the other. Check for free with Experian or Transunion.
Would you like a home for free?? Find out here how you could do that today!
Get Your Own Home At a Property Auction
At auctions they have hard-to-sell properties at lower prices. A property may be hard to sell because of its location, it needs renovations, or is of ‘non-standard construction’ which makes it unmortgageable.
If you know what you’re doing (and particularly if you’re good at building) you can pick up a real bargain here. But there are problems, or at least some things to consider:
- Renovation properties or those that stated as ‘cash buyers only’ are not suitable for mortgages. You need bridging finance (which is more expensive) or plenty of savings in the bank to cover the costs.
- For mortgage appropriate properties you need 10% funds on the day. You pay the rest within 28 days.
- View the property in person before you bid on it. Have a good look round for any potential problems or changes you’d want to make to suit your own needs. Don’t forget to look at the surrounding area too.
- Each property is released about three or four weeks before auction day so arrange a viewing as soon as you can.
- Get the property professionally inspected before you bid on it.
- The vast majority of properties need refurbishment.
- It’s easy to get carried away with the excitement of the auction and you may end up bidding for the wrong property. Once you’ve won your bid it’s as if you have signed a contract – there’s no going back!
- There is a minimum price for each property. The good news is that sometimes you might be the only one bidding, in which case you’ll get it for that minimum price. However, there could be up to around 30 buyers, so remember the point where you have to stop bidding!
- Remember you’ll probably be competing against professional property developers so you’ll need nerves of steel!
- You may need to pay extra costs such as ‘admin’ fees around £1,000 paid directly to the auction house.
- You could end up with a complete lemon. So make sure if you go in for this you have confidently assessed your financial situation and taken into account any extra costs.
Building your own home
Over 11,000 people build their own home each year. It may seem a bit extreme, especially if you have little experience in this field, but you don’t have to be a builder yourself.
A well-run self-build project should see the final value of the home increase by 20-30%. Long-term profits make self-build worth the hassle!
For more information on how to go about building your own home check out Build It, Ebuild and Homebuilding & Renovating.
Alternatively, make it easier for yourself and get a flat-pack home! These are increasingly popular and there are now lots of designs to choose from.
Consider a flatpack home
The kit home – where a major part of the house itself is made in a factory somewhere – is an example of the prefab building, but rather nicer and more solid. There are all sorts of companies around the world making kits in different materials (timber, obviously, but also metal structures and some using former freight containers!), and it’s worth spending some time researching what’s out there.
For any type of self-build remember that you’ll have to buy land as well! Land auctions are a great way of obtaining a plot at competitive prices. You could also look into council land as local authorities are always looking for ways to make money. There are some good websites for finding cheap land, such as the Land Registry and Plotfinder.
- Beware of companies trying to sell you land without planning permission in the hope that they’ll get it later on.
- Make sure you’ve checked out your self-build company online and in magazines first. Some can be rather dodgy.
- Check that utilities like water and electricity can be easily connected (this can cost thousands of pounds on remote land plots)
- Find a good builder from word of mouth and sites such as MyBuilder and Find a Builder. Get three quotes and ask for a few references from each builder.
- Choose your architect carefully – they should have a good appreciation of budget as well as artistic talents.
Get Your Own Home with the bank of Mum and Dad
If your parents have cash to spare they could help in a couple of ways. They could be a guarantor for a large mortgage or they could actually buy the property as an investment.
GUARANTOR MORTGAGES
With a guarantor mortgage, your parents, or grandparents, or other close family member, could put themselves up as a ‘guarantor’ for your loan. That way, if you defaulted on the loan, the mortgage company could hit your guarantor for the payments.
Normally, the family member who is guaranteeing the mortgage offers their own property as collateral against the new property. So, this means that if you don’t pay, they could potentially lose their home to cover the debt. However, there are guarantor mortgages that limit the amount the guarantor is liable for which could be better for many families.
The guarantor won’t have to pay a thing if you keep up repayments.
You can sort this out through a normal high-street lender, who will look at your parents’ income and assess taking into account whether they’ve got a large mortgage of their own and can really afford your payments as well. However, you may want to seek independent mortgage advice to see if any specialist lenders or rates are available, too.
Some companies might allow you to take out a mortgage if the amount of money you have isn’t a million miles away from what’s needed. But there’s no guarantee.
Check out our mortgage comparison for the cheapest loans on offer including Guarantor Mortgages.
FAMILY OFFSET MORTGAGE
Offset mortgages can be a handy way to pay off your loan quickly.
With a family offset mortgage – which is offered by a few lenders – parents or grandparents put their savings into an account that is linked to their child’s mortgage.
The money in the savings account is then offset against the mortgage, making the child’s repayments lower.
Parents and grandparents will ultimately be able to get their money back in full, but they may have to lock it away until the mortgage has been paid off to between 75% and 80% of the property’s value, which could take twenty years or more.
FAMILY DEPOSIT MORTGAGE
With this one, a family member (or members) deposits cash in a special savings account. It acts as security against the mortgage. Again, a sort of ‘guarantor mortgage’.
Money is taken from the account if you default. Otherwise, it stays put gathering interest.
If the borrower meets all their repayments, it won’t have cost the family anything.
PARENTS BUY THE PROPERTY AS AN INVESTMENT
Alternatively, your parents could buy the property for you and get their share of the money back when you sell it.
In fact, some of the major high-street banks have recently cottoned onto this. Students can now buy a property in THEIR name – not their parents’!
The Student Mortgage is designed to allow those attending university in certain towns to buy a property. They can share the house with other students and use the monthly rent to pay off the mortgage. The property is secured for three to five years against the parents’ property. After that, it converts to a normal mortgage (without the collateral of their house).
Within a few years of graduating, the student will own a house!
Useful information in this article.