By Helen Adams
Chief executive of property website FirstRungNow.com
Helen Adams of FirstRungNow.com
An expert explains what help and special schemes are available for people looking to buy their first home.
As UK property prices have soared, many aspiring home-owners have had to look for new ways of buying a home.
The obvious solution is to structure the funding or ownership with another party in order to make that first home affordable.
One way to combine financial muscle is to buy with friends, family or a private investor. This is known as joint ownership.
Another way is to buy part of a property from a Registered Social Landlord (RSL) or Housing Association. This is known as shared ownership. The government's shared ownership scheme is called New Build HomeBuy.
The main purpose of the New Build HomeBuy scheme is to make home ownership affordable for key workers and those considered to be in housing need.
It is important that the whole country has a good spread of key workers to service every community.
In any particular region of the country, the Regional Housing Board in conjunction with local organisations decides the eligibility of those applying for shared ownership.
The way shared ownership works is that the home purchaser raises several thousands of pounds to pay for house-buying costs and secures a mortgage for their share of the property.
The purchaser also pays a low rent on the remainder of the property which is owned by the RSL/Housing Association.
For example, the homebuyer raises the cash to buy 50% of the property and then pays rent on the remaining 50%.
The benefits of shared ownership schemes are:
But remember there are disadvantages to shared ownership including:
- For many this is the only way to achieve home-ownership
The properties are typically new or refurbished
You can buy a share as low as 25% or as high as 75% at the outset
You can increase your share as time goes by, a process known as stair-casing.
If you are in the right job, you will be considered a priority
You can jointly apply as long as all applicants qualify.
- Eligibility can be very narrow in some parts of the country
Demand might be higher than supply, meaning a long wait
There is not a wide choice of properties or locations.
You may still have responsibilities for the maintenance and repairs of the whole property.
You may have to ask permission to make improvements
There may be considerable costs to increasing your share
You may not be able to buy the whole property in some schemes
New Build HomeBuy has been created for a specific housing purpose and so eligibility is an important factor.
The scheme is primarily intended for key workers such as nurses, teachers, firemen, speech and occupational therapists, armed forces personnel in the south east, and nursery nurses.
The list of key workers evolves with time and it is always worth checking the latest list.
As well as key workers, the scheme is meant to help others in housing need.
Points to consider
When considering shared ownership it's important that you ask all the right questions so you can establish what your rights, responsibilities and any costs might be.
Typical questions you might want to ask are:
- Can I improve the property and how will the value added to the property be accounted for?
Can I sublet a room?
How will I go about selling my share?
What is the process and costs of increasing my share?
Who is responsible for property repairs, maintenance and insurance?
Are there any annual charges and if so, what for?
Can I buy the whole property in time?
What will the rent be and can it be controlled?
What responsibilities are mine and which ones shared?
What happens if I can't pay the mortgage?
You need to make sure you really understand the lease agreement. Your solicitor can help you with this.
To find out if you qualify for shared ownership in your area, you need to contact your local HomeBuy agent.
They will take your application and review it.
Hopefully you will find you are can be considered.
However, it may be that you simply aren't eligible or that you are but not as a high priority. In this case it is always worth evaluating other options
Here are some to consider:
Some new housebuilders and the government through its (key worker targeted) Open Market HomeBuy scheme offer shared equity.
With shared equity you take out a large mortgage for most of the property value (75% in the case of the Open Market HomeBuy scheme) and a low cost equity loan for the balance.
Shared equity is different from shared ownership in that the homebuyer is not renting a percentage of the property but has taken out a low-cost loan to purchase it.
This means you're basically paying for the property in portions - you will have to repay all the loans when you sell up - which may work out quite expensive in the long run.
This means buying a property with friends or family.
This is becoming a popular way to buy property.
There are even specialised websites that introduce strangers to each other with the aim of buying property jointly.
This can be a good way of expanding buying power and buying a bigger property.
However, there are quite a few instances of people buying homes with friends and family or just acquaintances and not getting along. Make sure you all take legal advice before buying a property between you.
Before making such a leap be 100% sure that you can live with the person you are buying with.
The best arrangement may be to buy with someone who has no intention of sharing the property with you, for example a parent.
Nevertheless, you should always draw up a joint ownership agreement so that when circumstances change you both/all know what the plan of action is and who pays what costs. It's best to own on an equal footing and avoid disputes.
For some financial help from parents is crucial
In addition, make sure you see a solicitor who can draw up a will so that you can establish what happens to the property if one of the owners dies.
Help from Parents
Your parents might indeed be willing and able to help financially - they might review their finances and make a gift to you of a deposit to help you out.
In addition, they may even help you out by acting as a guarantor for your mortgage or even taking out a joint mortgage with you - they need not necessarily be on the deeds to the property, they can just help you pay for it.
Take out a large mortgage
Mortgage lenders have risen to the challenge and are now offering some very innovative ways of lending - they essentially come down to lending more or extending the pay-back period.
This need not necessarily be a bad thing - it's not unusual to be paying a mortgage for well over 25 years - and if things change you can always reduce the term.
There are lots of options from the lenders now. It is best to seek specialist mortgage advice.
The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.