Getting on the housing ladder

The average UK home is now worth 10% more as at the end of 2021 statistics are now showing.

This is of course good news if you own your home, but rather less so if you are still trying to get on the property ladder and are finding that the first rung is even further out of reach.

But there do exist solutions which could help make getting a mortgage and becoming a homeowner easier and at Continuum we are looking at what they are.

Get saving for a deposit

The larger the amount you can put down on a home the less you will need to borrow. This much is obvious, but less obvious is the point that the bigger your deposit, the better deal you can arrange. Lenders offer favourable rates to those with larger deposits to put down, so the more you can put away, the cheaper your monthly mortgage payments are likely to be. Although 100% mortgages do exist, they are usually dependent on other types of security, such as parents who will agree to keep a percentage of the purchase price in a separate savings account with the mortgage lender.

A 10% deposit is often seen as the target for most people. If you are buying an average UK house costing £255,000, you will need to save £25,500.

It is not always easy, particularly if you have rent to pay. If you’re struggling to save, write down a list of all your outgoings and look at any non-essentials you might be able to cut out. A year or so of evenings in front of the telly instead of nights on the town could help you save thousands.

Get some help

The solution for many people is going cap in hand to the bank of Mum and Dad (or these days, even Grandma and Grandpa). It might provide a shortcut to the deposit you need, assuming your particular branch has the necessary funds.

If you’re just borrowing the money, rather than being given it, you need to be aware that some lenders don’t accept lent deposits. Lenders, agents and solicitors will ask for proof of where the funds are coming from. 

But it still might not be all plain sailing.  If your family don’t have any cash to spare and don’t want to remortgage their own home or dig into their pension pot, the deposit you need could still be difficult to secure.

Fortunately, there are still plenty of alternatives.

Cut the deposit you need with the mortgage guarantee scheme

The mortgage guarantee scheme was unveiled in the March 2021 Budget to help first time buyers and home movers. It could put a home in reach even if you can only manage to save a 5% deposit.

Buyers can purchase a property costing up to £600,000 and the government will guarantee the mortgages offered. This means if the property is repossessed or sold for less than the value of the outstanding mortgage, the lender’s losses are likely to be covered – making lenders much keener on lending. 

The scheme is scheduled to run until December 2022. 

But of course, a deposit is not the only barrier to becoming a homeowner.

High house prices mean high income requirements. But by getting the help of homeowner parents, it is possible to find a way around them, with a variety of special mortgages.

Getting a mortgage with parental support

Parents may be able to act as guarantors, promising to pay the mortgage if you don’t, or taking out a mortgage jointly with you.

Parents who agree to become joint owners and who also own their own home must remember that this could lead to a capital gains tax (CGT) liability and incur a stamp duty surcharge on the additional property.

There are also various types of offset mortgage. This would let parents offset the cost of your mortgage against the money in their savings accounts. The money held in savings isn’t used to pay off your mortgage. Instead, it’s used to lower the total interest you’ll be charged on your repayments each month.

Some mortgages enable equity in the parental home to be used as additional security instead of savings. The catch is that the savings must remain untouched until a pre-agreed portion of the mortgage debt is paid off.

And if you can’t count on parental support?

If parental help is unlikely, you may need to get help from the government instead. The Help to Buy scheme is designed to help people with a small deposit buy a new build property. You put down 5%. The Government will lend you 20% of the property price interest free, or 40% if you’re buying in London, for the first five years. After the five year interest free period, you’ll be charged interest on your loan at 1.75%. The interest rate will increase every year in April by the Consumer Price Index measure of inflation, plus another 1%.

The current equity loan scheme will run until March 2023. 

Getting some help

The good news is that your Continuum adviser may be able to help you put together a deal which can help you get on the property ladder – using a combination of these measures if necessary.

To find out how we can help you get on the housing ladder, contact us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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