Alternatives to traditional mortgages

There are a few places you should look for money before calling a mortgage broker or the bank. In fact, a little leg work before applying for a mortgage can save tens of thousands of dollars.  Most young adults do not realize that there are safe, and responsible, methods of buying a home without following the traditional mortgage venue.

The UK has one of the lowest rental populations, with 30% renting, as apposed to other countries that are divided 50/50 between renting and owning.  This trend is the result of drastic changes in the housing market over the last 30 years.

40 Year Mortgages

Many people are willing to pay more in the long term, if they pay less each month. However, most homeowners move up within ten years.  So, the 40 year mortgage is not really a 40 year mortgage, but a 10 year ‘fast track’ to home ownership

Many homeowners are borrowing six times more than their annual income. This is dangerously high.  It is better to pay less, over a longer period of time, especially if you are financially responsible. 

Borrow From Parents

Borrowing from family is rarely an option, but ask anyway.  A recent report stated that two-fifths of First Time Buyers (FTB) receive help from their parents. If they can, take the money.  You can always pay it back, and every penny they lend you – interest free – is more money in your pocket instead of the bank’s.

Buy From Parents

Many parents are happy to release a little equity from their home to buy a second property and rent-to-own it to their child.  While this may be the perfect plot for a horror movie in some families, a good lawyer, and carefully written out documents, can ease the pain of living in a house your parents own.

The benefits are worth it.  Parents can often buy a home for less, with more money down.  Parents may be able to obtain a mortgage for ₤50 000 (total cost) less than a first time homebuyer.

Use a Guarantor

Parents who may shy away from becoming landlords may help their children qualify for a graduate mortgage. These enable the borrower to acquire more than the standard amount based on the buyer’s salary with the assurance from a guarantor.

These differ to standard guarantor mortgages in that the guarantee is restricted for the portion of the mortgage that is over the standard amount. The guarantee lasts until the borrower is earning enough to cover the whole loan.

Co-Ownership

Never step into this option without a good lawyer.  While this method of home buying is becoming popular it is full of hazards, especially when one of the owners stops making payments, or wants to sell their share of the house.

Do not share a solicitor.  And pay them to review any legal agreements to ensure that all owners are fully protected from the co-ownership if the friendship or partnership flounders.

Lodger Mortgage

It’s possible to get a mortgage which includes the expected income from a lodger. This is sort of like a buy-to-let where the owner and the renter live in the same home.

This type of mortgage lets people move into nicer homes, using the proceeds from a lodger to help cover the mortgage payments.

Homeowners are allowed to earn up to £4,250 a year under the Rent-a-Room scheme without being taxed on the income. 

Key Worker Living Programme

If you work in the education, health, police, fire or prison services, then you are foolish not to apply for the Key Worker Living Programme, which helps key workers buy homes near their workplace.

The government recently pumped £690 million into the programme.  They plan to offer a variety of options  from subsidised loans or shared ownership.

Right To Buy Scheme

You may not be a keyworker, or in a low income tax bracket, but you should qualify for the Right To Buy Scheme.  This enables local authority to secure tenants with at least two years’ tenancy to buy their homes at a discount price.  There is more information at the government websites, or visit a debt management charity.

HomeBuy Scheme

This government-supported program is offered by the Housing Corporation and is sub-divided into three sections.  Basically, you share ownership with a housing corporation, based on three schemes.

The First Time Buyers’ Initiative was added to the HomeBuy scheme in 2005.  The government proposes to make 15,000 homes available over five years, primarily to key workers. This shared equity scheme, with English Partnerships owning up to 50% of the equity.

Many homeowners use the above schemes to get onto the property ladder. Others use them to save money. Either way, it is smart to take advantage of any program that lets you buy a home, without leaving you broke before the end of each month.