Be A Successful First-Time Buyer

Soaring house prices in recent years have meant fewer people have been able to afford to get on the property ladder. There were over 500,000 first-time buyers each year throughout most of the 1990s but in the last few years the average has been nearer 350,000. It’s never been easy to be a first-time buyer but arguably it’s never been as hard as it is at the moment.

Friends and family

There are various ways to ease the pain, depending on your personal situation. The most obvious one is to get your family to help with the cost. Parents are increasingly providing deposits for their children, sometimes even remortgaging their own homes to do so. Additionally they could act as guarantors for your mortgage, meaning they are responsible for any payments that aren’t made. Obviously you need to get on well with your parents if you’re going to go down this route!

Buying with friends has become increasingly popular as sharing the cost of a deposit and mortgage makes buying a reasonably sized property much more affordable. Make sure you take legal advice though and draw up a joint ownership agreement and wills. You need to decide in advance what will happen to the property if one party wishes to sell and the other doesn’t or if one party were to die.

You’ll probably want to own the property as tenants in common. This allows you to specify different shares for each party and means that one party doesn’t automatically inherit the other’s share if they die (this is what happens with a joint tenancy, the other method of owning a property).

If you can’t buy with a friend you could take in a lodger to help ease the cost. Under the Rent A Room scheme you’re allowed to earn rent of up £4,250 each year tax free. That’s just over £350 a month.

Buy the home you’re in

If you’re a council of housing association tenant you may be able to buy your property at a discount. You need to have been a tenant for two years, or five years if you became a tenant after 18 January 2005.

If you’re a council tenant the relevant scheme is called Right To Buy and you can get a discount of between 32% and 70%. But there is a maximum discount amount, depending on where you live, which ranges from £16,000 to £38,000. If you sell the property within 5 years, you may have to repay some or all or the discount.

If you’re a housing association tenant there is a similar scheme called Right To Acquire. The discount you can get is smaller and varies between £9,000 and £16,000. Again, if you sell the property within five years, some of the discount may be repayable.

Other help for first-time buyers

The government has set up a range of programmes to help first-time buyers called HomeBuy. These are generally available to council or housing association tenants, key workers or first-time buyers who are unable to afford their own home and have a joint income of less than £60,000. You can contact your local HomeBuy agent to see if you’re eligible and what’s on offer.

With Open Market HomeBuy you’re provided with an equity loan of between 15% and 50% of the value of a property. This sits alongside any funds you contribute and any mortgage you take out. An equity loan is one where the lender participates in any rise or fall of the property’s value. These loans are provided by either MyChoice HomeBuy (a group of eight housing associations) or Ownhome (a housing association called Places for People). MyChoice Homebuy charges 1.75% a year on its loans while Ownhome charges nothing for the first 5 years and then 1.75% a year rising to 3.75% after 11 years. From April 2008, a grant of £1,500 to help cover purchase costs has also been made available to people qualifying for Open Market HomeBuy.

If you want a newly built home you could try NewBuild HomeBuy. You need to buy at least 25% of the property and then you’re charged a maximum of 3% a year on the value of the property you don’t own. You can buy further shares in the property at a later date if you pay market value for them. New build homes require less maintenance and are more energy efficient but are typically more expensive than older properties.

A similar shared ownership scheme called the First Time Buyers Initiative is run by English Partnerships but it only applies to certain housing developments. Here you have to buy a minimum of 50% of the property and a fee of 1% per annum is payable after three years. The annual fee rises the 2% the next year and then remains at 3% for subsequent years.

Finally, Social HomeBuy allows council or housing association tenants to buy a part share in their current home. It works in a similar fashion to NewBuild HomeBuy with the minimum amount you can purchase being 25% and a 3% fee being payable on the remainder each year. However, you can also get a discount of between £9,000 and £16,000 on the market value of the property, depending on where it is located.

It’s likely that we’ll see these schemes developed further in the near future as housing has become one of the government’s top priorities. This combined with falling house prices should see the numbers of first-time buyers make a slow recovery.