Living with mum and dad? In digs?
In 2009 the Daily Mail reported that one in three men aged 20 - 40 was still living with their parents (one in five women of the same age). In the current economic climate, this number is likely to increase as it gets harder to get on the first rung of the property ladder. Others are paying rent, also in the belief that they can’t afford to buy a place of their own.
Want to buy?
Even if you have given up hope of being able to buy, it’s worth investigating the various Low Cost Home Ownership (LCHO) schemes that exist to help. These can even work out cheaper than renting, and, being government backed, they have a good level of security. There are many schemes, and they have different eligibility criteria and terms, and cover different types of property, so it can be confusing.
Find your local HomeBuy agent
These are organisations appointed by the government to promote and coordinate LCHO in a given area. You will need to apply to the HomeBuy agent, so go to http://www.homebuy.co.uk/ to find the agent for the place where you want to live. They will process your application so you won’t need to apply separately for every housing association, and they will have lists of every property that is available through a LCHO scheme (NB these include family homes as well as smaller flats).
Two main types
Broadly speaking, HomeBuy schemes (called First Steps in London) fall into two types: equity loan, and shared ownership.
Equity loan
Equity loans are available on certain new build homes across England. Under these schemes the title of the property is in your name, but you are responsible for 70% (minimum) of the cost (mortgage and small deposit). The remainder is paid by the government and the house builder through an equity loan on favourable terms (and nothing to pay for the first five years). Rather than being a loan for a given amount of money, it covers a proportion of the value of your property. Therefore the amount you owe on the sale of the property will go up or down depending on what your home fetches when you sell it. (If you don’t sell within 25 years, you have to pay back the loan after that time.) After the first five years, if you have not sold, you do have to pay fees of a very small percentage of the outstanding amount of the loan. (See www.direct.gov.uk for more details about the costs). You can pay back some or all of the equity loan early if you choose.
(Note also that some property developers have their own equity loan schemes – it is worth approaching them directly for more details as they will be outside the HomeBuy scheme.
Shared ownership
Again this scheme covers certain new build homes in England. The difference is that while you can buy a smaller proportion of the home (25-75%), you must pay rent on the proportion owned by the housing association. These homes are leasehold, which means that you own them for a fixed period, usually 99 years. As with equity loans, you can increase your stake in the property by buying some or all of the outstanding share at the current value of the property. Should you choose to sell the property, the housing association has certain rights eg first refusal.
(Note that, in addition, there are similar schemes for properties that have been bought through shared ownership in the past and are now being sold – you buy the homeowner’s share from them and pay subsidized rent on the remainder.)
Rent to buy
There is a third category - but it is much smaller - for people who can afford a percentage of the property, but are unable to do so straight away (eg haven’t yet saved the deposit). You do need to commit to being able to buy within a specified period.
Who can apply?
HomeBuy schemes are open to households that earn up to £60,000 a year (to include all the people who will be buying together whether friends or partners). The scheme is designed for first time buyers (although you may be eligible if you have previously owned a home but now cannot afford to do so or if your home is too small but you can’t afford anywhere larger). While the intention is to help key workers (nurses etc) to own homes they could not otherwise afford, you do not need to be a keyworker to benefit. You will need to have a good credit rating, not be in rent arrears, and (usually) have enough money saved for the deposit on the property as well as the various other costs (legal, house removals etc) associated with your move.
Council and housing association tenants
If you rent a council or housing association property then you may be eligible for additional schemes to allow you to buy the place or a share of it at a discount. For council tenants the relevant scheme is called Right to Buy. Certain restrictions apply, see www.direct.gov.uk for details. For housing association tenants the relevant scheme is called Right to Acquire, and is also outlined in more detail on the same website. Further information can be found in our Right to Buy Guide.
Helping hand
Although there is information available and the HomeBuy Agents will help, the finances (including tax and benefit implications) can be complex and confusing. You will need to talk to an IFA (independent financial advisor) for advice on finding the right mortgage, and find a conveyancing solicitor to guide you through the legal aspects.
For further information in addition to the websites listed above, see www.homefocusmagazine - they are happy to answer questions by email, phone, text or via their facebook page.
September 2011