Goodbye generation rent – here are the ways it’s now easier for first time buyers to get on the housing ladder

Prospective homebuyers looking to get their foot on the property ladder can look to a multitude of options with new government incentives to help them progress, say property experts.

From buying with friends, to 5% deposit mortgages, helping hand lender schemes and help to buy – the experts at FHP Living, and joint developers Monk Estates and Harmony Bridge of The Waterside Apartments – a 121-home iconic waterfront complex on the banks of the River Trent – have outlined  new initiatives and considerations to help inform first time buyers as to the array of options the current property market has to offer.

Generation rent is a term often used to describe young adults (18-40) who have been priced out of the housing market and are struggling to buy due to having to pay a high percentage of income on rent.

With 18% of renters admitting to struggling to find a lender willing to give them a mortgage before COVID-19, and a further 40% saying the biggest barrier to getting their foot in the door was being able to save a large enough deposit – the UK housing market hasn’t made it easy for first timers.1

But with new government incentives and lenders announcing new initiatives regularly, the property landscape is changing, and there are plenty of routes to now help first timers with their purchases.

Sam Monk, director at Monk Estates said: “Whilst it has been a difficult period for young professionals wanting to mortgage properties after renting for a long duration of time, there are now lots of new initiatives and schemes that have been introduced by the government and with various lenders – which will enable first time buyers to jump on the ladder.

“We understand that buying a property is a huge transition from renting, but once on the ladder, it is a wise long-term investment which is often cheaper in comparison with renting, and it is so important for individuals who fall under the category of generation rent to progress with support and as much advice as possible.

Director at FHP Living and selling agent for The Waterside Apartments, Steve Parker, said: “The market is certainly becoming more first-timer friendly with new government and lender initiatives giving first time buyers a boost and enabling easier access to the property ladder, so we’ve compiled a list of options to help prospective first-time buyers, be that singles or couples – who are looking to make their first property purchase.”

Once on the property ladder, occupational costs are often less than renting, and you’re investing your money wisely for the long term – so it’s important to look into the options for getting on the property ladder:

Buy with family or friends

With residential rents at an all time high and mortgage rates at an all-time low, buying with friends or family could be a good option if people clubbed together to buy rather than rent. It would cut living costs and all parties would benefit from the increase in house prices. For example; if two friends on £25k per year could each get a joint mortgage for an apartment or house for up to £275k – if they have the 10% deposit together through saving or are able to borrow this from a parent etc.

With average monthly rent costs of £1,100 – £1,300 a month, a considerable saving could be made if a monthly shared mortgage payment was approximately £900 for a property of the value of £275k. With house prices increasing at an average rate of 3% per annum, this could add £8k per year to the value of their property.

5% deposit mortgages

Under this scheme, individuals who obtain a 5% deposit on a property are accessible to 95% loan-to-value mortgages. Loan-to-value mortgages are the percentage of the property’s value that is being covered by the mortgage.

Many national lenders are now supporting this scheme and to be eligible you must ensure the property is valued at no more than £600,00 and not classed as a new build. Additionally, the mortgage must be a loan-to-value between 91-95%, a repayment, and finally you need to ensure it’s taken out for individuals – not for business purposes.2

This scheme will run until December 2022.

Nationwide helping hand scheme

This scheme allows potential homeowners the option to borrow 5.5 times the amount of their annual income in order to access the housing ladder, which is considerably more than the 4.5 times the annual income amount, typically offered by lenders.

To qualify for this, borrowers need to take out one of Nationwide’s standard five or ten-year fixed rate mortgages, and they are also required to put down a deposit of at least 10%, as this is Nationwide’s minimum requirement.

The scheme launched on April 26th.3

Stamp duty extension

First time buyers are usually required to pay a stamp duty land transaction tax if the property they acquire is over either £125,000 or £300,000, but in the summer of 2020, it was announced that there was to be a temporary stamp duty holiday which would cut the rate and reduce it to 0% for residential property purchases up to £500,000.

While the tax break was anticipated to come to an end in March 2021, it has been extended to the end of June 2021. Following this deadline, until the end of September, the starting rate of stamp duty will be £250,000, before it finally returns to how it was beforehand, being paid on property’s sold for more than £125,000.4

Help to buy – equity loan

This scheme is for first time buyers only, enabling them to take out a loan from the government. A minimum of 5% and a maximum of 20% (40% in London) can be borrowed and put towards a property of their choice – including new builds.

The percentage borrowed depends solely upon the market value of the home, and when it was purchased. Individuals can repay all or part of the equity loan at any time. Although a part payment must be at least 10% of what the property is worth at the time of repayment.5

Guarantor mortgage

Typically aimed at first-time home buyers, a guarantor mortgage is a home loan where a parent or a family member offers their savings as a security against the loan, and agrees to cover the costs of the mortgage payments if missed by the buyers.6

Guarantor mortgages are typically suitable for homebuyers who have: a low income, a small deposit, a bad credit score and little or no credit history. In relation to this, guarantors are required to have: savings or a property and a good credit score. They must also seek legal advice so they are aware of the risks they are taking onboard.7

Sources

  1. https://www.ftadviser.com/mortgages/2021/03/17/how-to-turn-generation-rent-into-generation-buy/?page=5
  2. https://personal.natwest.com/personal/mortgages/offers-and-schemes/95-percent-mortgages.html#what-is-a-95-mortgage
  3. https://www.thisismoney.co.uk/money/mortgageshome/article-9488111/Nationwide-lets-time-buyers-borrow-20-lock-mortgage-rate-five-years.html
  4. https://www.propertymark.co.uk/advice-and-guides/coronavirus-covid-19/stamp-duty-holiday-the-deadline-to-market-your-property.aspx
  5. https://www.ownyourhome.gov.uk/scheme/help-to-buy-equity-loan/
  6. https://www.which.co.uk/news/2020/08/which-banks-allow-first-time-buyers-to-be-gifted-deposits-by-their-parents/ – Which?
  7. https://www.which.co.uk/money/mortgages-and-property/mortgages/types-of-mortgage/guarantor-mortgages-a3x5g1h6fw2x