How to get on the property ladder...finally

Many first-time buyers will be in their forties before they get on the property ladder. Thankfully, there are ways to get there sooner,

(PETE CRONIN)

It was once a cliché but now it is a truism – it has never been more difficult for first-time buyers to get on to the housing ladder. There were 94,600 first-time buyers (FTBs) in the first six months of 2010, half the level for the same period for 2007, just before the credit crunch. This is despite record low interest rates and, in recent months, a growth in the number of mortgage products available for first-timers.

Only 22 per cent of potential buyers were looking to purchase their first home in July, down from 31 per cent during the same month of 2009, according to property website Rightmove – half the level required for "a healthy market", according to the site's commercial director, Miles Shipside.

The problem for many is not today's low mortgage payments but lenders' demands for deposits of 20 per cent-plus on a property being purchased. In late 2009, the latest available data, some 84 per cent of FTBs had to rely on financial help from their parents to raise a deposit, according to the Council of Mortgage Lenders; so if you do not have wealthy parents able and willing to help, you are almost guaranteed to have to rent and not buy.

And there may be worse to come. Forecasting conducted by the consultancy firm Oxford Economics for the National Housing Federation (NHF), the body representing English housing associations, shows future single FTBs may be in their forties on average.

The research assumes buyers have a typical credit rating, borrow 3.75 times their salary, are in full-time work, and are saving at least some money each month. It says a single young adult, earning today's wages and assuming current mortgage regimes stay in place, will be 43 before buying a first home. In London, where prices are highest, some first-time buyers may have to wait until they are 52, forecasts the NHF.

But there is help available, if you know where to look. Rayneesh Atwal, 26, a secondary-school teacher from north London, has just bought a two-bedroom apartment valued at £200,000 through a shared-ownership scheme run by L&Q housing association.

She registered on housingoptions.co.uk, a "gateway" website for those considering a shared-ownership home in Greater London (similar sites exist for other regions of the UK), and after a year, she heard she had first choice on a new scheme in Slough. She bought 30 per cent of the property for £70,000 and pays a mortgage on that share; for the remaining 70 per cent she pays £297 rent each month to L&Q.

In the future, Atwal's plan is to gradually increase the percentage share of the property that she owns.

"The best thing is being able to come home from work to my own place. It makes me very proud. I love being sociable and having people round," she says.

Shared ownership is perhaps the best-known scheme, but there are other alternatives for first-time buyers. Here are five alternatives which may be better suited to your circumstances and wallet.

Home buy direct

This is a scheme open to those with annual household incomes under £60,000 living in high-cost housing areas. Those renting council or housing association properties are eligible, as are key workers, but this varies area to area, so check locally.

Buyers must get at least 70 per cent of the cost of the home they wish to purchase on a mortgage, with the rest made up by a government loan. So if your home costs £200,000, you must be able to secure a £140,000 mortgage; the loan is then £60,000.

That same share of the home's cost is repayable to the Government when you sell – so if you make money on it, you pay a proportion of the capital gain, plus small loan fees. If you do not sell in the short term, the loan must be repaid in full after 25 years.

New-build home buy

This is the shared-ownership scheme that Atwal used. The eligibility criteria are similar to those for HomeBuy Direct but instead of borrowing, you can buy a "share" of a new-leasehold flat or house – this can be between 25 and 75 per cent of its open-market cost. You pay a monthly mortgage for that share and, for the share you do not own, you pay rent to a housing association.

For example, if you purchase 50 per cent of a flat costing £100,000, your monthly mortgage payments at, say, 6 per cent interest over 25 years on your £50,000 loan would be about £322. Your rent on the remaining 50 per cent would probably be about £125, adding up to £447 in total per month. This may be slightly more costly than renting outright but it does give you a foot on the property ladder without the deposit or mortgage payments required of an outright purchase.

Remember you may have to pay service charges if the property is a flat, and when you sell, the housing association may exercise first refusal on buying your share.

Rent to home buy

This scheme allows you to rent a new home from a housing association for up to five years at 80 per cent, or less, of the open-market rent, providing you save the rest of the rental value – or more if you can afford it – to contribute towards the purchase of a shared-ownership property within a maximum period of five years.

For example, if you want to buy the home you rent and it is valued at, say, £100,000, then you will have to save at least £25,000 over that time to buy the minimum 25 per cent share. Once you buy, you enter the New Build HomeBuy scheme.

Right to buy

Some predict this "right" will be abolished soon in England and Wales (as it has been in Scotland), but for now, anyway, many council and housing association tenants renting for at least five years are entitled to purchase the home they currently rent.

You can make a joint application to buy your home through Right to Buy or Right to Acquire with someone who shares the tenancy with you, or with members of your family, providing they have lived with you in the property for the past 12 months.

You will get a discount based on how long you have been a tenant, where you live, and the type of property you buy (a flat or a house). From that point on, the purchase is like a conventional private house-buying exercise; you get a mortgage and, once an owner, you pay all associated council tax and maintenance bills.

If you choose to sell within 10 years, you have to give the council or housing association first refusal to buy the property back.

Social home buy

If you currently rent from a council or housing association but cannot afford to buy that home outright, then you may be eligible for this shared-ownership scheme.

First, the property gets a discount of £9,000 to £16,000 on its market value. Then you are eligible to purchase a 25 per cent or larger share of it and pay rent to your council or housing association on the remaining proportion.

If you want to sell your share within five years of buying, you must pay back some or all of the discount; the sooner you sell, the more discount you will have to pay back.

Like all these schemes, there are several qualifications. Buyers must have been tenants for five years and not have arrears or disputes with their landlord or neighbours. Not all councils and associations participate, and even those who are in the scheme do not offer deals on all properties, so check locally to see if you qualify.

For more information on these schemes go to direct.gov.uk; sharedownership.org.uk and housingcorp.gov.uk