A recent study by We Buy Any House has found that 78% of people earning 25-35k cited rising house prices and deposits as the biggest barrier to owning a home.
They also found that 9/10 of non-homeowners earn less than £35k a year; a finding that comes at a time when spend on private rent increased year on year to a staggering £51 billion and wage growth has dropped to its slowest in 6 months.
It’s evidence that wage’s aren’t growing alongside property prices, squeezing out many first time buyers, most of whom are are nowhere near the average salary that’s required.
Here in London, the average income to buy a property remains the highest at £84,250. The growth of this average income has begun to slow though, with just a 1% increase in the past year.
In fact, it isn’t just in purchasing a home that people are beginning to struggle. One charity found that hundreds of people are forced to live in their cars and caravans because their salaries don’t cover the rising cost of rent.
What are the alternatives for those who can’t afford a deposit?
While mortgages without deposits are extremely rare, there are alternatives available that mean you require significantly less than traditionally deposit costs.
Shared ownership – These are provided by local housing associations. The premise is that you buy 25% to 75% of the home with a mortgage and the rest will be paid via a reduced rent. It lowers the amount required for a deposit significantly.
It is only possible to go into a share ownership on new-build properties or on existing shared ownership properties. If you were to sell this shared property, the resulting profit would be split between yourself and the housing association proportionate to the shares you both own.
Help to buy – The help to buy scheme introduced by the government provides an equity loan to help with your deposit. It isn’t exclusive to first time buyers, either. The help to buy scheme is designed to help anyone looking to buy a new build.
To apply for this scheme you must have 5% of the deposit. The government will then top this up by a maximum of 20%. This loan is interest free for five years.
Lender schemes – There are some mortgage lenders that offer deals that are designed to help those struggling get onto the property ladder. Lloyd TSB’s lend a hand scheme for example requires family members to have savings of at least 20% of the property value and you would require 5% of the deposit.
Once the 42 month fixed rate savings period has finished family members can get their savings back providing the value of the mortgage has dropped to 90% or below of the properties value.
Guarantor mortgages – It is extremely difficult to get a mortgage without any form of deposit at all, but there is one way. A guarantor mortgage will require a family member who owns their own home to be be named on the mortgage. This puts their savings and property at risk if you fail to make repayments.
Right to buy – The Right to Buy mortgage is for those that have lived in a council house for more than three years. After this period you are able to purchase the property at a discounted cost (sometimes as much as 70%). There are also some lenders that let you use this discount as your deposit.