The past 12 months have been a tumultuous time in the property market, with mortgage rates skyrocketing and lenders tightening up on their affordability criteria. First-time buyers have been especially affected as many have seen their dreams of home ownership, via the traditional mortgage route at least, pushed out of reach.
But there are still ways to buy your first home – it may just involve going about things a little differently.
Joint borrower sole proprietor mortgages
A form of guarantor mortgage, joint borrower sole proprietor (JBSP) mortgages see you buy a property the traditional way but allows for up to four people’s incomes to be used towards calculating the loan.
For example, this means that parents can support their children in getting a mortgage, but it is only the child who will legally own the property and be named on the deeds.
"These products play a crucial role in enhancing the affordability of the mortgage for the first-time buyer, allowing family members to offer a helping hand," says Danny Belton, head of lending, Mortgage Advice Bureau.
"However, it is important to note that any individuals contributing to this type of product must understand that they will be liable for the mortgage payments if the owner of the property is unable to meet them."
Mark Harris, chief executive of SPF Private Clients, adds that split-term options are also available on this type of product. "These are aligned to JBSP mortgages, but the lender splits the terms to avoid the situation where the older age of the assistor (or parent) impacts affordability due to the debt being assessed over a shorter period. With the split-term offering, the main applicant is assessed over a longer period as normal and the parent’s top-up element is assessed over a shorter period in order to fit in with criteria."
Skipton’s 100% rent-to-prove mortgage
Skipton’s headline-making 100% mortgage allows first-time buyers to purchase a property without any deposit.
First-time buyers who have a strong track record of rental payments can borrow the full amount of their property price and sign up for a five-year fixed-rate mortgage.
While a great way for long-term tenants to get on the ladder, there are some downsides to the scheme: the lending criteria is very restrictive, and the mortgage rate is higher than elsewhere. Plus, you need to be wary of getting into negative equity, especially with the current market conditions.
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"Skipton building society grabbed the headlines with its 100% mortgage, whereby borrowers do not need to raise a deposit," says Harris. "However, it is fairly niche and has limited scope with the largest deal to date at just under £600,000, ruling out a lot of purchases in London and the southeast in particular."
Shared ownership has been around since the 1980s, but it’s become increasingly popular in recent years as house prices have risen to unaffordable levels for many first-time buyers.
It involves using a deposit and mortgage to buy a percentage (often 25%) of a new build property and paying rent to a local housing authority for the remainder.
You also need to pay service charge (at 100% no matter your share) for maintenance of the property, and meet certain income criteria.
As and when you can afford to, you can increase the share you own, known as "staircasing", to as much as 100%.
You can’t rent out shared ownership properties and they can be difficult to sell on, but it offers an option if you want to get a toe (rather than a foot) on the ladder and want a housing set-up that’s more stable and long-term than renting.
"Properties under shared ownership can be more expensive overall, but the scheme can remove some of the barriers to homeownership," says Belton. "It’s important to consider that, when you total up the costs of the actual mortgage, plus the rent that you’ll pay on the remaining share, it may potentially end up costing you more than a traditional mortgage."
Deposit Unlock is being touted as a replacement to the Help to Buy loan scheme which closed in October 2022.
It allows both first-time buyers and home movers to purchase a new build property from a participating developer with a 5% deposit.
Mortgage lenders are traditionally wary about offering high loan-to-value mortgages for new builds as they often lose value after the initial purchase but, with this scheme, developers pay to insure the mortgages, making the lenders more willing to take the risk.
As with any high loan-to-value purchase, you should make contingency plans to prevent yourself from going into negative equity.
Deposit booster schemes
Deposit booster schemes are becoming increasingly popular as rising rents mean that it’s a struggle for many first-time buyers to save a meaningful amount towards a deposit.
When you sell your home, any profit or loss is split proportionately between you and the scheme.
"With deposit boosters, the main thing to be aware of this that very few lenders like these schemes," says Harris. "Only one of the major lenders accepts such schemes as they tend to be complicated. Each has its own merits, but it can be difficult to qualify which is the best one."
Pocket Living is an innovative, London-based project that allows local first-time buyers to purchase a new build one person flat for 20% less than its market value.
These one-bedroom flats measure around 400 square feet and have been cleverly designed to make the most of their small space.
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Unlike Shared Ownership, you own 100% of the property although you need to live locally already, have a 10% deposit, meet certain income criteria and there is a monthly service charge for the maintenance of communal areas.
The aim of the scheme is to provide homes for those usually priced out of their local area and also to build communities.
"Not only is Pocket currently the only UK developer dedicated to building and selling grant-free affordable homes, but it also prides itself on creating tight-knit communities where residents can meet like-minded first-time buyers and make long-lasting friends," says Jenny Anson, head of sales at Pocket Living.
"The Pocket team helps residents set up a management committee to decide how their building should be run in the long-term, and importantly, even when sold on, Pocket homes will always be for local first-time buyers on modest incomes."
While the headlines might make depressing reading for first-time buyers, whether you’re struggling to get a deposit together or need a boost on what you can borrow, it’s worth finding out more about the schemes and mortgage products available and seeing if any suit your particular set of circumstances.