A Practical No-Bullshit Guide to Owning a Home One Day
We know it's not looking good, but if the words 'bank of mum and dad' make you want to break things, then this could be the guide for you.
If the VICE column London Rental Opportunity of the Week has taught us anything, it's that property prices have crossed into the realm of the ridiculous. Most renters under 30 are bleeding half their monthly wages on rent, when those wages have stagnated so that same age group will earn £8,000 less during their 20s than the generation before.
Renting gives you flexibility. But it also means you'll hand over around £300,000 to landlords in your working life. You'll find it harder to save for retirement as their home-owning friends pay off their mortgages and stuff money away for cruises and golfing retreats.
Even if you think you'll be smoking rollies with your housemates in your damp, mismatched living room forever, there will come a day when some of these friends will find themselves a boyfriend or girlfriend and announce that they're buying a flat. You'll be floored and spend days wondering how some people saved tens of thousands of pounds for a deposit while making rent and paying back student debt.
First of all, take comfort that whether they told you or not, your first time buyer friends probably got help. Studies show more than half of buyers had help with their deposit and as many as a third had help with the mortgage. "Get friendly with mum and dad and granny and grandad because without them you're fucked," says Henry Pryor, housing commentator. "They are either going to lend you the deposit or leave you their home, because without you, they can't continue to ask the exorbitant prices that they are for the homes that they have turned into their pension."
But if the words "bank of mum and dad" make you want to break things, there are ways that you can help yourself.
Start by working on your credit score. Everything these days revolves around your ability to borrow money and you can only do that if you have a squeaky-clean credit history. Get a credit score app like Experian or Clearscore on your phone (others are available).
You're scored via an algorithm based on your history with mobile phone bills, store cards and loans (but not student loans). To improve that score, get a credit card, even if you don't need one, and make occasional purchases that you can pay back on time. "Unless you're going to be left all the capital that you need, you have to nurture your credit rating as you would your partner or your social media profile," Pryor says.
Then start saving for a deposit. Sally Francis, writer at MoneySavingExpert.com, says that even if you don't think that's possible, think again. "Go through your finances. Find out exactly what you've got coming in and going out. Can you make any changes? Cut your existing bills? If yes, put the extra into savings accounts, making sure you've got top paying ones," she says.
Next you need to work out what you can afford. In London, the average first time buyer deposit is a whopping £96,000, three times higher than the UK average of £34,000. And you'll need at least another £4,000 to cover the cost of surveys, stamp duty and other fees.
This is obviously a ridiculous amount of money. Recognising that not having a deposit is the biggest barrier for first time buyers, the Government invented Help to Buy, where you can borrow most of your deposit interest free for five years. For example, if you buy a home for £200,000 under Help to Buy, you put £10,000 (five percent) towards the mortgage and the Government loans you the another £40,000 (20 percent) interest free for five years. This gives you a 25 percent deposit on a home, so you can get a mortgage for £150,000 (75 percent). You have to pay the loan back before the house is sold or the mortgage runs out. In London, the Government will lend you up to 40 percent of the property price.
The catch? It's only available on new builds worth less than £600,000. Evidence shows Help to Buy has pushed up house prices even further as developers put up the price of new builds to account for the scheme. Then there's the idea of borrowing a deposit, when you're already borrowing more than you might be able to pay back in your whole life with your mortgage. "The origin of the word mort is death. This is not something to be taken lightly. This is something that could well outlive you, you could die with it," Pryor says.
"Help to Buy, interest-free mortgages: all these things are meant to tempt you into something you can't afford. It's hard to comprehend that house prices can fall as well as go up. That's not what estate agents, mortgage lenders and the Government want you to believe," he adds.
In Northern Ireland, for example, house prices are 50 percent lower than they were before the credit crunch. If the housing market in the UK does decline, as it did at least once during our parents' lifetime, people who borrowed a lot to buy could be left with negative equity where the debt is worth more than the home.
One way to protect yourself in the event of a downturn is to look buying near future infrastructure, like villages where bypasses are being built or where Crossrail 2 might go. These are areas where long-term prices might outperform others a quarter or half a mile away. "Buy something small and humble in a nice location than stretching yourself to something huge on the outskirts because when you come to sell it, even in a bad market, people will buy things that are in the right place," Pryor says.
Another is to buy something that you can afford, rather that mortgaging yourself up to your eyeballs. If you live in London and have a household income of less than £90,000, you may be eligible for shared ownership. Sign up at online to find out whether you are able to buy a bit of a flat from a housing association and rent the rest, or rent to save, where you rent up to 80 percent of the market value of a property and save for a deposit at the same time, so that you can enter into shared ownership when you are ready. This can work for people with deposits of just a few thousand pounds.
Make sure to look into your nearest Community Land Trust, a community organisation that comes together to purchase land for affordable housing, often for up to 60 percent of market rate. There's also Pocket, a company building starter homes in central London at 80 percent of market rate, by negotiating with local authorities. "If the traditional route is blocked off to you, there are other routes appearing and it is a case of getting out there to see what's in your area," says Nick Yandle, policy officer for the Housing Association.
Finally remember that a home is to live in, not an investment. Don't go for a four-bedroom house in Watford if all your friends are in E5. Your first home should still be the kind of place in which you want to stay up late smoking rollies with your mates, just without the damp walls. "Don't set off to buy something because you think it will appreciate and you can make money," Pryor says. "Hopefully it will do, but you should be buying it because it's a home."
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Aviva.