A First Foot On The Ladder

In January, the Halifax published a report revealing what many frustrated would-be homeowners probably already knew: that there's hardly a town in the whole country where they can afford to buy a property.

A semi or a terraced house is now out of reach in 87 per cent and 50 per cent of towns respectively.

And while flats remain affordable in 69 per cent of towns, they're still too pricey in half of London's boroughs and many major regional cities such as Edinburgh, Cardiff, Manchester, Cambridge, Leeds and Bath.

Gordon Brown has suggested that shared ownership is a possible solution, but the new Open Market Homebuy scheme the Chancellor announced in December (and will probably reannounce tomorrow) will hardly make a dent on the surface of FTB disaffection.

Moreover, while the ODPM insists that the OpenMarket plan will extend beyond the social housing sector to a wider range of FTBs, the eligibility criteria have still to be decided and will probably lean heavily towards key workers.

So that leaves FTBs with the usual options: scrimp and save like a miser, or sweet-talk a receptive parent or relative into stumping up a deposit.

There are, however, other financial options: lenders, well aware that the market needs fresh blood, have been working hard to come up with inventive solutions that make life easier for FTBs.

Here are six possibilities that might offer a ray of hope to the despairing renter:

What is it? The idea is simple enough - strength in numbers. Basically, pooling your resources with a friend, or friends, will produce a bigger deposit and should allow you to buy a more expensive, and more spacious, property.

How does it work? Different lenders operate in different ways. Most will consider up to four applicants but usually only the two highest salaries are considered when income multiples are worked out.

What's On Offer: Share To Buy.com offer a more flexible alternative and lend on the three highest incomes from four borrowers.

They also provide a free and comprehensive legal agreement to cover the key issues of joint ownership with friends, setting out important points such as each person's share in the property.

James Cartlidge, of sharetobuy.com's mortgage team, says: "Sharing to buy a property is becoming an increasingly popular option for first-time buyers.

"For most of our customers it presents a more cost-effective option than over-stretching themselves on their own. We are also seeing growth in the numbers of family members clubbing together to buy a home."

Pros: On the plus side you get to live in a larger property, probably in a better area, and if the idea of living alone doesn't appeal, you'll also have some company. And if prices are rising, you could do well out of the capital appreciation. You also share on bills and maintenance.

Cons: On the downside, people fall out, break up, and move on, so the situation can be unstable. If you're going to do this, it makes a lot of sense to rent with someone first to see if you can live under one roof.

You should also consult a lawyer and draw up a legal agreement. This should try and anticipate all possible future scenarios and clarify the financial details such as who paid/pays what, how the profits will be divided if you sell, what happens if one buyer becomes unemployed and so on.

Remember too, that if you buy out the other person or people you'll have to pay full stamp duty.

Who to call: Visit the Share To Buy.com website for full details of their offers. Most lenders have joint mortgage products.

What is it? Deals pitched at particular professions that recognise the potential for increased income in the future.

How does it work? Many high-earning professionals - accountants, dentists, doctors, opticians, pharmacists, solicitors and vets - start on relatively low incomes.

The average starting salary for an optician is £21,000, but this increases to £44,000 after five years. Doctors' average salaries jump by 94 per cent over the same period.

So some lenders will offer these people higher income multiples to get a foot on the ladder early in their careers, or will allow them to borrow at 110 per cent of the property's value and use the additional money to help launch their careers.

What's On Offer: Scottish Widows will allow fully qualified doctors, pharmacists, dentists, solicitors, accountants, teachers and vets to borrow the full 100 per cent plus ten per cent with no higher lending charge to use as they see fit (eg: to buy a car). Single applicants can borrow at four times their basic annual salary.

NatWest will do the deal with anyone in the professions listed above provided they are over 23 years old and have a minimum salary of £20,000.

They offer up to five times the salary for single applicants and up to fives times the main salary plus the second salary, or 2.75 times both salaries, for joint applications.

The loan is available up to 100 per cent LTV (but with a max of £250k). At 85 per cent LTV there is no limit on the amount.

Pros: If you belong to one of these professional groups and you're fairly sure you'll see your salary rise, this could be quite an attractive option.

Cons: On the downside, borrowing higher income multiples can be risky - if interest rates rise you could get badly stung. Some lenders will charge a higher mortgage indemnity premium for loans at higher income multiples.

Who to call:

Scottish Widows; NatWest.
What is it?

The idea is to guarantee the landlord a regular and stable rental income while offering the tenant a share of the property's rising value.

How does it work? The tenant commits to a long lease (six years), pays the rent at market value, and receives a six per cent per annum share of the property's rising value.

If, for example, the property cost £130,000 and is worth £200,000 five years from now you, as the tenant, would make 30 per cent (five years at six percent) of the £70,000 increase - £21,000. This, hopefully, will be enough for a deposit to buy the property outright.

As the tenant, you are responsible for maintenance costs, but you can also exercise the option to buy after three years.

As the owner you will have to part with six per cent per annum, but you still get the lion's share of the capital appreciation.

Moreover, at the end of the agreement you have a buyer already in place and can sell the property without having to pay estate agency fees.

As the buyer, you save on the hassle of searching for a property, you won't have to pay removal costs and you are already in a place you think of as home.

Pros: Can potentially be a good deal provided you are willing to wait out the three to six years. If prices stay flat or go down, the tenant won't make any money - though they won't lose any either.

Cons: For tenants, you lose the right to buy if you default on two months' rent. You're also responsible for maintenance costs and, of course, prices may not rise.

Who to call: The scheme was announced a few years ago and is due to launch soon. For more info visit the rent2buy website.

What is it? The lender allows parents to guarantee the proportion of the loan which cannot be covered by the borrower's earnings.

How does it work?

For example, a professional borrower who earns £20,000 can borrow £70,000 in their own right. If the loan that is required is £120,000, the guarantor must cover the 'shortfall' of £50,000.

Lenders operate this loan in different ways - some will require a deposit of up to 25 per cent and may want the parents to be able to cover both their and the child's mortgage payments.

Others will go to 100 per cent LTV and will only expect the parents to cover the shortfall - in the example above the £50,000. In some cases other relatives can act as the guarantor.

Pros: Allows parents who can't help with a deposit to help children get a foot on the ladder.

Cons: The main downside here is that if the child fails to keep up with the payments the parent will have to step in - and that could put their own property at risk.

Who to call: Newcastle Building Society; Nationwide; Scottish Widows; Yorkshire Building Society; The Co-operative Bank.

What is it? As above, a joint mortgage between parent(s), or step-parent(s), and children. But with some important differences.

How does it work? As run by Bristol & West, this allows a parent's income to be included in the lending calculation.

The parent's income is added to the child's income, and the parent's annual mortgage repayment is then deducted. The loan is at four times the combined incomes, allowing the child to afford a much more expensive property.

With a First Start mortgage the parent is jointly liable for the mortgage repayments and the total loan.

Pros: Allows the FTB to borrow more - often more than would be available in a traditional guarantor mortgage scenario.

Although both parties appear on the mortgage, making the parent jointly liable for the mortgage repayments, the parent can be left off the deeds, leaving the property solely in the name of the child.

This means the parent will not be liable for Capital Gains Tax on the property.

Cons: As with guarantor mortgages, if the child fails to keep up with the payments the parent will have to step in. Allows the FTB to borrow more, but a deposit still has to be found if you don't want to risk a 100 per cent mortgage.

Who to call: Bristol & West and Bank of Ireland.

What is it? Money placed in a savings account is linked to the mortgage account and the interest offset against the mortgage loan, thus reducing the mortgage borrower's monthly payments.

How does it work? The mortgage-holder saves money by only paying interest on the difference between the amount borrowed and the amount in the linked savings account.

For example, someone with a £70,000 mortgage whose parents or grandparents offset £10,000 of savings will only pay mortgage interest on £60,000 all the time that the savings are in the account. The savings can be added to or withdrawn at any time.

Newcastle Building Society have recently launched a fixed rate offset mortgage at 4.79 per cent until 31 March 2008. This offers family features which enable family members to offset their savings.

The maximum LTV is 85 per cent, the minimum loan is £15,000 and maximum loan, £500,000.

Pros: Rather than simply handing over a deposit, parents keep control of their money while the child gets to reduce their mortgage payments.

Cons: But you'll still need to come up with a deposit - and this is often the trickiest thing for FTBs.

Who to call: Nationwide; The Woolwich.

Useful Sites For First-time Buyers

First Rung Now

ParentAidNow

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