And it’s not surprising. Large deposit requirements and tightened lending criteria made it difficult to get a mortgage and buy a home if you were a first-time buyer or had a low income in 2020.
The prospect of owning a home and eventually being better off, with the advantage of building equity, is, however, still appealing to many, even those currently renting while trying to save on the side.
There is hope and the tables are beginning to turn. First-time buyers could be about to get the opportunity they’ve been craving for with Shared Ownership and 95% mortgages helping to make homeownership a real possibility.
Where to find a mortgage that is cheaper than your rent
Halifax reports that paying off a mortgage has become cheaper than renting, so perhaps it’s no wonder we’ve received so many enquiries on the topic.
Understandably, lots of people want to find out if they could get approved for a mortgage with the Government-backed 5% mortgage deposit scheme, or Shared Ownership, which could allow some to buy a portion of a property with as little as a £2,500 deposit.
So many people pay hefty rent each month and are arguably capable of keeping up with mortgage repayments that might, in some circumstances, end up being cheaper than previous rental payments.
Our mortgage brokers use their access to UK banks and lenders to compare what they offer and calculate the repayments for the people they help.
It’s their duty to find a mortgage that is affordable and won’t leave the borrower in a financially vulnerable position if circumstances drastically change.
How much does a mortgage cost for the average first-time buyer in the UK?
The average monthly cost of repaying a mortgage for a first-time buyer has risen by 1% to £753, according to an analysis by Halifax.
The review was based on the average cost to buy a three-bedroom property with a mortgage and included additional but necessary costs for household maintenance and insurance, compared to the average monthly rent for the same type of property.
How much does renting cost in the UK?
Naive dreams of a swanky apartment are soon dashed for most newbie renters who are faced with the crashing realisation that a soul-scorching amount a month will stretch to a box room above the local takeaway.
In fact, the monthly cost of renting has risen by 10% to £821 in the past year, according to the analysis by Halifax whereas the cost of buying only rose by 1%.
That’s why, for the 4.4million already renting, the possibility of saving for a big mortgage deposit on the side can feel pretty impossible - even with the advice that they stop “splurging” on avocados.
Of course, many reading this will be rolling their eyes, dreaming of rent this low for a three-bedroom house, however, the analysis took into account the combined averages of rental fees across the UK.
In areas on the south coast and in cities with high demand for rental accommodation, rent can soar above the average monthly cost of £821.
The continuing rise of rent means that the gap has widened between the difference of buying vs renting, with buyers saving more than £800 a year, as reported by The Times.
Young adults were priced out before the pandemic
Rocketing rents and tightened mortgage criteria which previously restricted lending options for first-time buyers, arguably prevented many young adults from being able to buy a home, let alone rent one.
Loughborough University carried out research on individuals aged between 20-34 and found that even before the pandemic, this group of people were likely to stay at home or move back home because of increased housing costs.
Nicknamed generation ‘boomerang’, these renters have been priced out and many who do make the move and flee the nest, end up returning.
The research from Loughborough University found that childless and single adults aged between 20-34 were more likely to have moved back in with Mum and Dad before the pandemic often because of:
A precarious job market
Zero hour contracts and unpredictable income
Sudden life shocks such as a breakup or breakdowns
The September, 2020 report from Loughborough University, titled “Home Truths” also found that:
The proportion of adults aged 20-34 living with their parents grew from 22% in 2008 to 27% in 2019.
Among singles without their own children, six in ten now live with parents. A total of 3.5 million single young adults.
More children of Londoners than in other regions live at home at this age, but more also come to London from elsewhere to live independently.
Young adults disadvantaged by low qualifications and unemployment stay on longer in their parents’ homes.
Socioeconomically advantaged parents are more likely to have young adults living with them.
Has Coronavirus encouraged the trend further?
The Centre for Research in Social Policy Loughborough University predicts that their findings, from before the Coronavirus pandemic, are likely to have grown, given the disproportionately high impact it has had on the jobs and incomes of young adults.
“A lot of young people will spend most of a decade of their lives living like this,” says Katherine Hill, senior research associate at the Centre for Research in Social Policy at Loughborough University. But does it have to be this way?
Can part rent/part buy schemes help people onto the property ladder?
The Shared Ownership scheme could provide a solution, allowing people to buy a minimum of 25% of a property while paying affordable rent on the portion that they don’t yet own.
Because the mortgage needed for Shared Ownership would be much smaller compared to that for a 100% property purchase, mortgage affordability criteria can be more attainable.
Rent is generally charged monthly and a service charge is usually payable too, though this can be higher on flats that have more shared areas such as hallways, lifts or green spaces as these typically require maintenance.
2021 part rent/part buy explained
Lots of UK housebuilders provide part rent/part buy agreements for newly built homes, under the condition that the applicant(s) have a personal or joint annual income below £80,000.
The typically lower deposit requirements can be a draw for lots of first-time buyers and people who can’t quite afford a 100% mortgage yet too.
The new model for Shared Ownership is due to roll out in 2021 and is set to allow people to buy an even lower percentage of a part rent/part buy property, at just 10%, with the aim of making homeownership more attainable for those on a lower income.
Can a Shared Ownership tenant buy more shares later?
Under the old Shared Ownership scheme which is due to expire in 2021, shared owners that want to buy more shares have to buy at least 10% of the property's market value at a time.
With house prices often rising faster than wages, and faster than shared owners can save, buying a 10% share in one go can be a difficult task and therefore buying more shares in the future would require the tenant to save or remortgage later down the line, often incurring costly fees for doing the latter.
However, the Shared Ownership scheme is due to change and staircasing (buying more of the property as time goes on) will be arguably more achievable under the proposed idea that tenants can buy 1% of the properties remaining market value at a time, as opposed to remortgaging to buy larger chunks.
What are the deposit requirements for Shared Ownership homes?
Buying a percentage of a property under part rent/part buy would also mean borrowing less as opposed to buying 100% of a property's value.
This would result in a lower deposit; again arguably much more achievable for a person currently renting from a private landlord and saving on the side.
Subject to eligibility criteria, some first-time buyers may be able to secure a mortgage for the share they want to buy with just a 5% deposit.
For a property valued at £300,000, a 25% share would equate to £75,000, requiring a 5% deposit of £3,750.
The new Government-backed deposit scheme as well as the increased availability of 5% deposit lenders, opens up borrowing opportunities for first-time buyers who previously may have been expected to deposit 10 - 25% of the market value.
Make buying a home a reality this year
Buying a home might feel unachievable, especially if you’ve been knocked back in the past or have worries about bad credit.
We’re all about finding affordable mortgages for people who believe that they won’t get approved and we’ve even helped people with CCJS and IVAs find affordable mortgages too.
Approachable, reliable and backed by hundreds of 5-star reviews from real people, we’re pretty confident that we can help.
Use the online chat to your advantage and ask an expert about your options, you might be surprised.