What help is there for first-time buyers?
According to research from the Council of Mortgage Lenders - the average first time buyer has a deposit of £24,900, a tough challenge for any saver when wage growth has been almost non-existent and savings rates at rock bottom.
So what can you do if you are fed up with renting and desperate to get a place of your own?
The good news is that help is available if you know where to look, the bad news is that it usually come at a price. Find out whether it's a price worth paying with our guide.
High LTV loans
Deposit-sparing 100% loans were consigned to history after the financial crash, but 95% loans - which only require you to put down a deposit worth 5% of the property's value - are making a comeback.
They are by no means widespread, but are offered by a handful of lenders. "Around 10% of lenders will now lend at 95%," says Stuart Gregory, managing director of Lentune Mortgage Consultancy. "It was previously 90% maximum."
At the time of writing the market was dominated by smaller building societies such as Hanley Economic and Bath as well as a couple of larger lenders including Nationwide, Yorkshire Bank and HSBC.
If you think you can stretch to a 95% mortgage it might be worth consulting a mortgage broker to help you through the new affordability assessments and help you find the lender that is most likely to accept your application.
However, Gregory says that if you can save enough to enable you to put down a 10% deposit it's worth it as mortgage rates will be lower for 90% loans because there is more security for lenders. "The difference between rates on a 90% and 95% really does help."
At the time of writing the best two-year fix at 95% had a rate of 4.64%, while the best two-year fix at 90% had an altogether more attractive initial rate of 2.99%. On a £150,000 mortgage over 25 years that means a difference of £135 a month, so the message really is the more you can put down the better.
The bank of mum and dad
Taking your first step onto the housing ladder may be one you want to make standing on your own two feet, but if you're struggling it might be worth speaking your parents, if they have the money to spare.
According to research from Santander, the average first-time buyer receives almost half their deposit from parents, with more than two-thirds of them receiving the money as a gift.
"We're seeing a lot of borrowers coming in who are getting help from the bank of mum and dad," remarks Andrew Montlake, director at mortgage broker, Coreco. "A lot of parents are simply gifting the money to their kids, it can be a great bit of inheritance tax planning for them if they go on to live seven years or it may just be that they want to help and get the kids out of the house!"
What about guarantor mortgages?
As an alternative to locking their money up in your property, some parents may offer to act as a guarantor on your mortgage. This means that if you fail to make your mortgage repayments your parents become liable.
However, while you might think that this would provide lenders with the assurances they need, most aren't currently big fans of this sort of arrangement. "Guarantor mortgages are few and far between at the moment and lots of lenders have pulled out of this market since the Mortgage Market Review in April," explains Montlake.
As an alternative he adds: "Some lenders will allow for a joint mortgage but with just one name on the deeds."
Help to Buy
If family help isn't available, another way of getting onto the property ladder with a small deposit is through the government's Help to Buy scheme.
The scheme, which is broken down into two parts, enables homebuyers and movers to purchase homes worth up to £600,000 with just a 5% deposit.
The first part is an equity loan worth 20% of the property's value from the government. The loan is interest-free for five years which means buyers are able to get a 75% mortgage despite only having 5% to put down. After five years, charges kick in. This starts at 1.75% of the loan, increasing each year by the retail price index measure of inflation plus 1%.
The loan has to be repaid when the mortgage is repaid or you sell the property - whichever happens first. Rather than repaying the exact amount of the loan, you repay the percentage of the property's value that you borrowed; so 20% of its market value at point of repayment, meaning the government takes a slice of any growth in the value of your property. This part of Help to Buy is only for new-build properties.
If you don't want a new-build, there's the second part of Help to Buy. This is a mortgage guarantee scheme where, alongside a 5% deposit from the buyer, the government guarantees up to 15% of the property's value, providing the lender with the same level of security as a buyer with a 20% deposit.
The main risk associated with Help to Buy is the same as buying any property with a small deposit, as Montlake explains: "House prices do fall, so if you are borrowing 95% you could find yourself in negative equity."
If you can't get a 5% deposit together, you may be able to purchase part of a property using shared ownership. Shared ownership schemes are run by housing associations and enable buyers who don't currently own property (so not necessarily first-time buyers) to buy a share in a property (between 25% and 75%) and pay rent on the remainder.
As you become more financially secure you can increase your ownership of the property in a process known as ‘staircasing'. The cost of the new shares will be based on the value of the property at the time.
When you come to sell, your housing association will find a buyer, unless you fully own it by this point, in which case you would still need to give it first refusal. To be eligible you need to have a household income below £60,000.
While this might not be your ideal route onto the property ladder Montlake says it can beat renting. "It provides a bit more security and the option to buy more."
However Gregory warns that selling or refinancing a shared ownership property can be harder than a property you fully own. "It's harder if you are looking to move or remortgage as there are fewer lenders. There is also a smaller resale market."
If you cannot manage any of these options - or you do not want to pay more than you need in terms of mortgage - it may be worth reviewing your options. This can simply mean adapting your plans. "If it's just an affordability issue you can always look at cheaper areas and cheaper properties," says Montlake.
Failing that your only option is to wait and carry on saving for a year or so. That way you can at least hope that when you do finally take that much longed for first step on the property ladder you'll have a sure and steady footing.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
These are mortgages to help first-time buyers get on the housing ladder whereby parents or relations stand as security for the loan by guaranteeing to pay the mortgage in the event of the purchaser failing to make the repayments. The guarantor mortgage is taken out in the purchaser’s name, but the guarantor’s income is used to guarantee the mortgage borrowing but this enables the first-time buyer to borrow more money than his or her own income as the guarantor’s income (less any other financial commitments) is also taken into account.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.