Swap bricks and mortar for an alternative home
If there was ever a time ripe for confusion in the housing market, it’s now. House prices have fallen around 22% from their peak in 2007 but the second quarter of 2009 has seen house prices start to rise again. This has sparked speculation that we have now reached the bottom of the housing market crash.
But if you’re a first-time buyer, although you may find you can now afford to get onto the property ladder, you could face a further obstacle: mortgage lenders won’t cough up more than 90% of the property value, and for the majority of competitive mortgage deals, you will need at least a 25% deposit.
However, the Oxford English Dictionary’s definition of ‘home’ – “the place where one lives” – makes no reference to bricks and mortar, or to mortgages. In fact, if you keep an open mind, there are a number of alternative ways to put a roof over your head. Here are a few suggestions to get you started.
One option is to buy a houseboat to live in. The average houseboat costs around £50,000, and this can be funded by a so-called ‘marine mortgage’, available from specialist lenders such as RoyScot Larch.
But Ray Boulger, senior technical manager at broker John Charcol, warns: “You’ll need at least a 20% deposit, and the loans come with a 15-year maximum term and must be taken on a repayment basis. Interest rates are also priced considerably higher than on standard mortgage deals.”
At RoyScot Larch, for example, the typical rate is 9.9%, compared with bricks-and-mortar rates of around 4% [correct June 2009]. The shorter term is due to the fact that houseboats don’t last as long as the average house, and don’t increase in value over time.
The vessel itself is just the start of the financial outlay. You will need to pay residential mooring costs, for example. The price will vary according to the location of the river. According to David Greenway, author of The Houseboat and owner of one-stop-shop, the Houseboat Centre, a benchmark is around £1 per foot of boat, per week.
So a 50-foot houseboat would cost £50 a week to moor. Fees are payable to the owner of the marina, who also has the right to kick you out if they do not deem you a suitable tenant.
Before buying, you should also budget for a ‘dry dock’ survey that will cost between £700 and £1,000. A cheaper ‘in the mud’ survey, where the boat stays in the water, is available, but Greenway advises against this.
“If the vessel is out on the dock, the surveyor can see all the way around it and it’s clear what work needs to be done, so you will know what to budget for,” he says. For steel boats, Greenway recommends a sonic survey, where sound waves are used to measure the thickness and density of the steel.
Council tax is also payable on all residential moorings, but at the lowest threshold (Band A), while maintenance for the vessel will cost in the region of £2,000 every four years, according to Greenway.
He adds: “Houseboats are strong, but most were not built to be lived on. They each have their own personality – they may shrink a little or let some water in – so you’ll need to be very thorough if you’re buying one for the first time.”
Ex-local authority homes
If you want to find a truly affordable home – especially in a big city like London – then an ex-local authority flat could be the answer. The 1980 ‘Right to Buy’ scheme gave council house tenants the chance to buy their properties, and since then most flats have been bought and sold many times over. If you’re the next buyer in line, however, there are a number of factors to consider.
An ex-local authority home in England and Wales will be sold under a ‘Right to Buy’ lease, which has been issued for a period of 125 years. So whether you’re buying from a private owner or direct from the local authority, you will be a leaseholder.
Provided you own a 100% share in the lease (if you are not buying under a shared-ownership scheme), you will have the same rights as any other leaseholder. These include the right to decorate your home, extend your lease or even buy the freehold.
However, says Shabnam Ali-Khan, senior legal adviser at the Leasehold Advisory Service: “The freeholder may or may not be the local authority. So check this first, as well as all the other details of the lease, including the term remaining.”
Also bear in mind that not all banks will lend on ex-local authority properties.
Another way to buy a home for less is to opt for a disused property. If you’re interested in buying a property such as a bunker or an old storage unit that has not previously been used as a domestic residence, you’ll need to apply to your local council for ‘change of use’ planning permission.
For more details about planning applications and costs, visit planningportal.gov.uk. Make sure you study this website thoroughly before buying – the building will be useless to you without planning permission.
Whether you’ll get a mortgage on your unusual new home will depend on the structure. It’s a good idea to use a mortgage broker – you can find one who specialises in ex-commercial homes at using Moneywise's free Find a Mortgage Broker search tool.
Since 1 October 2008, garages can be converted into domestic dwellings without planning permission, provided the work is internal and doesn’t involve enlarging the building. But you should still contact your local planning authority before proceeding – particularly if you live on a new housing development or in a conservation area – as there are several exceptions to the rule.
If the garage is part of your parents’ home, it may be given to you as a gift. Otherwise, you will have to buy it officially. This means hiring a solicitor who will carry out all the legal work, including informing the Land Registry. “If the land is not registered – although the vast majority is – your solicitor will need to carry out a conveyance instead,” says Adam Hookway, spokesperson for the Land Registry.
As well as the legal fees, you will also need to budget for a complete refit of the garage as it’s unlikely to have running water or windows, or be sufficiently insulated, and you may also need to organise private access.
However, you probably won’t need to pay any stamp duty as most garages cost less than the £175,000 threshold, which is in place until the end of the year.
Buying a plot of land to build on may seem daunting, but as long as you’ve done your homework, it can be one of the cheapest ways to own your own home. The value of land has fallen by around 20% since its peak in autumn 2007, and outside city areas a plot now typically sells for between £80,000 and £100,000, according to John Hay, head of financial services at buildstore.co.uk.
Hay adds that, due to the downturn in the building trade, there’s also plenty of supply. “Builders and developers are trying to raise capital and repay borrowing by selling land in their possession as plots. And in order to help them sell, they’re putting in services like gas and water.”
The only way of getting a mortgage, though, is to first obtain an outline planning permission from your local planning office. Self-build mortgages are available from several mainstream lenders, such as the Norwich & Peterborough Building Society, and will be lent in five stages – first against the value of the land, then against the increasing value of your property. You will need between 10% and 25% deposit before you start.
Also, Hay says you should make sure you have a contingency pot for unforeseen costs.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The right to hold or use assets (generally property, but also vehicles) for a fixed period of time at a given price, without transfer of ownership, on the basis of a lease contract. Leasehold ownership of a residential property is simply a long tenancy, the right to occupation and use of the flat for a specified period – the ‘term’ of the lease, which is fixed at the beginning and so decreases in length year by year and the property can be bought and sold during that term. When new, leases are for 99 or 125 years until its eventual expiry, whereupon ownership of the property reverts to the landlord.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.
Permanent and absolute ownership and tenure of a property (residential or commercial) and/or land with freedom to dispose of it at will but with no time limit as to how long the property/land can be held (in perpetuity). Freehold is the opposite of leasehold.