Are you considering buying a house in the UK? With the ever-changing property market, it can be a daunting task to navigate the process and understand the different options available to you. We have put together this guide to help you understand the alternative ways to purchase a house in the UK. From Shared Ownership to Rent to Buy, you will have the keys to find the right option for your situation and needs so that you can finally step onto the property ladder.
How to buy a house in the UK thanks to government-backed solutions?
House prices in 2024 have reached painful highs meaning that most people are unable to afford buying a home outright. Thankfully, there are government grants and loans that exist and that can provide much-needed financial assistance to help you buy a house in the UK.
Right to Buy
If you're a council or housing association tenant in England, you may have the right to buy your home at a discounted price. The discount you receive depends on how long you've been a tenant and the type of property you're buying. For example, the maximum discount available is £87,200 across England and £116,200 in London. To qualify, you must have been a public sector tenant for at least three years, though this doesn’t have to be consecutive. The property must be your main home and self-contained. If you sell the property within the first five years, you’ll have to repay some or all of the discount. Additionally, certain properties, like those designated for the elderly or disabled, may not be eligible for the scheme.
Right to Acquire
Similar to the Right to Buy scheme, the Right to Acquire allows tenants of certain types of social housing in England and Wales to buy their homes at a discounted price. The discount for Right to Acquire ranges from £9,000 to £16,000, depending on the location of the property. To qualify, you must have lived in a housing association home for at least three years and the property must have been built or bought by a housing association after 31 March 1997, or transferred to a housing association after that date. Unlike Right to Buy, the discount is fixed rather than being calculated based on the length of tenancy or the property type.
Shared Ownership
Shared Ownership is a government-backed scheme that allows you to buy a share of a property, typically between 25% and 75%. You’ll pay rent on the remaining share to a housing association or private landlord. This scheme is designed to help those who cannot afford to buy a home outright. As your financial situation improves, you can increase your ownership share through a process called staircasing. Staircasing allows you to buy additional shares in the property, in minimum increments of 10%, until you own the property outright. The rent you pay will decrease as your ownership share increases. Shared ownership properties are usually leasehold, meaning you’ll own the property for a fixed period, often 99 years, and you may have to pay ground rent and service charges.
Discover a gradual way to full homeownership with Staircasing
When you buy a house through Shared Ownership, you usually own between 25% and 75% of the property. You pay rent on the share that you don't own. As you pay off your mortgage, you can increase your ownership of the property by buying more shares. This is what is referred to as Staircasing.
There are a few benefits to staircasing. Firstly, it can help you to reduce your monthly mortgage payments. This is because you will be paying interest on a smaller amount of money. Secondly, staircasing can help you to build equity in your home. This means that you will have more money to put towards a deposit when you eventually come to sell your home. Finally, staircasing can give you more freedom and flexibility. You can choose to staircase at any time, and you can increase your ownership of the property by as much or as little as you like.
However, there are also a few things to consider before you decide to staircase. Firstly, you will need to pay a valuation fee each time you staircase. This fee can be several hundred pounds. Secondly, you will need to make a payment to increase your share of the property. This payment can be a lump sum or it can be added to your monthly mortgage payments. Finally, your monthly mortgage payments may increase when you staircase. This is because you will be borrowing more money.
Overall, staircasing can be a great way to increase your ownership of your home and reduce your monthly mortgage payments. However, it is important to weigh up the pros and cons carefully before you make a decision.
Before Staircasing, it is important to assess your situation by yourself or with a financial advisor
Rent to buy and London Living Rent
Rent-to-buy agreements offer a unique path to homeownership by allowing individuals to rent a property with the option to buy it at a predetermined price in the future. While this arrangement can be beneficial, it's crucial to understand the terms and conditions involved before committing. Under a rent-to-own agreement, you'll typically pay a higher monthly rent compared to the standard market rate. This premium serves as a form of down payment that goes towards the eventual purchase of the property. The agreement will specify a timeframe, usually between one to three years, during which you have the option to exercise your right to buy the house.
If you decide not to purchase the property at the end of the agreed period, you could lose the money you've paid towards the down payment. This aspect makes rent-to-own agreements less flexible compared to traditional home-buying methods. However, for those who are not yet financially ready for a mortgage or lack the required down payment, rent-to-own agreements can provide an opportunity to secure a future purchase while building equity in the property. Additionally, it allows individuals to test-drive the property and ensure it meets their needs before making a long-term commitment.
In London, this alternative way to step onto the property ladder is known as London Living Rent. Homeownership in the capital city is further out of reach for a lot of professionals. This scheme was designed to help middle-income Londoners get out of the renting cycle and to put down roots in the city despite rocketing house prices.
Buying with friends or family
Buying a house with friends or family can be an excellent strategy to step onto the property ladder, offering several advantages. By pooling resources, you can increase your budget and potentially secure a more desirable property. Sharing the financial burden can reduce monthly mortgage payments, making homeownership more affordable. On top of that, having co-owners can provide emotional support and practical assistance during the buying process and beyond.
For some, buying with someone else is also a great way to buy in a city that would otherwise be unaffordable. This was the case for Miles and Katya, two colleagues who made the move to London from Cambridgeshire. Miles was already thinking of buying a house and decided to move back in with his parents to save money before securing a mortgage. After chatting to colleague and friend Katya about his project, they decided to buy together in the capital through Shared Ownership. Miles comments: “We really wanted to take our first steps onto the property ladder and with the cost-of-living crisis a reality we could not ignore, it raised the question of how achievable it is to buy on your own in London. With the IT company we work for expanding, and a large number of our clients now based in the South West, moving to London and being able to enjoy the unrivalled transport connections means that we now have better opportunities to provide them with on-site services.”
If you're interested in buying with another person, the best way to navigate this journey smoothly is to draft a co-ownership agreement that outlines the rights, responsibilities, and exit strategies for each co-owner. This document should address issues such as property maintenance, rental income (if applicable), and the process for selling the property in the future.