First-time home buyers have had a challenging time climbing onto the property ladder. Currently there are many obstacles to becoming a homeowner. Interest rates are higher due to the Bank of England’s Monetary Policy Committee (MPC) fighting inflation following the global pandemic. The interest rate reached a 16-year high of 5.25% and was only recently cut this month for the first time since March 2020 to 5.0%. With borrowing more expensive, the repayment amounts are higher than they were when the interest rates were historically low as in 2020 to 2022.

Along with more expensive borrowing, home buyers are facing higher house prices. During the pandemic, when borrowing was historically low, a house buying boom occurred. As demand grew so did house prices. While buying became more subdued as interest rates grew, they did not drop dramatically due to buyers actually remaining in the housing market. There have been many non-mortgage buyers using cash to purchase which kept asking prices high.

As mentioned, inflation has taken a toll for years. Between September 2022 and March 2023, inflation sat at double digits. When goods and services are more expensive, it is difficult to save money. Saving for deposits on home purchases that have high asking prices along with expensive borrowing is difficult. 

However, with rental costs climbing, the focus on becoming a homeowner is strong. For many, the traditional path to homeownership is unattainable and creative and non-traditional paths must be found.

One path an older generation might not consider traditional but has become more common is borrowing from the Bank of Mum and Dad. In fact, the ability to borrow from parents has been for many the only way to become a homeowner, as it would have been so difficult to save for a simple deposit. 

In fact, many government backed schemes have been put into place to help first time home buyers into a home by making the deposit required much less. For instance, the Mortgage Guarantee Scheme helps home buyers by offering them the ability to purchase with only a 5% deposit. This is a tremendous help because the usual 10% deposit would be required, which is double the amount needed with the scheme. 

The use of a parental gift to provide their child’s deposit has grown so much that some lenders are offering gifting remortgages. These allow homeowners to obtain a remortgage and borrow more to provide a deposit amount for the child. In some cases, the gift could be a large part of their scheme required deposit or perhaps the entire deposit needed.

There are also homeowners simply using an equity cash release remortgage. The homeowner cashes out their built-up equity to provide cash to their child to help them onto the property ladder. Obtaining a gift remortgage or an equity cash release remortgage should be a careful consideration as for many homeowners their equity could be a planned part of their financial security in retirement.

Another path to homeownership is taking on projects for a cheaper home that might need improvements or upgrades. Such a home could be less expensive and the homeowner selling might be ready to offer the property at a competitive price because they are upgrading to another home and want to sell quickly. These types of homes offer the home buyer a less expensive purchase, and they can make the upgrades as they can afford to do so.

There is also a trend of home buyers grouping together to buy a home. Family or friends are choosing to buy homes together to share the deposit and the cost of purchasing including repayments. In some cases, they are taking the DIY path by purchasing a cheaper home in need of care and upgrading. The work done on the home increases the value of the property and they then sell it for a profit and perhaps repeat the process a few more times until deposits have been gathered for all parties involved to buy their own home. 

There are also those purchasing larger homes with the intention of long-term occupancy of another family having their own private section. They can also buy with the plan to live in the smaller section of the home and rent out the larger and therefore more expensive part of the home. The rental income could cover most if not all of the mortgage repayment. In additional personally paying more on the mortgage, the homeowner could pay off the debt quicker. They could also begin to live in the larger part of the home as their family grows or their income grows or both.

These types of homeowners could remortgage as the debt is paid down and perhaps arrange repayment amounts that allow them to occupy the entire property with more affordable repayments or simply retain the ability to acquire a monthly income through rental.

Purchasing a home for a first-time buyer in the UK for some could look impossible, but by using creativity, patience, and skillful financial strategies and planning the dream of homeownership could come true.