How to Get on the Property Ladder if You've Got No Savings

If you're struggling to save up a big enough deposit and are beginning to feel that owning your own home is little more than a pipe dream, don't despair. Here are 5 ways to get onto the property ladder without a hefty deposit.

Ladder

Getting a foot on the property ladder can be a tricky business if you're a first time buyer, with high deposits demanded by the banks before they will consider lending. However there are other ways to buy your dream home if you have little in the way of a deposit...

1. Shared ownership schemes

A shared ownership (or shared equity) scheme allows you to purchase part of a property (usually between 25%-75%)  and rent the rest from a local authority or a housing developer.

This means that you need a significantly lower deposit and a lesser mortgage than normal which can make buying a property achievable if you're struggling to save up.

However, the downside of this type of scheme is that you will never actually own your entire home, only part of it. The other part will remain the property of the shared ownership provider - although you will usually have the right to buy the remaining equity at some point.

Shared ownership schemes will be available on certain, specified properties either as part of a new development, or on offer from a local authority.

This means that your choice of property and the area you buy in will be somewhat dictated by availability of eligible properties. You can't simply find a property you like and then apply for a grant to buy it.

You will also need to factor in the cost of rent on the part of the property you don't own. This is unlikely to be a significant amount but it will impact how affordable this type of scheme is for you.

If you are considering a shared equity scheme you'll first need to investigate whether you are eligible.

Priority allocation is often given to individuals who work in essential services (like teachers, nurses and policemen) and families on a lower income so you'll need to find out what your chances are before you get too excited about the prospect of owning your own home.

Despite this, shared ownership schemes can be an affordable and accessible way of getting on the ladder if you'd otherwise struggle to do so. For this reason they are definitely worth investigating.

You will, however, need to make sure you check the scheme's terms and conditions carefully before you sign on the dotted line.

Should you wish to sell up and move home at a later date you may find that the company that shares ownership has first refusal to buy the property from you. While this may mean that you are more likely to find a buyer it may also mean that you can't push for a higher price on the open market.

For more information and help deciding if a shared ownership scheme could be for you, read our guide Could a Shared Ownership Scheme Help You Buy a House?

You can also search for properties available to buy on a shared ownership basis on the Share to Buy website.

2. New build home deals

You shouldn't assume that new build properties are going to be out of your price range, often if you have little or no deposit they can provide an accessible way to get on the property ladder.

Construction companies know that first time buyers struggle to come up with a big enough deposit to buy their new build properties, and this can work to your advantage.

Many will have schemes in place designed to help first time buyers on the ladder with minimal upfront deposit - making provision for affordable housing is often written into their contract before they're able to build.

The schemes that are offered by construction companies and property developers differ from shared ownership schemes in that you will usually be able to buy the whole property, rather than just part.

Instead the construction company will offer to lend you the money you need for a deposit (often interest free) so that you need to borrow a lesser amount as a mortgage.

For example the housing developer may lend you 20% of the property value and ask to be repaid in 15 years. You would then only need to apply for an 80% mortgage and these are far easier to come by, and far more affordable than the 100% mortgage deal you'd need if you had no deposit.

You will, of course, need to make arrangements to repay the property developer after the loan term is up so it will be necessary to be strict about putting savings aside to do this, but it would get you on to the first rung of the property ladder.

Exactly the type of offer you'll be able to negotiate will vary depending on where you want to buy and the construction company you are dealing with, just remember that as a first time buyer with no onward chain you will be an attractive proposition.

If you are considering investigating this option further, you need to make sure you can afford to repay the mortgage and have enough money to make suitable loan repayments each month.

You should also check that both the mortgage and your loan agreement with the development company, allow you to sell your home to pay off your debts without penalty should you want to move at a later date.

3. A guarantor mortgage

There are some first time buyer mortgages which allow someone (usually a parent) to act as a guarantor on your behalf.

Typically these mortgages will require your guarantor to provide a guarantee that your mortgage repayments will be met on time - this may mean making the payments themselves if you are unable to do so.

Your guarantor will usually have to hold collateral in the form of a property themselves for a bank or building society to consider them worthy.

Because a guarantor mortgage provides the lender with extra security they are usually able to offer a mortgage in return for a smaller deposit, or to lend you more than they would otherwise do by taking into consideration the guarantor's income.

This can be an ideal solution for parents who want to help their children buy a property but don't have a large cash sum available to give them as a deposit.

However, in order to apply for a guarantor mortgage you must have someone willing to trust you to meet your monthly repayments or face putting their own finances at risk so it's not something anyone should take lightly .

For more information read our guide: How can I help my children buy their first house?

4. Buy at auction

If you are good with a hammer and paint brush, then you could get a property at auction for significantly less than if you bought via your local estate agent.

Although you still need a mortgage and deposit to buy an auction property, if you are struggling to save a large deposit, a lower priced property from an auction would mean you need to pay less upfront.

However, while buying at auction can be a cheap way of getting onto the housing market, the type of properties on sale are usually ones that were unable to be sold on the open market.

Consequently this is only realistically a suitable option if you have the skills required and the time needed to bring the property up to scratch.

You will also need to factor in the ongoing renovation costs to your calculations, firstly as to whether you can afford the project and secondly if it will ultimately leave you out of pocket.

Whether the property will be worth the amount of money you paid for it plus the renovation costs after you've finished work can be difficult to know in advance and makes buying from an auction a riskier undertaking as a result.

If this is an option you are considering, make sure to research each property thoroughly before placing a bid, for more information read our guide: How to buy a property at auction .

5. Buy with friends or a partner

If you are starting to feel that buying a home on your own is too big a financial commitment then you could consider purchasing a property with a partner, family member or close friend.

Pooling your resources will mean that you have more financial clout when dealing with lenders and would each need to lay down a lesser deposit than if you were applying independently.

However, entering into a mortgage is a big financial commitment that shouldn't be taken lightly, simply put you will have to implicitly trust the person you buy with.

You should also seriously consider how you are going to hold the property on your mortgage deeds - this could make a vital difference should either you or your partner fall into financial difficulties and be unable to pay or die prematurely.

If the mortgage is held in joint names then you are both equally responsible for paying the full mortgage and if either party dies the other would retain sole ownership and liability for the mortgage.

Alternatively you can be listed as tenants in common where you each own 50% or the property and are separately responsible for paying your 50% mortgage payments.

You'll also need to consider how your investment will work practically. If you're buying with a partner this is unlikely to be such an issue, but if you're buying with friends or a family member you'll need to decide who will live in the property and what happens if one of you wants to sell or ask a partner to move in.

You'll also need to think about how you'll split bills, repair costs and other expenses that come with owning a home. It's best to address this up front before you make the commitment.

For more information in buying property with a friends or family member, read our guide Should we get a joint mortgage? Or Should I buy a house with friends?

Best of the rest

Shared equity loans & Help to Buy

If you have a small deposit a shared equity loan could make buying a home more affordable.

With a shared equity loan scheme you typically need a minimum 5% deposit but will then be able to borrow up to 20% of the property value to reduce the amount of money you need to borrow with a mortgage.

The UK government has recently launched a new Help to Buy scheme design help anyone with a small deposit to buy a property worth up to 600,000 to live in.

The benefits of a shared equity loan are that you will own 100% of your property from the outset, giving you the freedom to sell it at any time and repay the loan from the proceeds. 

This loan is typically interest free for the first 5 years before costing a fee of 1.75% plus the RPI. 

For more infomation read our guides: Help to Buy Mortgage Scheme Explained and Help to Buy Scheme: The Pros and Cons

Low deposit mortgages

While the days of 100%+ mortgages are seemingly behind us, at least for now, some mortgage providers are beginning to return to the higher lending market.

Some mainstream mortgage lenders are now offering 95% loan to value mortgages, meaning you only need to find a 5% deposit to qualify for a mortgage.

However, before considering a 95% mortgage you need to check whether you would be liable for a higher lending charge, that the interest rate isn't prohibitive, and that you'd be able to afford the monthly repayments.

You may find that you would be better off looking at an alternative way of getting on the ladder or continue saving until you qualify for a 90% LTV mortgage or a more attractive deal becomes available.

If you find that you do qualify for a 90% LTV mortgage then it is still essential to compare the different mortgages available, you can compare the best First Time Buyer mortgages using our First Time Buyer mortgage comparison table.

Delay & save

If you are in no rush to buy then your best option may be to save as much as possible now to reduce the amount you need to borrow at a later date.

Remember that the interest rate that you are charged will make a big difference to the cost of your mortgage and that you could save thousands of pounds by waiting until you are eligible for a lower LTV mortgage deal.

You should also use this time to pay off any outstanding debts you currently have, so that you can then afford to save more each month and reach your target quicker.

Doing this will also allow your money to work for your benefit once your debts are cleared, earning you interest rather than having to pay interest to the bank on credit cards or personal loans.

To make sure your savings are working as hard as possible, use our savings comparison table to compare the best savings accounts on the market and find the best home for your savings until you can afford to buy.

Make sure you can afford a mortgage before you commit

If you are struggling to save for a deposit, when you do start being offered different mortgage products you still need to consider if you can truly afford the monthly repayments.

You should also factor in the extra costs associated with a mortgage, including legal fees, moving costs and stamp duty.

For a step by step guide to buying a property try our Action Plan: How to buy a house which will guide you through each part of purchasing a property.

Responses

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Thanks to all for your replies

by cb7a, 6 Mar 2012

Can I get a mortgage using my restaurant ?

by ipell7, 5 Jun 2013

I applied for a shared ownership house, if they accept you the reservation fee payable was £250, this was deducted from the balance of £22,000 when I paid them the balance, the only other expense was rent of £165 a month....
I had an unexpected accident 2 years ago, worried about money I spoke to the HA and they helped me get a rent rebate from the council lasting 8 months before I went back to work, certainly made me feel less stressed

by maggi0, 3 months ago

I must say that overall I am really impressed with this blog.It is easy to see that you are impassioned about your writing.

by Pioneertraining, 3 months ago

Your work is very good and I appreciate you and hopping for some more informative posts. Thank you for sharing great information to us.

by Pioneertraining, 3 months ago

On the downside regarding house building insurance, my housing association insisted we all have the same Insurance Company, fine when it was £160 a year, but last year it jumped up to almost £400, I said to them you've got to be joking I am living on a pension, I went to Tesco and it cost £14 a month for Buildings and Contents, and I got a £50 gift card from them, ££££

by maggi0, 3 months ago
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