If you are not able to build a big enough deposit and starting to feel that owning your own home is just a pipe dream, do not despair. Here are several ways to get onto the property ladder without a hefty lump sum.
Updated on 27 May 2015.
Getting a foot on the property ladder can be a tricky business if you are 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.
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.
- Positive: You only need a low deposit and a lesser mortgage than normal which can make buying a property achievable if you are struggling to save up.
- Negative: You will only own part of the property. The other part will belong to the shared ownership provider - although you will usually have the right to buy the remaining equity at some point.
- Eligibility: 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 will need to find out what your chances are before you get too excited about the prospect of owning your own home.
Shared ownership schemes will be available on certain, specified properties either as part of a new development, or on offer from a local authority. Therefore you cannot simply find a property you like and then apply for a grant to buy it.
- Are there any extra costs? You will also need to factor in the cost of rent on the part of the property you do not own. This is unlikely to be a significant amount but it will impact how affordable this type of scheme is for you.
- Verdict: Despite this, shared ownership schemes can be an affordable and accessible way of getting on the ladder if you would otherwise struggle to do so. For this reason they are definitely worth investigating.
For more information and help deciding if a shared ownership scheme could be for you, try 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.
New build home deals
There are schemes specifically offered by construction companies and property developers that differ from shared ownership schemes in that you will usually be able to buy the whole property, rather than just part.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs by comparing the best rates available.Compare Mortgages
- Positive: 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.
- Negative: You will need to make arrangements to repay the property developer after the loan term is up, so you could be left with a large outstanding sum to pay if you do not save up throughout the term.
For example; the housing developer may lend you 20% of the property value and ask to be repaid in 15 years.
- Eligibility: Exactly the type of offer you will 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.
- Are there any extra costs? No.
- Verdict: 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.
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.
- Positive: You can get a mortgage with the financial backing of a guarantor to support your application.
- Negative: You must have someone willing to trust you to meet your monthly repayments or face putting their own finances at risk so it is not something anyone should take lightly.
- Eligibility: 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.
- Are there any extra costs? No, however, 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.
- Verdict: This can be an ideal solution for parents who want to help their children buy a property but do not have a large cash sum available to give them as a deposit.
If you are lucky enough to have parent's willing to help, point them in the direction of our guide, How Can I Help My Children Buy Their First House?
Buy a house 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.
- Positive: If you are struggling to save a large deposit, a lower priced property from an auction would mean you need to pay less upfront.
- Negative: 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.
- Eligibility: You still need a mortgage and deposit to buy an auction property.
- Are there any extra costs? 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.
- Verdict: Whether the property will be worth the amount of money you paid for it plus the renovation costs after you have 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, and you find out more about how to buy a property at auction here.
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.
- Positive: 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.
- Negative: Entering into a mortgage is a big financial commitment that should not be taken lightly, simply put you will have to implicitly trust the person you buy with.
- Eligibility: 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.
- Are there any extra costs? You will also need to think about how you will split bills, repair costs and other expenses that come with owning a home. It is best to address this up front before you make the commitment.
- Verdict: You will also need to consider how your investment will work practically. If you are buying with a partner this is unlikely to be such an issue, but if you are buying with friends or a family member you will 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 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.
Whether you are considering getting a joint mortgage or buying a house with friends, our guides can help you work out if they are the right option for you.
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, offering 95%+ LTV mortgages.
- Positive: 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.
- Negative: The interest rates and fees tend to be significantly higher for 95%+ loan-to-value mortgages, therefore you may 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.
- Eligibility: A good credit score and income level to pass the mortgage application process.
- Are there any extra costs? You need to check whether you would be liable for a higher lending charge, that the interest rate is not prohibitive, and that you would be able to afford the monthly repayments.
- Verdict: This type of mortgage is extremely attractive to potential homeowners who are not in a position to save up for a big deposit.
If after saving you find that you 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.
Help to Buy
The UK government offers a Help to Buy scheme that is designed to help anyone with a small deposit buy a property worth up to £600,000 to live in.
- Positive: You get a government backed lift onto the housing ladder, and buy a home with a deposit as small as 5% of the property value.
- Negative: This loan is typically interest free for the first 5 years, but then starts charging a fee of 1.75% plus the RPI for the remaining term of your mortgage.
- Eligibility: This lending option is available to anyone aged over 18 years old with a good credit score, as long as they intend to live in the property and do not already own an existing property.
- Are there any extra costs? No.
- Verdict: This option is a popular lending source for many new homeowners. You can find out more about the Help to Buy Mortgage Scheme here, and we also run down the pros and cons of the scheme in this guide.
Shared equity loan
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.
Help to Buy ISA
A new Help to Buy ISA was announced in the 2015 budget which offers first time buyers a 25% bonus when saving toward a deposit.
Under the scheme, which will be available from autumn 2015, the government will add an extra £50 to ever £200 you save. Check out our Help to Buy ISA guide for more information.
Not quite ready to buy?
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.
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.
When you have saved up a deposit, it can be tempting to use it all to get the best possible mortgage deal. Read this guide for advice on how much of your savings you should put down as a deposit.
Be 100% sure 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 guide How to buy a house which will guide you through each part of purchasing a property.
Written by Martin at money.co.uk