MoneyMagpie

Jul 31

Can I afford a home? How to buy a cheap house

There are more ways than you might think to find cheap houses. So, if you’re struggling to find what you need the conventional way (especially if you’re a first-time buyer), here are a few alternative approaches you could consider to find more affordable homes without compromising on getting the property of your dreams.

 

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Being a first-time buyer (FTB) is hard work. Since the financial crash in 2008 banks have been much more restrictive over who they loan mortgages to and have been asking for higher deposits. This means that FTBs have to raise more cash for a mortgage as rental prices reach record high rates, especially in London.

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Paying over the odds in rent has left many house hunters unable to save for a large deposit, pushing back the prospect of home ownership until later in life. New figures show that wannabe home buyers estimate they won’t be able to own a property until they reach the age of 37.

The housing affordability crisis has left millions of people struggling to get their foot on the ladder and some 35% of those polled by a price comparison website believe they will never be able to buy their own home.

The government has introduced a wave of reforms to try and ease the housing crisis and inject a bit of life into the stagnant property market but first-time buyers need more help.

First there was the stamp duty holiday which relived buyers of paying stamp duty on a home purchased for less than £250,000. This was introduced in 2010 but reverted back to standard rates in 2012.

Since then, the government has introduced the FirstBuy scheme and a number of new incentives to help potential homeowners. Plus, there are loads of great ways you can find a cheaper property and here are just a few of them:

 

 

Chain-free housing

A ‘chain-free’ property is one where the seller does not need to purchase new property after the sale, which means that your housing deal does not depend on lots of other buyers who at any stage could break the chain and collapse your purchase or sale.

One of the main benefits of chain-free housing is that it usually comes about from repossessions or when a person acquires a house through part exchange and is keen to sell. This makes them much simpler to purchase as it just relies on two parties coming to an agreement.

Property Earth lists a huge range of chain-free properties from around the UK. Prices start as low as £20,000 for a one-bedroom flat, while the most expensive property on the site is currently in the millions. There are plenty of reasonably-priced properties on there for you to have a browse throughr. Once you find a place you like you simply contact the estate agent involved.

FirstBuy Scheme

The FirstBuy scheme was set up by the government to help buyers get their foot on the property ladder. It means that FTBs will only need to raise a 5% deposit, the only condition being that it must be a new build being sold for the first time and valued at less than £500,000.

You can’t use the scheme to buy a second property or for shared ownership or shared equity purchases. In a bid to create more new builds, the FirstBuy scheme only applies to properties which were constructed by a builder taking part in the scheme too.

The best thing about the scheme is that you don’t have to be a first-time buyer and there’s no limit on your level of income. But you can’t use the scheme with any other publicly-funded mortgage schemes.

All you need to do is apply for a mortgage from an approved lender. The lender will check if you can afford to repay it and if you meet the criteria you could be able to get a 95% Loan-to-Value (LTV) mortgage

 

Help To Buy

The government is also running a Help To Buy mortgage guarantee scheme. This is effectively the same as the FirstBuy scheme offering a 95% LTV mortgage and requires only a 5% deposit, but you can purchase properties up t0 £600,000.

The £130bn loan scheme aims to help aspiring home owners struggling to get a mortgage and starts with an interest-free loan worth 20% of the value of a new-build house. This means that borrowers must raise the 5% but can also get a further 20% interest-free loan from the government.

The biggest loan available will be £120,000 and must be repaid when the property is sold or within stages at least 12 months after the property was purchased. After five years the interest hits 1.75% and will rise by the annual RPI of inflation plus 1%.

Another scheme, The New Homes Bonus, aims to deliver 140,000 new homes over the next ten years. According to the Department for Work and Pensions, this will increase the supply of housing by between 8% and 13% – so maybe within the next ten years housing will be more affordable, giving you plenty of time to start saving!

 

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Self-build

Over 25,000 people build their own home each year and you could be one of them. Anyone can take on this sort of project – you don’t have to be a builder, just be willing to look for land, bring in an architect and have the patience to project manage the work while the house is being built.

What does Self Build entail?

Buildstore believe you can build a detached family home for less than £200,000 which includes the cost of acquiring the land and building the house.cheap house

A well-run self-build project should see the final value of the home increase by 20-30% on original building and land costs. The Buildstore site is full of success stories for you to check out. For more information on how to build your own home, check out the Self Build ABC website and Build It magazine. These will advise you how to find a plot of land, manage the project and get help from a self-build company and their architects.

Alternatively, make it easier for yourself and get a flat-pack home. These are increasingly popular and there are now lots of designs to choose from.

There’s still a lot of building involved but a lot of the work is done for you, and your house can be assembled in a mere ten weeks! Flat-pack homes can cost up to 25% less than conventional homes so it’s easy to see why many people are going down this route.

There are loads of companies around the world making kits in all kinds of materials (timber, obviously, but also metal structures and some using former freight containers!), and it’s worth researching what’s out there. Click here for a helpful guide on getting started with a flat-pack home.

 

Top tips for self-build success

  • Make sure you check out your self-build company on the appropriate websites and in magazines first.
  • Look at magazines like House & Garden and the Homebuilding & Renovating magazine for inspiration.
  • There are lots of mortgages on the market for self-build schemes and many lend up to 95% of the cost of building.
  • Have a look at This is Money’s advice on getting mortgages tailor made for self-builders.

 

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Property auctions

cheap houseHarder-to-sell properties in need of a bit of TLC are often offered at competitive ‘reserve’ prices well below market value. As well as the money-saving bonus, auctions cut out the usual long drawn-out process of house buying.

Beware thought, this option does involve a considerable amount of effort and could be a huge financial project, but if you’re willing to put the time and energy in, you really stand a chance of saving some serious cash.

 

So, how do you buy a house at auction? See our nine-step guide to buying at auction.

 

Buying with a friend or partner

If other options sound too much like hard work, you should consider joint ownership – a great way to get on the property ladder if you’re a first-time buyer. Two wages are better than one, especially if you’re looking to get a fairly large cheap homemortgage; but beware, money matters between friends and lovers can lead to problems!

Obviously you need to know you can stand living with them day in, day out. Even if they’re wonderful, you should get things ironed out by a legal expert to protect you both.

According to the law, you can own a house with someone else either as joint owners or as tenants-in-common. Although they sound the same, legally there’s a very important distinction.

 

Joint owners

Two people own the whole house between them. Neither has a separate share they can sell. There’s no fancy word or process to describe this. If one of the owners dies, the other automatically becomes the full owner of the house; no will written by the friend and co-owner giving it to his family can change that. This is a common type of ownership between married couples.

 

Tenants-in-common

This is when you both own half of the house (or a different percentage depending on what you agree). So each owner has a distinct share of the house meaning that if one of the owners wishes to leave his or her share to someone else they can. The other person cannot just sell the house and get all the money. It has to be divided up according to the percentages agreed.

So, if you’re cohabiting or are just friends trying to save money by living together, this protects you both.

If one wants out, the other owner will have the option of buying up their share of the property too.

Joint ownership means you can share your all your bills, the initial legal costs of buying a property and your mortgage repayments.

Both these options can help get yourself on the property ladder, have a real investment in your property and of course the potential to make a profit if and when you decide to sell.

If you’re a first-time buyer, and would like specific information on any of these options, check out First Rung Now.

 

If you found this article useful, you’ll love Alternative ways to get your own home.  It’s packed with ideas for how you can buy your own place even if you can’t get the deposit together. Discover alternative ways to get your own home now!

If you’ve tried your hand at housing auctions, self-builds or joint ownership, we’d love to hear about your experiences via our Facebook or Twitter pages.

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