Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Can I afford a home? How to buy a cheap house
Annie
15th Aug 2024
Does such a thing as a cheap house even exist anymore? House prices continue to rise and mortgage lenders seem to have more demands on first-time buyers than ever. So, do cheap houses really exist – and if so, how can you afford one?
Here are some alternative ways you can afford a home – from self-building to property schemes, there’s something to suit every type of buyer.
- The rent problem
- Get cheap chain-free housing
- Help To Buy scheme
- LISAs
- Shared ownership schemes
- Self-build homes
- Property auctions
- Buying property with a friend or partner
The Rent Problem
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 33.
Rent increases – especially in London – have priced many out of the housing market. The average rent in the UK is over 30% of the household income – and in London, that rockets to a whopping 61%.
These figures mean there’s less left over in the month for other household costs: food, insurance, car maintenance, commuting costs, utility bills… how on earth do people save ANY money at all?!
Buying a house through the typical route means you’ll need at least a 5% deposit – or 10% if you want a decent rate. As the average house price in England is £309,512, Wales £222,295, and Scotland £199,971, that means first-time buyers need to save an average minimum of at least £12,000 (and that doesn’t include the cost of finding and buying a house, either).
Years ago, the Government introduced some policies like stamp duty holidays and Help to Buy to ease the housing affordability crisis. There was a reasonable uptake on these schemes – but the strict rules around them still limited who could access cheaper housing schemes.
More recently, there have been additional schemes introduced, like Lifetime ISAs and local councils expanding shared ownership schemes beyond local authority properties. Let’s take a look at how you could benefit from these options to buy a cheap house and get on the property ladder.
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. This often happens when a couple have moved in together and one partner needs to sell their old home, or someone has inherited a bereavement property and needs to sell it.
Chain-free housing is much easier to negotiate as there are only two parties involved: you and the vendor. You don’t have to worry about someone else’s property sale or purchase falling through – which often affects property chains – and you can be more flexible on exchange and completion dates. It’s much easier to get a cheap house this way as you can negotiate on price, too: they’re eager to sell!
Help To Buy
The Help to Buy scheme is now closed to new applicants – but if you opened a Help to Buy ISA before November 2019, you can still make the most of it!
The Help to Buy scheme helps first-time buyers save the deposit required for their first home. The ISA account lets you pay in a maximum of £200 a month (and an initial transfer of £1,200). The Government tops up whatever you’ve saved by 25%, up to a maximum of £3,000.
If a couple buying a home both have a Help to Buy ISA, they each get the bonus, taking the potential maximum bonus to £6,000.
You can then use your savings and the bonus to fund your deposit. You can’t take the money out for anything else (OK, you can, but you don’t get the bonus and lose any interest).
When you’re ready to buy a house, you’ll need to find a Help to Buy mortgage. When that’s agreed, your solicitor can arrange for the funds in your ISA to act as a deposit for your house – and claim the 25% bonus.
The scheme closed to new applicants on 30 November 2019 – but if you missed it, you can now access Lifetime ISAs instead.
Lifetime ISAs
Lifetime ISAs (LISAs) have taken over from Help to Buy ISAs. They’re designed to help you save for your first house – or your retirement.
You can save up to £4,000 each year into a LISA. The Government tops up a 25% bonus. Like a Help to Buy ISA, both people in a couple can have their own LISA and take advantage of the bonus.
The difference here, however, is that you can either use the funds like you would have on a Help to Buy ISA (to fund the deposit on your first home) OR keep saving into the account until you’re aged 50. You can then access the money when you’re aged 60 – meaning a minimum of 10 years’ accrued interest AND a 25% bonus. If you choose this route, you’ll access the money as and when you like – and unlike a pension it’ll always be tax-free (as it’s in an ISA).
The LISA was introduced to encourage people to save for their retirement. Getting onto the property ladder is seen as one way of protecting your future investments – while paying into savings you can’t access until you’re 60 is another.
You’ll sacrifice the 25% bonus and take a 6% hit on any money you withdraw that’s not for your first home or after the age of 60, meaning you’ll get back less than you paid in.
Unlike a Help to Buy ISA, which is a cash ISA, the LISA is a separate type of ISA. This means you can pay into your LISA as well as a cash ISA every year.
Shared Ownership
Shared ownership is where you buy part of a house and the housing association (or developer) owns the rest. You pay your mortgage and a small rent each month on the portion of the house you don’t own. It’s a cheap house option if you want to pay off your home over a long period of time.
You can ‘ladder’ your ownership, too. Over time, you can buy more of the property until you own up to 100% of it. This is a good way of getting onto the property ladder if you’re struggling to save a deposit, as you typically need only 5% saved. However, make sure you can afford both the mortgage and rent costs each month.
You can move house when you like – if you still only own part of the house, you’ll get the relevant proportion of the sale price. You usually have to offer the house back to the association before you can put it on the open market, which means you may not get the best value for it.
Local Council shared ownership schemes
Local councils used to limit shared ownership to ex-social housing properties. These days, however, many have opened up their shared ownership options to help first-time buyers purchase in their area. Properties may not even need to be listed by the council – some authorities offer a shared ownership option on ANY property. More commonly, however, councils will list suitable properties on their website. They’ll offer shared ownership in the same way as above – but it means you could buy a house that doesn’t fall under typical shared ownership requirements (i.e., part of a new build development or as ex-social housing).
Self-build a cheap house or tiny home
Around 11,000 people build their own home each year and you could be one of them. Don’t be put off by the term ‘self-build’ either – less than 10% of people who take this route actually get involved in the building part!
WHAT DOES SELF BUILD ENTAIL?
You need to buy a piece of land first. You’ll have to find land that’s near (or already connected to) mains supplies of water, gas, and/or electricity. If you find land in the middle of nowhere, connecting these essentials could be prohibitively expensive.
A good place to start looking is at land that used to have housing on it. There’ll be utilities connections nearby and you may be more likely to get planning permission for your home.
You could also buy land that already has planning permission for a house to be built on it. This will be more expensive than land that doesn’t have permission yet – but you may also get access to architect’s plans from a previous project that was never completed. This could save you serious cash!
Now, the median build cost of self-building a home is £270,000 – but the average market value for the completed home is £500,000. That’s a huge profit!
Much of the cost is in the land purchase, planning applications, and labour. If you’re willing to self-manage the building project, you can save around 20% of the total cost – and if you want to build some things yourself (if you have the experience) that’ll knock up to 40% off the total cost.
Design and build options
Self-building is a great way to design the perfect home you’ve always wanted. That, however, comes with a huge price tag. If you’re after a cheap house, you could look at pre-fabricated home options.
These are particularly ideal if you want a fast build and an eco-friendly house. Panels are constructed away from the site and then delivered and built in just a few weeks. The speed at which this occurs, plus the ‘cookie cutter’ process, slashes build costs.
Join the Tiny Home Revolution
If the eye-watering £270,000 average price tag put you off this idea – hold on!
Remember, that’s for the AVERAGE self-build home. Most self-builders build their own home later in life, when they want to build their dream ‘forever’ home. That means the properties are generally quite large with bespoke features.
Tiny homes, however, are a growing revolution. They can be mobile, like these, or you can simply buy a small land plot and get inventive with your space-saving designs. They’re a long-term cheap house, too: install solar panels or other environmentally-friendly features to reduce your bills and running costs.
If you opt for a pre-fabricated tiny home self-build, you could have your entire house built in less than 24 hours. Seriously!
Self-build mortgages
You can still get a mortgage for a self-build project, but the terms are different. You’ll also get the money in stages rather than as one lump sum.
Property auctions reveal cheap house gems
We’ve all watched Homes Under the Hammer at some point. That’s what auctions are about: finding a cheap house in need of a little (or a lot) of renovation for well-below market price.
Harder-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 though, this option does involve a considerable amount of effort and could be a huge financial project. If you’re willing to put the time and energy in, you really stand a chance of saving some serious cash.
You can now buy houses using the ‘modern method of auction’ too. That means you’ve got a bit longer (28 days) to confirm a mortgage for your purchase.
A traditional auction means you’ll need serious funds in your account when you’re already at the auction house – but the ‘modern method’ gives you extra time.
You’ll not usually be able to conduct lots of surveys on your auction property before it sells (and if you do, there’s no guarantee you’ll be able to buy the house on the day if someone outbids you).
However, there are some real bargains to be had!
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. It’s not a way to get a cheap house, but it’ll certainly get you on the way to buying your own home in the future.Two wages are better than one, especially if you’re looking to get a fairly large mortgage; 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 (or up to four, on some mortgages) 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(s) automatically inherit that person’s share of the house. No will written by the friend and co-owner giving it to 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 costs of buying a property and your mortgage repayments.
Both these options can help get yourself on the property ladder. You’ll also benefit from potential future profits and have the security of owning property.
If you found this article about how to get a cheap house 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.
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.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
Some good sounds advice.