Let’s talk about the housing crisis and the burden to start your independence as a young person. On the BMoneywize blog we discussed the impact money can have on your mental health, this time we’ll discuss the realities of trying to get out of your parental home in London.
As we all know, the price of home in the UK is ever rising and becoming increasingly impossible to afford for many. There is a shortage of affordable housing and this is often attributed as the reason for the housing crisis. You may have noticed that all over London developers are building apartment complexes of 1-3 bedrooms near train stations. I’m sure this is not a co-incidence… they sometimes advertise that they are ‘Help to Buy’ friendly. This is a solution though, depending on your long term plans. The average price of a property in the UK has grown by 4.2% according to the UK Housing Index. This doesn’t sound so scary when you take into account that the average house price is £224,144. But, the average house price in London was actually £478,853 in May 2018 and £707,848 in November 2018, which quite accurately suggests we have it harder here than the rest of the UK. A young person on a decent salary of £23,000 a year will only be given a mortgage of around £100,000. Even two young people, for example a young couple, will only be able to secure around £200,000. So how do we stand a chance of getting on the property ladder in London? That’s why the ‘Help to Buy’ scheme and shared ownership arrangements have become increasingly popular.
Let’s hope Brexit pulls the house prices down?
Help to Buy:
This is a government scheme that has been in effect since 2013 that wanted to help those who could not afford to buy a home do so. Believe it or not, this applies to many people, with the cost of getting on the property ever rising. Since 2013, the scheme has helped many buy homes in London by offering up to 40% of the capital needed for new homes up to £600,000. Today the scheme continues, but there is a revision coming in 2021 which will exclude the scheme to only first time buyers. The revision will also the cap the value of homes that are eligible for the scheme (except in London). The scheme essentially gives you an interest free loan of up to 40% of the property value for 5 years. After which time the interest kicks in. Sounds attractive doesn’t it? Make sure you do some more research before jumping in, as there are many hidden costs associated with this scheme, such as the fee for exchanging contracts. You’ll thank me later.
Tenants Fees Bill:
This bill has been thrown around and discussed for a few years now, essentially it aims to change the way that renting happens. It’s not a secret that are many fees associated with renting. As a student, once you are living off campus, you are thrown into this environment where you have to read tenant contracts. It’s strange, but also great preparation for real life where you may want to rent a place – either with friends or alone. Some of the associated costs are a huge holding deposit, referencing fees, credit check fees, exit fees, lost keys fees and repair fees. Coming into effect in June 2019, the Tenant Fees Bill will effectively cut down most of the costs that come with renting, allowing it to be accessible and easier. Landlords will only be able to charge a maximum of 5 weeks rent for a deposit, one weeks rent for a holding deposit, and charge for things like lost keys.
The shared ownership is another option often offered by developers as a way of getting onto the property ladder and making a start in owning your own home. Shared ownerships tend to be for around 25% – 75% of the property. Doesn’t it just sound attractive? There are some things that need to be considered though, as you will need secure a mortgage to buy your chosen percentage, continue to pay that mortgage but also pay rent that is usually calculated at 3% of the remaining property value. So effectively, while you part own the property, you pay rent on the part you do not own. It’s arguably better to buy a larger percentage in the first place, as it is better to be paying a mortgage (which can be seen as an asset), rather than paying rent that does not contribute to your ownership. There are many shared ownership opportunities all over London, so keep an eye out for those if that’s a route you’d like to go down. Bare in mind you will need to get the property valued, hire a conveyancing solicitor and factor in any moving fees into your budget. You may be able to get a 5% mortgage and a free home valuation though, depending on the bank you go to. Please shop around, it’s important to pay attention to interest rates, product fees and the length of the mortgage.