It's certainly become harder for renters to get on the housing ladder in recent years. This trend is predominantly considered to be due to rising house prices and a lack of available housing supply.
All of this has led to a rapidly growing rental sector, which has also been bolstered by more people embracing the flexible lifestyle renting allows.
However, many renters still want to own a property in the future. In fact, according to the English Housing Survey 2017-18, 58% of private renters expect to buy a home in the future, while 77% of those aged 16 to 24 said they planned to buy a home. Although it may be more difficult than in years gone by, getting on the property ladder needn't be a pipe dream for tenants.
There are a range of Government initiatives designed to make purchasing a home easier available to tenants, the best-known of which is Help to Buy.
What is Help to Buy?
Help to Buy was launched by the Government in 2013. It originally encompassed an Equity Loan scheme which allows first-time buyers to purchase a home with a lower than average deposit of around 5%, benefitting from an interest-free loan of 20-40% of the property's value.
It has since grown to incorporate a range of other initiatives including Shared Ownership and various Individual Savings Accounts (ISAs).
Despite courting controversy over its effectiveness, Help to Buy has been extended until 2023. Moreover, the Government claims that almost 170,000 people used the scheme to purchase a home between its 2013 launch and the end of March 2018.
How does it work?
Available only in England, the Help to Buy Equity Loan scheme allows buyers to purchase a new build home with just a 5% deposit. The Government stumps up 20% of the cost in the form of an interest-free loan (for the first five years of ownership), meaning the rest of the purchase can be made up with a 75% mortgage.
A typical example provided by the Government centres on a property valued at £200,000. The Equity Loan scheme would require the buyer to provide a 5% deposit of £10,000, while the Government would contribute a 20% loan of £40,000. The rest of the purchase would be covered by a 75% mortgage from a commercial lender at a value of £150,000. If this property were to sell in the future for £210,000, the owner would receive £168,000 (80% of the value from their mortgage and original deposit) and would be required to pay back £42,000 on the 20% loan.
The rules in London are slightly different due to higher average house prices. Purchasers using Help to Buy in the capital can get a loan of up to 40 %.
As well as first-time buyers, the Equity Loan scheme is available to those who have previously sold a home and those who have sold their current property before or at the point of completion on their Help to Buy home. The maximum cost of a new build home available through the Help to Buy Equity Loan scheme is £600,000. From 2021, Help to Buy property prices will be capped at one and a half times the typical first-time buyer home price in each region from figures set in the autumn of 2018.
Other options for tenants
This part of the Help to Buy scheme allows buyers to purchase a share of their home and pay rent on the remaining value. Using this initiative, buyers can purchase between 25% and 75% of a property using a mortgage.
Shared Ownership is only available to first-time buyers, existing shared owners or those who used to own a home but can no longer afford one. You also must live in a household with a total income of less than £80,000 a year (£90,000 a year in London).
The leasehold properties available through Shared Ownership are either new builds or properties being sold through resale programmes from housing associations.
Buyers using Shared Ownership are only required to raise 5% of the share that they are buying as opposed to the full value of the property. For example, on a property worth £250,000, the 5% deposit on a 25% share of the home (£62,500) would cost just £3,125.
The buyer would then be required to pay a monthly rent on the remaining 75% of the property's value. Buyers are also allowed to increase the share of their home they own (decreasing their rental payment), known as staircasing.
In most cases, you can staircase until you own the property outright. Currently you can only staircase in 10% increments, but the Government has plans to reduce this to 1%.
When it comes to selling a Shared Ownership property, you can do so at any time. Your housing provider will be given the first option to find a buyer. After an initial eight-week period, you will be able to sell your home privately.
The Help to Buy ISA
The Help to Buy ISA provides savers with the opportunity to receive a Government bonus of 25% when they come to purchase a home. This means you can receive a bonus of £50 for every £200 you save up to a value of £3,000.
You need to save a minimum of £1,600 in a Help to Buy ISA before you can claim the minimum bonus of £400. The bonus is applied when you are close to buying your first home and can be triggered by your solicitor.
The bonus is put towards the money you use to purchase your home at completion - it can't be used for the deposit due at exchange of contracts or for estate agent or legal fees.
Tenants are no longer eligible to open new Help to Buy ISAs, but if you opened one before December 1 2019, you can continue saving - and benefit from the Government bonus - until November 2029.
What steps do you need to take?
The key to benefitting from any of these schemes is saving regularly and as much as possible. Although saving for a home can seem like a challenge when you’re renting, it’s certainly not impossible if you are disciplined and have a strategy in place.
Once you start building up enough money for a deposit, you should do some more research about which Government scheme – if any – is best for you. What’s more, it could be highly beneficial to speak to a mortgage adviser about your options and how you can take the first steps towards owning your first property.