When I hear news about the housing market, it triggers a Pavlovian response in me. Having rented for the past 7 years, I want to be able to own my own home again. But how will I be able to do this?
As I’ve mentioned previously, we don’t even have a credit history, so we’ll need to establish that before we can even think about qualifying for a mortgage. I’ve only been working for 3 months, so my employment history is also sketchy. I’ve looked into renting to buy and shared ownership and wonder if this may be the way for us.
In the US, there are so many opportunities to “Rent to Buy”, but it’s not readily available in the UK. Rent to buy in the US is open to everyone, but there are restrictions in the UK. Apparently, the only way to do so in the UK is through the government’s HomeBuy scheme.
This program is run by the local housing associations. It is open to everyone, but priority goes to social tenants and key workers. Certain restrictions do apply. For example, your household income must not exceed 60,000 GBP. Key workers are those employed by certain organisations who have priority with the HomeBuy scheme, such as the NHS, education, police, etc. In order to be considered for this program, you need to apply with your local housing authority. They will inform you when there is a property available that matches your requirements. Most homes are new builds, but some are existing council homes.
The HomeBuy scheme has several options. It allows you to either buy into a shared ownership or rent-to-buy.
In the shared ownership, you buy a certain percentage share of the house, usually 25-50%, which means you need to obtain a mortgage based on a smaller amount; therefore, your down payment and monthly mortgage would be smaller. You are responsible for obtaining this mortgage. While paying your mortgage, the housing association also charge you rent for the remaining portion, but this amount is relatively small, and perhaps a nominal service charge. As your circumstances change, you may be able to buy further shares on the property in the future, perhaps reaching the full value of the house.
Some housing associations allow you to “try before you buy”. That is, they allow you a certain period to rent the property, then buy it if you like it later. It is expected that you buy into it after the trial, but if it does not work out, you are probably expected to move on. Some give discounted rent for a certain period, such as a year, allowing you to accumulate enough savings to buy into the shared ownership. Renting to buy gives you the flexibility of not needing an upfront down payment.
Reasons that you may want to join this scheme include the desire to own a home, the need to upgrade to a larger home as your family grows, or to get reduced rent. You need to be able to show that without this scheme, you would not be able to get onto the housing ladder. That is, you are unable to enter the open market. However, you also need to show good financial standing – the ability to pay rent and all other bills. If you are in arrears, you will need to attend to them before trying to apply for the program. Also, keep in mind that if you are not already living in a certain location, you may find it difficult to buy or rent into the area unless you are a key worker or you have recently transferred work into that area.
Different housing associations will have different programs, but the essentials are as above. Not all available homes are available to everyone – some exist only for certain groups of people. Housing associations have a very limited number of homes. I looked into what’s available in our county and only 3 came up, none of which are nearby.
But there are other obstacles. First of all, if you want to buy, you need to be able to have access to at least 3500 GBP, the amount necessary to pay for all the applicable fees of buying a home. You will still need to come up with a small down payment and to apply for a mortgage. There is no guarantee on getting a mortgage in these current market conditions. Rent to buy sounds appealing but I know that new builds have very small rooms and we are a growing family. And, although my income falls into eligibility, there is the possibility that it may increase or if my husband gets a job, our total income may exceed the eligibility requirements. What happens to our application then? Or, if we are already in a shared ownership, how would that affect it?