Rent or buy? The challenge of access to housing
Rent or buy? The challenge of access to housing

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Rent or buy? The challenge of access to housing

3.6 Making home purchase more affordable

Meiling (who you met in Activities 7 and 8) has been lucky or thrifty enough to save a substantial sum for a deposit. Her secure, reasonably well-paid job means she can probably manage the repayments on the mortgage she needs. But what if her circumstances were different? Are there ways to make her home purchase more affordable?

For some people, family, particularly parents, might be willing and able to help. For example, parents who can afford to might agree to act as guarantor for the mortgage loan, which means that they agree to take over the mortgage payments if Meiling couldn’t pay them. Governments, housebuilding firms and social landlords may also help.

Activity 9 Help with home buying

Timing: Allow about 25 minutes

Videos 1 and 2 below describe two of the types of help available to home buyers in the UK in 2018.

Video 1: Help to buy: how does it work? [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]

Download this video clip.Video player: Video 2
Skip transcript: Video 2 Help for homebuyers in the UK: shared ownership

Transcript: Video 2 Help for homebuyers in the UK: shared ownership

MAN [cartoon character]
[LAUGHING]
WOMAN
What’s so funny?
MAN
The thought of getting on the property ladder with prices like these.
WOMAN
I’m not laughing. I’ll never be able to afford a place of my own.
MAN
Come with me. I might be able to help.
Ever considered shared ownership?
WOMAN
Are you asking me to move in with you?
MAN
Not with me. I mean shared ownership with Southern Home Ownership.
WOMAN
Well, what is it?
MAN
OK. Here’s how it works.
WOMAN
Oi!
MAN
To buy one of those expensive homes, you need to get a mortgage, and a deposit for the whole of it.
WOMAN
OK. And what’s that got to do with my chocolate?
MAN
With shared ownership, it’s much simpler. You start with buying a chunk of the home, let’s say a 25% share.
WOMAN
Oh, so I only need to raise the mortgage on the share that I’m buying?
MAN
Correct.
WOMAN
And therefore, the deposit I need to save would be much lower.
MAN
You got it.
WOMAN
Well, it sounds amazing, but who owns the other 75%?
MAN
Southern Home Ownership to begin with. They charge a discounted rent on the share they still own. And suppose in the future, you saved some more money, you can buy another chunk.
WOMAN
So then my rent would go down.
MAN
Yes. You can keep buying more until you own your own home.
WOMAN
Cool! I’ve got a home I can afford, and my chocolate back. Tell me more about Southern Home Ownership.
MAN
Southern Home Ownership will work closely with you throughout the process. Southern are always there to help.
WOMAN
Well, having help and support throughout sounds great. It all sounds so simple.
MAN
Simple, and the solution you've been dreaming about.
WOMAN
OK, so what do I do now?
MAN
Stand back please. Contact Southern Home Ownership. It’s that simple.
End transcript: Video 2 Help for homebuyers in the UK: shared ownership
Video 2 Help for homebuyers in the UK: shared ownership
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When you have watched the videos, look at the table, which lists some types of help that may be available for homebuyers. Thinking back over what you have learned in this course so far, select whether each helps with the deposit, reduces the mortgage payments or both.

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Discussion

Here’s a summary of the different forms of help with home buying:

  • Lump sum cash gift from parents: Parents often borrow against their own home or draw money out of their retirement savings to do this. It is typically used where the homebuyer does not have enough money for a deposit. But, by helping with the deposit, less mortgage is needed and so this also helps to reduce the monthly payments.
  • Government equity loan: In the first video, you saw how the government provides a loan to cover part of the deposit. This enables the homebuyer to put up a smaller deposit and take out a smaller mortgage, reducing the monthly payments. But the government takes a share of the proceeds when the home is sold.
  • Family offset mortgage: You looked at offset mortgages in Section 3.2 above. With a family offset mortgage, parents or other family members open a savings account with the mortgage lender. The balance of their savings is deducted from the borrower’s outstanding mortgage before interest is calculated. This reduces the monthly payments.
  • Shared ownership: As you saw in the second video, the homebuyer only buys part of the home, reducing the size of both the deposit and the mortgage. The remainder of the home is rented, typically from a social landlord at a subsidised rent. As a result, monthly spending on the sum of the mortgage and rent is lower than spending on the mortgage payments for buying the whole home would have been.
  • Parents act as guarantor: Mortgage guarantors must usually use their own home as security for the guarantee. With such a guarantee, the mortgage provider may be willing to lend a larger amount, reducing the deposit required, but likely increasing the monthly mortgage payments than otherwise.
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