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

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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)]

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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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