Beat the buying barriers

First-time buyers are finding ingenious ways of getting on the property ladder, as orthodox routes of saving for deposits and borrowing for mortgages are being outstripped by house price inflation.

With housing indices from the Halifax and Nationwide forecasting annual increases still exceeding 10 per cent by Christmas - even after the slowdown of 2002 - first-time buyers remain squeezed.

'Despite affordable mortgage rates, high house prices are making it difficult,' admits Michael Coogan of the Council of Mortgage Lenders. 'Only 174,000 first-time buyers entered the market in the first half of 2003, compared with 253,000 in the first half of last year.'

Separate evidence from analysts at FPD Savills (see box right) shows that in London and southern England, the measure of affordability - the proportion of household income spent on mortgages - is at worryingly high levels among such buyers. 'In some regions they're spending as much as 37 per cent. Those taking 95 per cent loans are in an even worse predicament,' says Richard Donnell, Savills' head of residential research.

The consequence is that increasing numbers of first-time buyers are resorting to unusual approaches, especially to find deposits for buying (paying the mortgage is often less costly than paying rent on a comparable property in today's market).

The Halifax says the average price paid for a home by a first-time buyer is now £103,294, 128 per cent higher than 10 years ago (£45,249). The average first-timer now puts down a deposit of £18,950, compared to just £5,433 10 years ago.

As our case studies show, many first-timers now join with friends or colleagues to find a deposit, sometimes relying on developers' deals. Others even build their own properties or become landlords instead of owner-occupiers in a bid to use rent and capital income to raise long-term affordability prospects.

The position is not entirely bleak - Donnell says demographic changes mean there are fewer 25-to-34-year-olds anyway, while divorce and lifestyle changes also encourage younger people to wait longer before buying, out of choice rather than necessity.

Even so, the short-term future for those wishing to buy remains pessimistic. 'We don't foresee any major re-correction in UK house prices and it's inevitable that affordability constraints will continue to be a major barrier to first-time buyers.We expect their average age to increase beyond the current age of 33,' says Donnell.

Do it yourself and end up in profit

The self-builders

Gary Taylor and Lucinda Ratcliffe live with their parents in Norfolk, but will
move into a new detached house - one they are
building themselves.

'It's all down to my grandfather,' according to
Gary, 24, who runs a newsagents' business owned
by his father, Alan, the former West Ham
footballer who scored the side's two goals in the
1975 FA Cup final victory over Fulham. 'One day
he told my father he'd happily hand over a plot of
land he had when he ran a caravan park.'

The plot is just over 5,000sq-ft and would cost
?80,000 on the open market. Now Gary and
Lucinda, 23, an airline sales agent, have hired
builders to construct a three-bedroom detached
property.

The couple have a ?75,000 self-build mort gage
from the Norwich and Peterborough building
society, and calculate that the build cost will be
?70,000, leaving ?5,000 for contingencies. The
property will be worth an estimated ?240,000
when it is finished at the end of this year.

The investor

Rupert Provest, 30, works in Surrey but rents
in south London. He looked at several apartments
for sale in the capital but could not afford one.
Then he decided to buy elsewhere and rent out.

'I realised I could afford a flat in Weybridge [in
Surrey] even though I wasn't really sure I wanted
to live there' he says. He paid a 15 per cent
deposit on an ?80,000 studio flat in a residential
block on Weybridge high street and is now
renting it out. He pays ?360 a month on his 85 per
cent buy-to-let mort gage but gets over ?500 a
month in rental income.

Provest, a former estate agent in Surrey now
working for RPI investment advisers, manages the
property himself. 'It could be a great long-term
investment. It's the last remaining residential
building on the high street and it seems obvious
it'll be wanted for commercial redevelopment in
the next few years. Even if that doesn't happen,
the capital value will appreciate,' he claims.

He wants to invest again, while still renting
himself and says: 'Ultimately, it might help me
afford a place in London. The biggest task now is
saving for the next 15 per cent deposit.'

The sharers

Mitesh Parikh and Amanatey Sogbodjor, both
24-year-old graduates, met during employment
interviews in London. They were offered jobs and
each wanted to live near the City but with limited
savings they could not afford to buy, until they
pooled their resources.

They put down ?500 each on a Laing Homes flat
in Hackney, north London, when the developer
was offering a deal 'off plan' - that is, before
construction work had finished. The deal included
paying a ?10,000 deposit on the ?200,000 property,
leaving Parikh and Sogbodjor to get a ?190,000
mortgage.

'A few banks were cautious but most were
helpful. Eventually, because a big finance house
had offered us jobs and the flat wasn't going to be
finished until after we started work anyway,
NatWest was prepared to give us a joint
mortgage,' he says.

The pair bought the flat as 'joint tenants',
meaning they own it 50:50 and each pays half the
mortgage and outgoings.