Alternative ways to buy a house and get on the property ladder

What is the 'traditional way' to buy a property?

Here in the UK, the traditional way to purchase a property is with a standard repayment mortgage, in which you will put down a deposit for your chosen property (typically 10% of the property price, but up to 25% for a new-build), and borrow the rest from a mortgage lender. Your loan is then paid off in monthly instalments to the mortgage lender over a number of years. You will also have to pay interest on top of the loan. 

For example, say you borrow £200,000 to buy a house, and your mortgage loan will be repaid over 25 years. Based on a 5% interest rate, your monthly repayments will be £1,169.

Learn more: How much do I need for a deposit?

Read more: See today’s best rates from across the market here

Sounds pretty good, so what's the catch?

Despite all this, a standard repayment mortgage limits your borrowing total to 4-4.5x your income (which might limit you from being able to afford a starter home in your area, let alone your Barbie Dreamhouse). 

Rewind a couple of decades to when your parents or grandparents were purchasing a home, and borrowing 4-4.5x their household income was enough to afford to buy. But since then, property prices have risen faster than wages, which means the gap between how much houses cost, and what people can borrow for a mortgage has grown. We call this the “affordability gap”. 

This gap between what houses cost and how much you can borrow can make it impossible to get on the ladder using a traditional mortgage. But, are there non-traditional options available for first-time buyers to find their way onto the property ladder?

At Tembo, we focus on finding mortgage options for everyone, whether you’re buying on your own, with a partner, friend, sibling, with the support of loved ones, or without. With these alternative options, we aim to help our customers get a mortgage faster and for less.

What are the alternative ways to buy a house?

Since the end of the Help-to-Buy scheme, some of the most affordable alternatives to a standard repayment mortgage are not super well-known. When buying your first place and stepping onto the property ladder, we believe its best to be well-informed of the alternatives available to you: Lifetime ISAs, guarantor mortgages, part-buy, part-rent schemes, and enhanced borrowing.

Lifetime ISA

For many, a Lifetime ISA (or LISA) is a great way to save that extra bit (tax-free) for a deposit and get on the property ladder sooner. A LISA is a savings account that lets you save up to £4,000 each tax year to be used on the deposit for your first home or retirement fund. Whatever funds you transfer into your LISA, the government will top up your account with a bonus of 25% of your savings every month (maxing out at £1,000 every tax year). 

Want to work out how much you could save every month with a LISA? Try our Take Home Pay Calculator

A Lifetime ISA is available for anyone from the age of 18-39, and can only be withdrawn for a first-time home buyer’s deposit, or for your retirement (in which case it's inaccessible until you’ve turned 60). 

Learn more: What is a Lifetime ISA

Guarantor mortgages

Sometimes, our loved ones are in a position to help us get onto that first rung of the property ladder. There are lots of different ways a family member could help you buy your first home through a guarantor mortgage. 

If your current borrowing capabilities are restricted by your income, one option is an Income Boost. Also known as a Joint Borrower Sole Proprietor mortgage (JBSP), an Income Boost allows a loved one to add some or all of their earnings to your household income, to increase your borrowing limits (and your buying budget).

Worried about the implications on your loved ones finances? Don’t worry, your loved ones are not considered an owner, so there aren’t any  tax implications and the mortgage repayments are solely your responsibility (unless you are unable to pay them, at which point they would be required to step in). 

If you have a loved one who wants to help you buy a home, and they are a homeowner themselves, you could also use a Deposit Boost. Using a small mortgage, they would release money locked up in their property to gift to you as part of, or all of your house deposit. With a larger house deposit, you can get on the ladder sooner, and potentially access better interest rates which will make your repayments more affordable.

If your family does have cash savings, they could use a Savings as Security mortgage to help you get on the ladder without having to save up a house deposit yourself. Also called a Family Guarantor Mortgage, or Springboard Mortgage, these allow your loved ones to put 10% of the property value into a special savings account held by the lender for usually 5 years. As long as you make your monthly repayments, they will get their savings back at the end of the fixed period, plus any interest that has accrued in that time.

Part-buy, part-rent schemes

If you’re currently struggling to save up a large enough house deposit, and your loved ones are eligible for higher lending schemes, shared ownership (or a part-buy, part-rent schemes) might be the one for you. Shared ownership allows first-time buyers to purchase a share in their dream home (usually 5-25% of the full property value), and then pay rent on the rest. If you receive a salary increase or a sudden windfall of some extra cash, you can “staircase” up your equity share until you own the home outright. 

Learn more: Risks and benefits of shared ownership

Enhanced borrowing

The good news is for some borrowers, it is possible to borrow more than the traditional 4-4.5x your income for a mortgage. While with a standard repayment mortgage, you can only borrow 4-4.5x your income, with a 5.5x Income Mortgage you can borrow up to 5.5x times your household income (pretty much as it says on the tin). This means that your potential buying budget would be increased by up to 20%, without needing help from family or friends.

Plus, you only need a minimum 5% deposit saved up! The catch is these mortgages are reserved for higher earners, so you have to have an income of at least £37,000 as a solo applicant, or £55,000 or more as a couple. You can also only get a 5 or 10-year fixed-rate deal, meaning your initial interest rate will be locked in for that time. 

Learn more: Benefits and Considerations of 5.5x Income Mortgages

Another way of increasing your borrowing limit is through your line of work. A Professional or Key Worker Mortgage scheme allows borrowers to increase your borrowing amount up to 5.5x your salary for professions such as vets, doctors, lawyers, NHS workers and firefighters. This is due to these occupations being regarded as lower risk (as they are associated with steady career and salary progression), thereby lenders are more comfortable with lending higher amounts. These schemes are similar to a 5.5x Income Mortgage in that applicants can also purchase a pre-owned property with a minimum 5% deposit, and can safely boost their buying budget without having to involve loved ones to financially support them. 

If the above schemes for professionals and key workers sound like viable options, check out our pages on Professional Mortgages & Key Worker or NHS Mortgages to find out more. If you are part of the Armed Forces, you might also be eligible for the Forces Help to Buy mortgage scheme.