Most common ways to fund buying a house

With the average price of houses in the UK reaching record highs, it’s no surprise prospective homeowners are in need of funds. The average house in England is a whopping £292,000, with several regions seeing price rates increase by over 10% in a 12-month period.

When compared with stagnating wages, a cost of living crisis, and a housing market with dwindling stock and skyrocketing prices, here are just some of the ways you can get on the ladder – or move up!

Cash and savings

Perhaps the simplest – and most effective way to buy a property, cash is definitely king when it comes to buying a house. When a vendor is faced with two buyers, they will inevitably go with a cash buyer.

Sadly, this option isn’t available to many people. But, if you’re set on at least trying to save for a large deposit, then setting up a savings account that you use specifically for your house purchase is a good idea. Work you how much money you could afford to set aside each month and any money you have left over in your current account at the end of the month you can transfer too.

Mortgage

Unsurprisingly, mortgages are the most popular (and necessary) form of funding. People aged 35 to 44 years old are the largest share of homeowners who purchase their property with a mortgage.

Because of the limited number of high loan to value (LTV) mortgages on the market, you’ll need to have a larger deposit. Whilst the government has introduced a new 95% mortgage scheme to help lower earners, where applicants only require a 5% deposit, they can be hit with large Annual Percentage Rates (APR).

Help to buy schemes

Similar to the government-backed 95% mortgage scheme, Help to Buy is aimed at first time buyers who are looking to get on the property ladder. Help to Buy is effectively an equity loan, in which a government-backed lender provides you with 95% of the value of the property.

Under the scheme, you don’t have to pay interest on the loan for the first 5 years, however, in the sixth year, you’ll be charged an interest rate of 1.75%. This interest rate will also increase every April in line with the Consumer Price Index (CPI).

Gifting

With many struggling to get on the property ladder, parents and even grandparents are helping the under 40s. Gifting is becoming more common, but it’s important that when purchasing a house, either with cash or part mortgage, the amount gifted and the source of the funds (e.g. within the UK, EU or outside of the EU) are noted, as well as the relationship of the applicant. There should also be a signed declaration that the gifter will not have any financial interest in the property, i.e. it is not a loan.

Because buying a house can be complicated, it’s important to speak to a professional and independent financial advisor so you can be in the strongest possible purchasing position.  

Written by Julie Hanson

Julie is passionate about property – development, investment and portfolio planning. Along with husband Alec, Julie is actively building a property portfolio while helping others to do the same.

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