Save it for later – the curious case of the deposit

Don’t you just love having those £40,000 savings burn a hole in your bank account?

The money you’re keeping to one side as a deposit and stamp duty so you can make those all important first steps on to the property ladder.

I mean, the princess who couldn’t sleep for the pea under her mattress has nothing on the amount of cash you’ve got saved under yours causing you sleepless nights.

Of course, this is all based on standard London prices of an average purchase price of £504,048. So you’ll need to have saved a stamp duty of £15,202.40 and minimum 5% a deposit of £25,202.40; a total of around £40k.

Maybe you’d feel better about this scenario if that £40k actually existed; instead it’s more likely the thought of never owning your own home is going to keep you awake as opposed to the comforting thought of how much you’ve saved already. The problem, of course, is that rents in London are high because Landlords will want to pay the mortgage over the property and make a profit. This means that because your rent is high you can’t save a deposit, and because you can’t save a deposit you’ll never make it onto the property ladder.

There are some solutions offered to help with this. One of the those offered is shared ownership; you can purchase a 25% share of the property (depending on affordability), and can opt to pay stamp duty against the share premium rather than the full market value. You would then only pay stamp duty once you own more than 80% of the shared ownership lease.

With a general election less than six weeks away, and housing being a rising topic, you’d have thought more solutions would be higher up the priority list for politicians. However, the main political party’s manifestos don’t offer solutions; they just promise to build more houses.

With this in mind it’s not surprising the charitable housing association industry and the private sector have had to come through with different models. Rent to Home Buy is rumoured to be making a come back, and companies such as ‘Rent Plus’ have sprung up.

Rent to Home Buy (RTHB) existed around 2008 – 2010. You take a rented new build property, and rent it at 80% of its usual rate. You can then use the 20% which would have been paid on your rent to save a deposit. Two years after renting at a reduced rate you then have a deposit, and under rent to home buy would buy the property you had previously been renting from them.

The problem with RTHB was people just spent the money they should have been saving, or gave the deposit to another new build company on a property they really wanted to buy, so Rent to Home Buy fell out of fashion quickly.

However, this rent-to-own principle seems to be fashionable again with ‘Rent Plus,’ operating a new scheme in the South West. It has now achieved completions with several housing associations and new build providers having offered a ‘Rent Plus’ product on their properties.

Models like this will work with some tweaking – and they overcome the issue affecting first time buyers in London and the South East; the credit rating is fine and the mortgage affordable but saving a deposit is near impossible.

The good news being there are rumours of these schemes making a come back in London and the South East, however, for now these are merely rumours currently going around City Hall and the Greater London Authority. If you know someone who would benefit from these proposals – get them to subscribe to our mailing list. As soon as we hear more, including some detail around the legalese behind the product, we’ll let them know.

If you have any queries concerning the matters raised please contact Alasdair Muir, Solicitor and Head of Affordable Home Ownership on 020 8567 3477 or e-mail