Article by Sara Yates
UK house prices smashed records in June, with official figures confirming an average London home now exceeds £500k. Outside the capital, increased home working and the stamp duty holiday drove average prices in the South East over 10 per cent higher to £346k, while the North West topped the charts with prices rocketing 18 per cent taking the average home through the £200k mark. In such a buoyant market, specialist products and expert help are essential to get first time buyers on the ladder.
1) 10% deposit new build options
Recent events have led to caution in the Housing Sector with a minimum 10% deposit requirement, Metro Bank (05/11/2021) have relaunched into the 90% loan to value sector for houses and apartments offering rates from 2.99% for a 2 year fixed rate.
Alternatively, if you are able to increase your deposit to 15% you will find rates become more competitive, for example 85% interest rates start from 1.43% on a 2 year fixed rate product.
2) 5% deposit mortgages
Soaring house prices have pushed the standard 10% deposit out of the reach of many first-time buyers. Fortunately, the government’s Help to Buy scheme revived lenders willingness to lend to clients with a minimum 5% personal deposit, whilst utilising a Government backed equity loan up to a 20% (40% in London) of the property’s value.
Based on a property valued at £195k, utilising the 20% Help to Buy: Equity Loan and a personal deposit of 5%, subject to an affordability assessment, this would allow a client to purchase with a salary of only £32,500 (sole or joint income) making home ownership available to clients of which prior to Help to Buy may not have been affordable – whilst also benefiting from very low mortgage rates.
Using the above as an example:
A 75% mortgage would equate to £146,250, on a repayment basis over a 25 year term Santander are offering (right as of 05/11/2021) a 2 year fixed product at 1.35%, with a £499 lenders fee (can be added to advance), free basic valuation fee, £250 cash back to you on completion, monthly payment only £575.23 per month.
Help to Buy is available on the majority of Weston Homes’ developments – to find out if you’re able to take advantage of this scheme, speak to the sales team at your chosen development. Visit weston-homes.com
3) Help to Buy alternatives
With the Government’s Help to Buy scheme now restricted to first-time buyers, we are seeing the emergence of privately funded schemes, for example Proportunity. You finance the purchase of your home with your 5% deposit, with a Proportunity Loan (to cover up to 20%), and a regular mortgage from a high street lender (to cover the rest). The Proportunity Loan is an equity loan similar to Help to Buy. It can increase your budget by up to £150k, meaning you can achieve your property sooner. Think Help to Buy but without the restrictions. You will still need a regular mortgage. An independent, whole of the market mortgage broker such as Summit Financial Solutions can put you in touch with a trusted mortgage adviser who can help, and they will handle both finance applications for you at the same time. Once you’ve bought with Proportunity, you own 100% of your home.
With so little equity in place, expect to provide an excellent credit score, have the loan limited in size and some restrictions on the types of property you can buy.
4) Family mortgages offered in increasing varieties
It is possible to buy a property without a deposit if you have help from friends and family. More importantly, this help no longer needs to be a generous cash gift.
Barclays was one of the first lenders to offer family products with its Spring Board mortgage. This lets the buyer borrow up to 100% of the property price, to a maximum of 5.5 times income and for up to 35 years, at an initial five-year fixed rate of 3.50%. In return, family or friends deposit 10% of the property’s value in a separate account. Five years later, assuming the mortgage is on track, the helper’s money is returned with interest.
Halifax’s family boost mortgage closely resembles the Barclays’ offering except savings are locked up for just three years and only family members can contribute. This may be more appealing for families who want to get their money back sooner.
In contrast, Nationwide’s family deposit mortgage doesn’t require any savings to handed over. Instead, providing the family member has a Nationwide mortgage, the equity in the home can be used as security.
With all family mortgages it is essential that the buyer and helpers seek independent advice.
5) Get expert advice
The mortgage market is vast. According to Moneyfacts there are over 4,500 different deals currently live. And it is changing fast, with an average deal live for just 21 days. Use an independent, whole of the market mortgage broker such as Summit Financial Solutions to ensure you have up to date knowledge and get the best deal.
6) Plan ahead
Buying a home is substantial financial commitment. Think ahead. Just moving the needle on the deposit from 10% to 15%, can reduce the two-year fixed rate from 2.99% (Metro Bank, £999 fees) to 1.43 per cent (Halifax, £999 fees), a saving of around £227.65 a month for the scheme period.
If you are unsure where to start, Daniel Meadows from Summit Financial Solutions can offer free, whole of market, impartial guidance to help you navigate the mortgage minefield. Call Daniel on 01708 220 621 or visit summitfinancialsolutions.co.uk