The UK mortgage market is extremely complex and our team deals with numerous enquiries every day from individuals looking to take that first step onto the property ownership ladder. With this in mind, we thought it prudent to publish an article on house mortgages. This article is particularly aimed at the first time buyer who may be concerned they cannot even get on to the first rung of the mortgage ladder to advise there may be potential solutions open to them to enable them to achieve their dream of house ownership.
The good news is that there’s help out there if you know where to look!
House prices are still increasing and with press reporting variations on average annual wage needed to afford a typical first-time buyer home, it sounds scary, but don’t let this put you off, as getting your dream home could still be affordable.
There are now a number of very attractive schemes for first time buyers and mortgages for first time buyers are looking far better than they have in recent years.
- Help to Buy Equity loans
The Government provides you with a loan for 20% of the property deposit. This is for new build properties up to £600,000 only. This allows borrowers with a 5% deposit to take out a mortgage for 75% of the property’s value.
Help to Buy equity loans are interest-free for the first five years. After this, you’ll need to pay circa 1.75% fee per annum and then rises every year at the rate of the Retail Prices Index plus 1%.
For example, for a £200,000 property you could put a £10,000 (5%) deposit, get a £150,000 (75%) mortgage and a £40,000 (20%) equity loan.
You can find a list of participating house builders from here: www.helptobuy.gov.uk/equity-loan/find-helptobuy-agent/
Help to Buy ISA – Open a Government Help to Buy ISA and the Government will boost your savings by 25%. The maximum government bonus you can receive is £3,000.
Shared ownership schemes are provided through local housing associations. You buy a share of your home (25% to 75%) with a mortgage and pay a reduced rent on the remaining share. This makes home ownership more affordable as it reduces the amount required for a deposit and also the proportion of the property’s value needed as a mortgage.
Under shared ownership you can only buy a new-build property or an existing shared ownership home. In theory, the combined monthly cost of mortgage plus rent should be about 80% of that of an equivalent home bought or rented privately.
You have the option to buy more shares in your home.
Shared ownership properties are not always available as a search option on sites such as Rightmove, but agents list the sale price of the share for sale, so they will display as the lower price properties in an area.
Several mortgage lenders offer special mortgage deals aimed at helping buyers to get on the property ladder. These include:
- A scheme accepting a 5% deposit, backed with a family member lodging a further 10% of the property’s purchase price into a savings account with the bank, where it earns interest at around 2%. So if you want to buy a property for £150,000, you need to raise a 5% deposit of £7,500. Your parents or relatives would then need to hold savings of £15,000 with the bank. As your deposit is now effectively 15%, you’ll have access to lower mortgage rates.
Assuming criteria met, after three years the 10% deposit is released back to the family member, with interest added, and you continue with your mortgage.
- Another scheme requires 5% deposit & requires family members to have savings of at least 20% of the property value.
So for a property worth £150,000, you would need a 5% deposit of £7,500, while family members would need to put a minimum of £30,000 in the savings account.
Subject to criteria, family members can get their savings back plus at least 2.7% interest.
- Ensure your credit profile is fit and healthy. Subscribe to a credit service such as the free one from www.noddle.co.uk
- Assess your savings & spending; utilities, food, car, leisure, lifestyle – what do you spend those cash withdrawals on?
- Can family support you with any help with the deposit or costs?
- Seek Independent advice! Now you would expect to hear this from a broker, but this really is the best advice I can give you, as there are over 100 lenders in the UK and each lender has variations in criteria, lending calculations, rates and charges. Read through the broker’s initial disclosure document thoroughly to ensure you are happy with fee remuneration structure, level and scope of the service they can provide.
About the author
Julie-Ann Hawkins is a CeMap qualifed Mortgage Advisor and Director at FTA Mortgages Limited, who specialise in advising on & arranging bespoke mortgages for healthcare professionals https://www.ftafinance.co.uk/mortgages/
If you would like advice on securing a new mortgage or reviewing an existing mortgage arrangement, please contact us on 0330 088 11 57 or email [email protected]
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
(*content written October 2017)