Online mortgage broker Habito has launched a brand new initiative, called Habito Go*, that enables first-time buyers to become cash buyers in order to enjoy the advantages this brings when purchasing a property. This includes the ability to negotiate a reduction in the property asking price as well as reducing the time from offer to completion of a house purchase.
Habito certainly isn't afraid to innovate the property buying process (read our full Habito review) having become one the UK's leading online mortgage brokers after its launch in 2016. In July 2019 Habito began offering its own range of buy-to-let mortgages, making it one of the only whole of market independent mortgage brokers in the UK to operate as both a broker and a lender. It was almost inevitable that Habito would use its dual expertise as a lender and a broker to innovate the residential property purchase journey. Habito Go is the result.
In order to produce this independent Habito Go review, I personally grilled one of the product developers at length. You can use the links below to jump to key sections in this review. However, I suggest you read the review in full as I explain how it works including things you need to be aware of.
- What is Habito Go?
- How does Habito Go work?
- Who is eligible for Habito Go?
- How much does Habito Go cost?
- Summary - is Habito Go too good to be true?
What is Habito Go?
Habito describes Habito Go as letting buyers ‘upgrade’ their mortgage recommendation to a guarantee of funds to buy the property in cash, while they simultaneously continue their mortgage application through Habito’s brokerage'.
Put it another way, when you are attempting to purchase a property using a mortgage, the mortgage application process can be complex and lengthy. Occasionally delays in securing a formal mortgage offer can mean that you miss out on the house you planned to purchase. Habito Go aims to give selected customers access to a cash-advance in just two weeks to enable them to complete a house purchase before they have a mortgage officially approved by their chosen lender. Habito states that with Habito Go, buyers are more likely to get an offer accepted first time as 7 in 10 sellers value the speed and ease of a sale more than getting their asking price. In addition, because Habito Go puts you in the position of a cash buyer it could potentially help you negotiate a better property purchase price.
Of course, there are nuances as to how Habito Go actually works in practice which I describe below.
How does Habito Go work?
Habito Go is an ancillary benefit for eligible customers (see next section for eligibility criteria) who use Habito to secure a mortgage when buying their first property. As normal Habito will search the whole of the market (over 90 lenders and 20,0000 mortgage products) and recommend a suitable mortgage product for you (full details in my Habito review). After chatting to an adviser and uploading the necessary documentation Habito will look to secure an agreement in principle (AIP) with the recommended mortgage lender, which usually takes 24 to 48 hours. This isn't a formal mortgage offer, which can take a number of weeks to secure, but an indication of the size of the mortgage that the lender is willing to offer you, pending underwriting.
Eligible Habito customers will then be offered the option to use Habito Go to secure a cash advance if they choose. If they choose to then they will be given a Habito Go loan to make the property purchase which will involve a soft credit check on their credit file. A soft credit check means that other lenders won't see it. You will find out if your Habito Go application has been successful within 24 hours. Or in other words, a first-time buyer could make a cash offer on a property within 24 hours without having had a mortgage formally approved.
Meanwhile, your application for your recommended mortgage product, which may ultimately be used against the property purchase, continues to be underwritten. The Habito Go loan, which is for the same amount as the mortgage you applied for, is only a short term loan with a maximum term of 12 months. There is an upfront charge of 1.95% of the total value of the property, which also includes the fee for a fast-tracked valuation and the required legal work. There is also a monthly charge of 0.5% of the loan value charged as interest every month. I discuss these charges in more detail later in this article.
If the originally recommended mortgage is agreed prior to the purchase completion then you would no longer pursue the Habito Go route. However, assuming that you do purchase the property using your Habito Go loan, as a 'cash buyer', then this is secured as a first charge on the property, in the same way that a normal mortgage would be. That means that if you default on your Habito Go loan and your house is repossessed then Habito could get its money back.
Of course, to secure the loan against the property requires conveyancing and legal work which is covered by the 1.95% upfront fee mentioned earlier. Once you've bought your property Habito then facilitate's the transfer of the mortgage lending from them to a long term mortgage lender. Ideally this will be the lender and the mortgage product that Habito originally recommended to you at the start of the advice process, however that might not necessarily be the case. For instance, some lenders do not like to replace a mortgage (the official term is to rebroke) on a property less than 6 months into the term of the existing mortgage. This could, in theory, mean that Habito's original recommendation is no longer valid. In this instance, Habito would have paused your original mortgage application and recommended an alternative.
Habito will also ensure that you are not financially worse off via a cashback guarantee. This offer is calculated by looking at the fixed term period of your original mortgage recommendation versus the mortgage you ultimately end up on. So if you had a two year fixed deal originally recommended to you then Habito will ensure that over that two year period you will not be worse off.
Of course the mortgage rebroking will involve additional admin as well as changing the mortgage charge on your home (i.e. removing Habito Go and replacing it with your new lender). Habito assured me that the cost of this is covered by the 1.95% upfront fee as any information (property valuations etc) they obtained when issuing the Habito Go loan will be shared with the new mortgage lender.
Who is eligible for Habito Go?
Habito will only offer Habito Go to customers who fit the following eligibility criteria. To qualify for Habito Go applicants must be:
- First-time buyers
- Between 25–55 years old
- Earning a minimum of £30,000
- With a healthy credit history
- Buying a home to live in (not let out)
- Buying a property up to £750,000 (with 20% or more deposit) or £500,000 (with up to a 15% deposit)
Habito uses the underwriting expertise from the lending portion of its business to ensure, as much as possible, that customers who qualify for Habito Go are going to ultimately secure a mortgage.
How much does Habito Go cost?
Habito Go puts first time buyers in a position to buy with cash by providing a short term loan while their recommended mortgage is approved. As such it is a short term bridging loan and consequently is a more expensive way to borrow money.
Typically bridging loans charge 1-2% upfront, plus early repayment fees, valuations fees and survey costs. In contrast the Habito Go loan charges 1.95% upfront of the property value (not the loan value) which includes valuations and survey costs. Repaying a Habito Go loan, which you do with the final mortgage, does not incur early repayment charges. Habito does, however, charge a monthly payment of 0.5% of the loan (this equates to 6% a year) which is at the cheaper end of the scale for this type of financing.
Obviously, as a cash buyer, Habito Go users are in a position to negotiate a lower property purchase price which means they could actually save money by using Habito Go. Of course, the likelihood of this is down to an individual's own negotiation skills.
Summary - is Habito Go too good to be true?
Having gone through the product in detail with those involved in its design I think Habito Go* is a welcome innovation. Some may point out that Habito Go enables Habito to make a return on capital via short term lending, which of course it does, but the charges are not extortionate. In addition, Habito Go is deliberately only available to a particular subset of its customers. That's because for the concept to work Habito has to be confident, via its own underwriting process, that customers will ultimately secure a mortgage deal. That means it is always going to be a niche product/service used by a niche set of first-time buyers. It's not going to be a mass-market product and therefore not a huge money-spinner for Habito.
In my full Habito review, one of the positives I stressed about its service is that Habito looks at the whole market and so will even suggest products from providers which they don't have a business relationship with and therefore don't earn a commission from. This is important as it means that customers are not shoehorned into deals that Habito can earn money from, a criticism which could be levelled at other brokers who make recommendations from a panel of lenders and not the whole market.
Habito confirmed that all customers receive this same level of service regardless of whether they end up going down the Habito Go route. Of course if customers do use Habito Go the number of lenders that will be happy rebroking the mortgage (as described earlier) will be limited and not the whole of the market. This is, of course, a drawback but Habito's cashback offer, again mentioned above, ensures this is a minor gripe.
Personally I like the fact that Habito is open about the eligibility criteria for Habito Go, which shows its not a marketing wheeze. Customers will have a good idea of whether they stand a chance of qualifying.
Whether a customer wants to use Habito Go or not, the publication of the criteria proves a useful guide for first-time buyers wanting to secure a mortgage. If you fit the Habito Go criteria you are almost certainly going to secure a decent mortgage deal.
As Habito Go is only newly launched there is no hard data yet available on the house price savings customers have been able to secure by using it. However, from personal experience cash buyers do have more negotiating power. It's not always about price either, as speed of transaction can be a crucial factor in helping to secure a property which is in high demand.
Some first-time buyers will find Habito Go extremely useful. Let's hope that if the product proves successful Habito extends it beyond first-time buyers. That really would shake things up.
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