The mortgage options for those with little or no deposit
The current recession and financial crisis have certainly not made it easy for those wanting to get on the property ladder in the last few years. But in the last eighteen months or so, with more than a little nudge from government and the media, more options have arrived on the market. But are they really much help to First Time Buyers and others without a large cash deposit? Here I look at the main schemes and how they work. Don't forget you can contact me for personal help in finding a mortgage by clicking here and leaving your contact details.
The Family Springboard Mortgage from Woolwich/Barclays -The most publicised scheme launched in late 2012. Basically you need to find a 5% deposit and they will charge a reasonable rate of 4.69% fixed for three years. The set up fee of £499 is lower than its peers and this is waived completely if you are an existing Barclays current account customer paying your salary in. But here is the tricky bit......your parents must invest the equivalent of 20% in a Barclays savings account currently paying less than 2% for a minimum of three years.
Verdict : OK if mum and dad have a lump sum to invest and are not worried about the rate on their investment while they help you.
Family Guarantee Mortgage from Aldermore -
If you've seen the sign '100% mortgages here' in an estate agent's window this is probably what they mean. It's been available via brokers for over a year now and probably inspired the Barclays product. Basically you don't need a deposit at all but Aldermore take a legal charge on your parent's property for 25% of your property value, which remains until your mortgage is settled. The mortgage rate is fixed at 5.48% for either 2 or 3 years.
Verdict : in theory a genuine helping hand if parents are not cash rich but want to help you....so long as everyone knows what they are getting into. Extensive legal advice must be sought and paid for as this could be very messy if things go wrong.
New Buy Schemes from various lenders -
So long as you pick a newly built property, from one of the specially selected developments, high street lenders such as Santander, Nationwide and Halifax will lend you 95% at rates starting around 5% .
Verdict: if you like what you see and you are prepared to use the developer's choice of solicitor or broker, if you don't go directly to the lender, these could appeal. But beware newly built properties are often overpriced and you need to be in it for the long haul.
Shared ownership and shared equity -
Allowing you to buy a percentage of the property but in some cases pay rent on the other share to a third party. A few lenders get involved but you still need a minimum 10% deposit on your share. There are numerous government backed schemes often for key workers that don't have a rent element attached.
Verdict : professional bespoke advice is essential on this option as there are many criteria pitfalls to avoid and the medium to long term benefit of such a set up doesn't work for everyone.
'Genuine' 95% mortgages – few lenders-
Various small lenders dip in and out of this market periodically and as I write The Newbury, Melton Mowbray and Scottish building societies have rates either side of 5%.
Verdict : these are usually 'postcode specific' so they may not lend where you want to buy, also look out for very high fees, £5000 is not uncommon.
My overall view :
All these schemes are of course subject to normal criteria eg you need to prove affordability and creditworthiness, and of course the property must stand up to a surveyor's scrutiny. Trouble is, all of this is much stricter on these higher risk scenarios so you need to really analyse whether it is not simply better just to wait until you have 10% deposit when many other choices become available.
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