Deposit-free mortgages: first-time buyers can still get helping hand

 

For the first time in a long time, helping first-time buyers get on the property ladder seems to be the focus for the government as well as mortgages providers.

With a raft of new mortgage products available on the market, the message for first-time buyers is a positive one. Getting a mortgage, however, is only possible if they can raise a deposit. A study by Nationwide has found that on average, first-time buyers have to save for eight years to get a suitable deposit in place.

The bank of mum dad

Parental lending has quickly become one of the most crucial options for first-time buyers. According to research from Legal and General in association with Cebr, in 2016 parents spent more than £5bn helping their children buy a home. 57% of parents helped with a cash gift, though almost one in five (18%) offered an interest-free loan.

However, a number of lenders are taking steps to help buyers struggling to fund a deposit. Before 2008, 100% mortgages were commonplace – today they are a rarity, but that is not to say that they don’t exist, albeit with different lending criteria. The Post Office has launched two new mortgage deals to help first-time buyers without the means to raise a deposit for their first home purchase.

Owen Woodley, chief executive of financial services and telecoms at the Post Office, said that its research had found significant numbers of parents were keen to help their kids buy a property but were unable to offer direct financial support.

Using a parent’s home as collateral

The Family Link mortgage allows first-time buyers use the home of a close relative as collateral against their house purchase. By placing a mortgage on two properties, 90% against the property being bought and 10% against a relative’s homes, first-time buyers can borrow 100% of a property’s value.
[crb_image link=”https://www.buyassociation.co.uk/advice/property-investment-starter-course/” image=”https://cdn2.hubspot.net/hubfs/1717782/Asset_Store/WebCTA/cta.jpg” align=”left”]
Both loans must be paid off by the borrower, but the 10% secured against a relative’s property is an interest-free loan that must be paid off within five years, and the remaining 90% charged at 4.89% fixed for five years is repaid over a normal mortgage term.

Using the equity of a family member’s home technically as a deposit means that first-time buyers can get on the property ladder without relying on the bank of mum and dad to stump up the large deposit. It means that parents who may not have access to large sums of cash can assist their children with their first property purchase using the equity tied up in their own property, as long as they have an annual income of £20,000 or more.

David Hollingworth, of mortgage brokers L&C, said: “A first-time buyer purchasing a £200,000 property in this way would pay £1,041 per month for the interest-charging loan and a further £333 a month to pay off the loan on the family property.”

Increase the amount a first-time buyer can borrow

The second mortgage product available through the Post Office is the First Start mortgage, where a first-time buyer can apply alongside a relative who acts as a co-borrower and can be named on the title of the property. Effectively a joint mortgage, this enables the income of the relative to be taken into account allowing the first-time buyer to borrow a larger sum.

Parents with savings could consider an offset mortgage

The Post Office is not alone in trying to help first-time buyers. The Family Building Society and Barclays both offer family offset mortgage products to first-time buyers, where parents place their cash into a designated savings account to reduce the cost of borrowing for their children. With an offset mortgage, the savings are linked to the mortgage balance and you only pay interest on the difference. The big benefit for parents is that they get to protect their savings rather than handing over a large sum of cash as a deposit.

While the old 100% zero deposit mortgages are not set to make a comeback, it seems lenders are more keen to support first-time buyers wanting to get on the property ladder than in recent years.

CityGreens, Solihull, Birmingham

City-style apartments directly on Birmingham's largest park

  • Limited pre-launch prices.
  • ZERO ground rent
  • Excellent tenant demand

£182,000 - £419,000

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

ba-

Talk to us

Speak to our UK property experts today: 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

+852 9865 4446

Open from 9am-6pm HKT

Stamp Duty Calculator

.

Unlock members only investment opportunities and full development details. Join now – it’s free, quick and easy.

Login

Not a member? Sign up for free

Deposit-free mortgages: first-time buyers can still get helping hand

Deposit-free mortgages: first-time buyers can still get helping hand

Example

By submitting your details via this online form you agree to be contacted via email/phone/SMS by Direct Marketplace Ltd t/a BuyAssociation in relation to property investment and property developments . We do not share your personal details with third parties.  To view our full Privacy Policy click here.