There are many options: from 95% mortgages to the newly established help-buy program to new mortgages.

  • Here are some expert tips to help you find the perfect property
  • Q&A: House price rises and how long to fix a mortgage

 

Spring is traditionally a busy period in the housing industry. It marks the end of months of chaos caused by tax breaks on stamp duty. It is impossible to predict the number and type of buyers and sellers who will be present on the market once the lockdowns in the UK begin to ease.

Potential first-time buyers will soon be able to choose from more mortgage options, with only a 5% deposit. That’s because a government scheme to bring back 95% home loans officially goes live in just over a week’s time, with leading banks effectively ordered to take part. The help-tobuy programme was also revamped and is available only to new homeowners.

We will discuss the options for first-time buyers looking to move up the property ladder.

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95% mortgages

However, the number and types of deals that required a minimum 5% deposit fell after the pandemic. They are slowly recovering. There were at least eight banks offering standard 95% deals Thursday, including the Skipton, Coventry, and Accord building societies (part of Yorkshire-based construction society) and Bank of Ireland UK.

It will be interesting to see how the official scheme, which aims at increasing availability of 95% loans, goes live on April 19. The chancellor, Rishi Sunak, has rather forced the banks’ hands by publicly announcing that Lloyds, NatWest, Santander, Barclays and HSBC will all be offering them this month.

The scheme, announced in the March budget, will give banks and building societies the chance to buy a guarantee on the riskiest portion of the mortgage – the bit between 80% and 95% loan-to-value (LTV). The government would cover that chunk of the lender’s losses if a home had to be repossessed after a property crash.

It may be worth the wait if you can’t wait for a week to see the new deals.

Nick Morrey of John Charcol is the product technical manager at John Charcol. He highlights the 3.89% fixed rate offered by Coventry Building Society for five years. This deal carries a £999 product fee.

While 95% mortgages may be a good option for some buyers, it will not solve the problem of high-priced buyers.

Bank of Ireland UK offers a two year fix at 3.99% and a five-year one at 4.05%. Both options are free from any fees. Skipton offers a two-year fix for 3.95%, and a five year deal for 4.09%. There are no fees.

The 5-year guarantee on Accord is available only to first-time buyers. It is priced at 3.99% and has a £995 product fee.

90% of Mortgages

While 95% mortgages might be a good option for some buyers they won’t solve the problems faced by buyers who live high-priced. Before granting a loan, lenders will verify that you are able to afford the monthly payments.

The average deposit that a first-time buyer needs for a 95% mortgage in England is £11,087, while the average salary required is £46,800, according to an analysis by the law firm Quittance Legal Services. However, the figures for London are much higher: £21,682 and £91,500 respectively. Buyers who make less will have to save more to pass affordability tests.

The mortgage rates will be lower if you are able to afford it. At 90% LTV, Virgin Money has a two-year deal at 3.18% and a five-year fixed-rate deal at 3.41%, both with a £995 fee. At 85% LTV, there are two-year rates at about 2.55% from Virgin Money, Leeds building society and NatWest, and five-year deals at about 2.8% from Virgin Money and NatWest, all with fees of just under £1,000.

First-time buyers can get financial assistance from their bank. This applies to grandparents, parents, and any other family members. This type of assistance in the mortgage sector is called a “gifted investment”. The borrower will often need to prove that the money received is not a loan, but a present. A lot of lenders will accept these, though they may well ask for a “gifted deposit letter” to be completed and signed by the person giving the cash. Inheritance tax will be applied to the cash if you die within seven year of receiving it.

It is possible to get financial assistance from family members or friends in order to buy the property you desire. Illustration: Ryan Gillett

The help-to-buy equity loan program

The latest versionThe scheme was launched in December, and it will continue until 2023. It can be used to finance the purchase or renovation of a newly built home.

The help to purchase in England program allows you to borrow as little as 5% up to 20% of your total purchase price, or as much as 40% in London. A smaller mortgage is therefore more affordable. Londoners only need a 55% loan to obtain the equity loan. In calculating affordability, the mortgage lender will often consider a 3% equity loan to be a financial commitment. Thus, the monthly outgoing is likely to be higher if you take out a larger equity loan.

To limit the price of the program’s relaunch, regional caps are used. In London it can be used to buy a property costing up to £600,000, and the caps vary across England – from £186,100 in the north-east to £437,600 in the south-east.

The loans granted through the scheme are interest-free for the first five years – you will begin to pay interest from year six. The loan can be repaid at any time. However, interest will accrue if the house or mortgage is sold.

Buyers pay a reservation fee of up to £500 and need to pay a 5% deposit on exchange of contracts.

In Wales, there is a help-to-buy schemeOffers a loan with equity to home-buyers who are new-build. Scotland applications are still being acceptedIts help-to-buy-smaller developer program.

It can be difficult to get the money that you need to deposit your funds, but there are several ways you can do it. Illustration: Ryan Gillett

Part Ownership

Because of the high cost of house prices, this option is seen as an affordable way to move up the property ladder. Critics point out that there are potential downsides.

You buy a share of a new build or resale property – usually Between 25%-75% – and pay rent on the share that you do not own. A maintenance fee will be required if you own a apartment.

The best thing about this scheme? It doesn’t require a mortgage. The amount of deposit required to purchase a home is usually much less than for a typical purchase. The rent is less than the rate charged on the open market – typically about 2.75% of the property’s value per year.

However, some shared owners have encountered problemService fees are rising, buildings maintenance is poor quality, lease extensions can be expensive, and lease restrictions can make it hard to sell up.

A big advantage is that you have the option to buy further shares – up to 100% ownership in most instances – if you wish. This is called “staircasing”. However, staircasing is not considered to be a high-quality method of achieving success. A YouGov surveyIn 2018, a survey of more than 200 share-ownership purchasers revealed that almost 90% had not staircased in their properties. Most of them said they couldn’t afford it.

To be eligible for shared ownership, you need to have an annual household income of less than £80,000 – or less than £90,000 in London. Each housing association and local borough have its own rules on who has priority and what is feasible.

The Share to Buy websiteYou can use this tool for assistance search for shared ownership properties.

Don’t be daunted by the difficulties of buying a property – there are ways to do it. Illustration: Ryan Gillett

Guarantors and family loans

With Lloyds Bank’s Lend a Hand mortgages, you can borrow up to 100% of the purchase price. No borrower deposit is required – instead, a family member puts 10% of the purchase price into a three-year fixed-rate savings account to act as security. For three consecutive years, the interest rate on the mortgage is 3.25%. After three years, the interest rate on your mortgage will be fixed at 3.255%. After three years, the mortgage rate will be fixed at 3.25%. Your family member will receive their savings back with interest. This is for first-time buyers who are buying property in England or Wales. It can’t be used to finance interest-only mortgages or new builds.

Barclays offers the Family Springboard Mortgage, which is very similar. Again, you do not need a deposit – you can borrow the full purchase price because your helper (who can be a family member or friend) provides 10% as security, in this case for five years. The money can be saved in a Barclays Helpful Start savings account. Both mortgages are available on five-year terms. They are available with 3.45% to 95% LTV and 3.65% to 100% LTV. Both the borrower as well as the property must be within the UK.

Meanwhile, Tipton & Coseley building society’s Family Assist mortgage lends at 100% LTV and involves a family member accepting a 20% charge on their own property or putting 20% of the amount being borrowed into a special savings account. The current mortgage rate is 3.39%.

Family Assist mortgages can be arranged by other building societies. This allows people to borrow upto 100%. Rates for Buckinghamshire start at 3.29% and Mansfield at 3.05%.

Similar deals can be found at Loughborough or Family Building societies.

Rent-to-buy schemes

RentplusRent-to buy is the best option for low income families looking to move up the property ladder. Rentplus allows you the opportunity to rent a new-build property at a very low rate for 5-20 years and save enough money to put down a deposit.

It works closely with local authorities and housing organizations, and its residents are typically key workers or essential employees with a connection with their local area.

‘The new help-to-buy scheme made all the difference’

Chelsea Grimwood and Mitchell McDonagh are using the government’s help-to-buy scheme to buy their first property.

The couple, who are both 25, have just bought a three-bedroom home at a Barratt Homes’ development in Chertsey, Surrey, and plan to move in this September.

They live separately at the moment with their parents, who live on the same street as Heathrow airport.

Chelsea Grimwood, Mitchell McDonagh, and Chelsea McDonagh purchased a three bedroom home in Surrey. Photograph by PR

Grimwood, who works for a mortgage broker, says: “We always knew that 2021 was the year we wanted to move out but thought it would be much later on in the year. We really didn’t expect to be able to buy a house so quickly but we used the new help-to-buy scheme, which meant we only needed to put down a 5% deposit, which we had saved during the last few months.

“This made all the difference as it would have been impossible for us to save up a 10% or 15% deposit – we would have probably just given up!”

The couple put down a deposit of £21,500 for their property, which they bought off-plan.

“It’s been tough, with the seemingly endless restrictions and lockdowns, but we decided to use the time to really knuckle down with saving for a house deposit,” Grimwood says. “We would usually go out most weekends or go on holiday but as we haven’t been able to do these things, we have been able to put away so much more each month. Living with our parents was a huge help, too, and we are fortunate that we could build our deposit so quickly.”

A number of new homes are available to NHS employees through Barratt’s NHS 5% Deposit Scheme

Lynnette St-Quintin, the sales and marketing director for Barratt southern counties, says: “We have seen high volumes of first-time buyers in recent months who are now able to get on to the property ladder sooner than anticipated thanks to the extra cash they have built up in part due to national restrictions.”

Grimwood says they are keen to “put our own stamp” on the house, and plan to use the next few months to save up for things such as furniture.

A number of new homes are available to NHS employees through Barratt’s NHS 5% Deposit SchemeThis program was created to show our gratitude to Covid’s frontline staff. Under the scheme, all NHS workers who buy a new Barratt Homes property in England, Wales or Scotland are being offered 5% of the purchase price to go towards their deposit, up to a maximum of £15,000. So for a home costing £200,000, the buyer would qualify for a contribution of £10,000.

All rates correct at time of writing