Lifestyle

The options for first-time buyers who don’t have a big enough deposit after coronavirus


Suddenly your deposit might not be enough (Picture: Ella Byworth for Metro.co.uk)

With the introduction of lockdown, the housing market stopped and there’s been a level on uncertainty ever since.

Although viewings and sales are now allowed, the landscape looks very different to this time last year.

The biggest issue for those wanting to get on the property ladder is the lack of high loan-to-value (LTV mortgages). For example, if you only have a 5% deposit, you need a 95% LTV mortgage and if you have 10% you need a 90% mortgage.

But most mortgage lenders are asking for a minimum of 15% right now.

If you were planning to buy this year, you might suddenly find that you need to save a bigger deposit to get a mortgage, but after years for saving for 5% or 10% of a property, finding the extra sounds almost impossible.

The government announced a cut in stamp duty for properties up to £500,000 last week, but first time buyers already had relief up to £300,000 so it will only help those spending over that.

But there are some specialist schemes and mortgages to help first time buyers get on the ladder.

They can be confusing and complicated so it’s best to do lots of reading to figure out what is best for you.

Help to Buy

Help to Buy is probably the best known scheme to help people get on the property ladder.

The idea is that the government gives a loan of 20% outside London or 40% in London and you need a minimum deposit of 5%.

Alex Winn, mortgage broker at Habito, the online mortgage company said explains: ‘The Government’s Help to Buy Scheme is still possible if you can also meet the other criteria for getting a standard mortgage.

‘Once the Government loan of up to 20% of the property value (40% in London) is included, it means you’ll need to qualify for a standard mortgage for the remaining amount – so either 55% or 75% of the value of the home.’

There are a few stipulations – you must be buying a new build property with a price tag of up to £600,000.

The loan from the government will be interest free for the first five years and then you will have to start paying interest on the amount your borrowed.

You must be able to afford a monthly fee and interest payments, must not currently own any other property or enter a part exhanged deal on your old home and once you’ve bought the property, you cannot sublet or rent it.

Currently, the scheme is due to end for those who have previously owned a home in March 2021.

First-time buyers will be able to use it until 2023, with lower, regional property price caps, but there have been calls for the government to extend it further because of the anticipated housing market crash.

You can find out more about the scheme here.

Shared Ownership

Shared Ownership is another government scheme but it works in a different way.

The idea is that you buy a share of the property and you pay rent to a housing association on the rest.

The minimum share is 25%. It is open to non-home owners, including first time buyers and those who have previously owned a home (but do not currently).

You only need a deposit on the share you are buying so if your deposit is now too low to buy outright, it may be enough to get an 85% mortgage on a share of a property.

You can later buy more of the property through staircasing and although you will pay some rent, some of your money will go towards a mortgage each month.

To be eligible, you need to have a household income below £80,000 and £90,000 if you are buying in London.

Shared Ownership is only available on certain properties owned by housing associations and they are usually new builds.

It can be more difficult when it comes to selling your share as the housing association is given a set amount of time to sell it before you can sell it yourself privately through or through an estate agent of your choice.

Although you pay rent on the property, all maintenance is up to you, so you’ll need to keep a little in reserve in case you need to fix something as you won’t be able to turn to your landlord.

You can read more about Shared Ownership here.

Guarantor mortgages

Alex from Habito adds that with higher deposits needed, people are more likely to rely on family support.

He says: ‘Something we could start seeing more of in response to lack of available low-deposit mortgages, is the Bank of Mum and Dad increasing their cash gift contributions.

‘By gifting more funds to get to a deposit of 15% or more of the value of the home, parents who can afford to, can give their children a greater chance of getting access to better rates, being accepted by a lender, and getting on the ladder at this time.

‘Unfortunately, this means that the gap between those that can rely on parental or grandparent financial support for home-buying will continue to widen. This supported group of residential buyers will be able to make the most of competitive interest rates for higher deposit mortgages, and savings from the stamp duty holiday.’

But families can still help, even if they cannot give extra funds.

Some places are offering guarantor mortgages where parents can link income for their children.

Alex adds: ‘Lenders like Bank of Ireland and others offer guarantor mortgages that allow parents to help their children by linking their income.

‘The parent acts as a sponsor but doesn’t have to be listed on the deeds, and it effectively makes the mortgage a 85% loan (or 15% deposit). However, if the homeowner misses a mortgage repayment, the bank can go to the parents (or sponsor) for the missing monies.’

Keep saving

Despite the difficult market right now, Alex says that there are fewer high LTV mortgages than before, but they are coming back

Alex Winn, mortgage broker at Habito, the online mortgage company said:

He said: ‘Things are changing all the time. Today, Nationwide and Coventry Bank announced they are launching new 90% loans in the coming days. However, these deals are subject to certain criteria.

‘In the case of Nationwide, to get this deal you can’t be furloughed or buying a new-build, or buying a flat – it has to be home, of at least 2 years old. The mortgage also has to be for a maximum term of 25 years, but many first-time mortgages now opt for 30 years to make their monthly repayments more affordable.

‘We don’t yet know what rates these lenders will charge, but rates for low deposit mortgages have been going up in recent weeks.

Although you might be eager to move, it might be best to wait, save some more money and reassess the market in a few months time.

If you want more tips and tricks on saving money, as well as chat about cash and alerts on deals and discounts, join our Facebook Group, Money Pot.

Do you have a story to share?

Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.

MORE: First-time buyers explain how coronavirus has changed their home-owning dreams

MORE: Can first-time buyers get a mortgage after lockdown and do they need a bigger deposit?

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