What help is there for First Time Buyers, now Help to Buy has finished? (Part 2)
Following on from our article last week What help is there for First Time Buyers, now Help to Buy has finished? (Part 1), the content team here at Mortgage Medics realised there was more to say on the subject, so here we are with more ideas for First Time Buyers who might be scratching their heads about how to get on the property ladder, now that Help to Buy is no more.
Which option you go for depends on your individual circumstances, and what help you might need in getting things over the line. For example, for some people, it might be that they’ve got great salaries but are being held back by a small deposit, whereas for others the reverse might be true.
For when affordability isn’t an issue, but building a good deposit is a struggle.
Probably the most common way for family members to assist each other with buying a home is to gift them money to boost the buyer’s deposit –therefore boosting the maximum purchase price that the buyer can achieve. Family members will usually gift cash from their savings, however another route that has become increasingly popular recently is parents/relatives releasing some of the cash tied up in their own home through a mortgage or equity release application instead.
Certain mortgage lenders will now offer the option of doing this all under one application for a buyer and their family members. In this scenario, the lender provides a mortgage on the property being purchased, and a second smaller mortgage on the family member’s home to make up the deposit amount. The buyer will then make payments towards both until the deposit amount is repaid and the lender removes their interest on the family member’s property.
Joint Borrower/Sole Proprietor (JBSP for short!)
For when you’ve got a great size deposit behind you, but mortgage affordability isn’t great.
This type of mortgage is something I often recommend to clients of mine who can’t quite reach the lender’s affordability criteria for a mortgage on the home they want. A common example is someone unable to buy their own home because property is expensive in the area they live in.
By using a JBSP mortgage, they can bring a family member in on their mortgage, thereby allowing the family member’s income to be used towards affordability too. They way it differs from a standard joint mortgage is that the family member is only named on the mortgage; the property itself is owned solely by the person/people that intend to live in it. The important thing to remember with this type of mortgage is that boosting the size of your mortgage means boosted mortgage payments! So making sure that the monthly repayments are still comfortable is key. There are some other really important considerations to be made for all parties when deciding whether this type of mortgage is the right choice, so it’s crucial to get advice from the outset.
Loan as deposit
For those with no deposit
Believe it or not, there are actually a few mortgage lenders who are willing to consider a person using a personal loan as a deposit, rather than having to save up a deposit time. This works great for people who are ready to buy a home, have comfortable affordability, but perhaps due to the increased cost of living, may have struggled to build up a deposit and have no family members in the position to help by gifting a deposit. As with Shared Ownership, it’s important to remember that you’ll have two payments to make each month; the mortgage and the loan repayments. So making sure both fit inside your budget is comfortable. It’s also important to make sure that the loan provider is comfortable to provide a loan to be used as a deposit, as not all are happy to lend for this purpose.
These are just a few examples of the methods people are using to help them achieve their dream home. But it’s really important to speak with an expert, who will be able to guide you through each option fully, and recommend something that suits your needs and circumstances best.
Helen Peel – 19th January 2023