No Deposit to buy your Home? Your Options Explained.
Raising a deposit for your new home is never easy, how can you save when you have ongoing rent, bills, car payments.... The list goes on, and if you do not have kindly family members who are prepared to offer you a helping hand you may feel like giving up and moving into private rented accommodation.
Typically lenders request 5% of the purchase price as a deposit, but as house prices have soared over the last few years even a 5% deposit can be thousands of pounds. Add to this the cost of legal and mortgage fees, stamp duty and valuation fees, a property costing Â£150,000 will easily eat into Â£10,000, not small change! Added to this, raising a mortgage for the remaining Â£142,500 will require an income totalling Â£35,500, and monthly mortgage payments of more than Â£850.00.
The Government have recognised that first time buyers need that vital helping hand, and they have taken generous steps in making your first home attainable. In addition reputable builders such as Barratts and David Wilson Homes, to name only 2, are offering shared ownership part rent, part buy schemes which eliminate the need for a deposit.
While they will not simply hand over Â£10,000, they have introduced shared ownership schemes which dramatically reduce the financial outlay required, as little as Â£2500 can be sufficient.
The Government Shared Ownership Scheme
It works for 2 reasons. The mortgage amount you need to raise initially is much lower and therefore accommodates lower incomes, secondly the mortgage and rental payments are equal to, or only a little higher than renting a property completely (and paying the landlords mortgage).
Example : Jack and Kate are first time buyers earning Â£15,000 each. They each have 1 loan costing Â£120 per month for each loan.
The property they want to buy is valued at Â£180,000, and they wish to purchase a 50% share, raising a mortgage of Â£60,000. The rental payment for the remaining share is Â£150 per month.
Jack and Kates incomes and outgoings will allow them to borrow up to Â£100,000, so Â£60,000 is comfortable for them, the mortgage payments will be in the region of Â£430.00 per month. And the best bit? While a deposit would be great, they could opt for 100% of their share!
After paying the mortgage, the rental and their loans, Jack and Kate will be left with around Â£1000 per month for remaining bills.
When the couples income increases they will be able to buy an additional share of the property.
Builders Shared Equity
This is similar to the Shared Ownership, but you will own the property jointly with the Builder and not a Housing Association.
A builder will offer a new home at typically 75% of the property value. So, if the property is valued at Â£200,000 you will raise a mortgage for Â£150,000. You do not pay rent to the builder for the remaining 25% but usually have to buy the remaining share within 10 years at market value.
Lenders are happy to accept the builders share as a deposit, saving you a massive Â£10,000 on the deposit alone.
The housing market will slowly grind to a halt without first time buyers, Shared ownership provides glimmer of optimism in dark mortgage market.