Did your home increase by £19k in 2022?29 Mar 2023
National Hunter (N. Hunter Limited)13 Apr 2023
Are you looking to buy a home but don’t have a deposit?
Some lenders will allow a borrower to purchase a property with a deposit as low as 0% with the help of family or friends. The family member or friend does need to lock away their savings with the lender but those savings will attract interest.
This type of mortgage could offer:
- First-time buyers and home movers a mortgage up to £500k (excludes new builds)
- Up to 4.49x income multiples
- Mortgage terms up to 35 years
- If all mortgage payments are made, helpers get their money back after five years
- Helpers still earn interest on their savings during the five-year period
The borrower applies for a mortgage and could borrow up to 100% of the purchase price. They can apply for a term up to 35 years and the rate is fixed for the first five years, providing some security of payments in those early years.
The borrower needs to make all their mortgage payments on time to make sure their helper gets their savings back without delays. If the borrower doesn’t keep their mortgage payments up to date, the lender will keep the helper’s savings for a slightly longer period than the agreed term.
The helper opens a savings account (no withdrawals allowed for the first 5 years) and pays in 10% of the borrower’s property purchase price. If the borrower makes all their mortgage payments on time, the helper gets their savings back after five years, with interest.
Helpers will need to show they’ve taken independent legal advice before the mortgage can begin.
What I particularly like about this product is that parents are not gifting cash to their child. They retain ownership of their money, which is useful when they can’t afford to gift a large sum but are prepared to lock it away for a period.
There are also other innovative schemes on the market including a guarantor mortgage where the guarantee from the family member is limited to the amount the offspring cannot afford rather than the whole mortgage. The same lender also allows for a second charge to be placed on the property where cash is being provided for the deposit. This solution can be very effective where your son or daughter is buying with a partner and the parent wants to protect their savings in case the couple later separate.