When it comes to getting on the property ladder, there are more ways than you might realise to achieve buying the home of your dreams.
SoGlos caught up with Gloucester-based mortgage broker, The Mortgage Brain, to find out more about the opportunities that are out there.
About the expert - Rupert Swetman, head of mortgages at The Mortgage Brain
Rupert Swetman is head of mortgages at The Mortgage Brain, where house hunters can rest assured that their adviser is with them every step of the way, whether they’re buying their first home, a buy to let, or are moving up the ladder.
The Mortgage Brain has more than 30 years’ experience helping customers find the best mortgage through its unique mortgage search system. Continually updated with the latest offers from the widest range of lenders, it can rapidly locate the best deal to suit a client’s individual circumstances wherever they are on the ladder.
Is it a smart decision to buy a property with a friend and put down a bigger deposit?
You will get more buying power if you team up with a friend or sibling that’s for sure. It’s always best to get advice from a solicitor to decide on the type of ownership — for example 'joint tenants' where you both (or up to four people) own the property equally and must all agree when it comes to selling the home, or 'tenants in common' which allows you to have different shares of ownership if you put in more or less at the beginning and you can sell your share whenever you want.
Drawing up a declaration of trust will avoid disagreements about paying the mortgage and bills. Also be aware that each borrower will be assessed separately for the mortgage on their incomes and credit history, so maybe have that chat first to avoid any surprises. Our advisers can give you more information.
How does it work if parents want to borrow money against their own house as a lifetime mortgage to help their children get on the property ladder?
If they are aged over 55 (or 60 for some schemes), your parents can consider a lifetime mortgage, which is a type of equity release scheme.
A long-term loan is secured against their home if there are no other debts secured against it. When their property is eventually sold, when they die or go into long-term care, the loan is repaid out of the remaining equity.
Before this, they won’t have to make any repayments on the loan as the interest is added to the debt and charged on an increasing sum; most lifetime mortgages have a fixed interest rate.
Make sure the lender is a member of the equity release council. Your parents should discuss any inheritance implications before taking out a lifetime mortgage, too.
If a buyer has missed out on Help to Buy but still wants to buy a brand-new property with a low deposit, is there another scheme available?
Yes, you can buy a brand-new home with Deposit Unlock from a housebuilder participating in the scheme. It’s aimed at both first-time buyers and those already on the property ladder who have a five per cent deposit. The remaining 95 per cent of the purchase price can then be borrowed from lenders signed up to the scheme.
Firstly, find a housebuilder participating in the scheme, then a home on the development you would like to buy. The housebuilder will then be able to confirm to you and your mortgage broker that the chosen property is available with the scheme. Then you can reserve your new-build home and apply for a mortgage.
The scheme is backed by a developer-funded mortgage indemnity insurance, which covers lenders from any potential loss if the property is sold for less than the owner paid for it. There is no charge to you for this.
If a buyer has saved a five per cent deposit, but doesn’t want to buy a brand-new property, are there mortgage schemes they can access?
The Mortgage Guarantee Scheme has recently been extended until the end of December 2023, so you still have time to apply.
It’s available to first-time buyers and existing homeowners and the property does not have to be brand new. A buyer with a five per cent deposit on a property costing a maximum of £600,000 can apply for a 95 per cent loan to value mortgage with participating lenders.
The guarantee compensates mortgage lenders for a portion of net losses suffered in the event of repossession.
Can you buy a property with a friend or sibling using the shared ownership scheme?
Yes, you can. To be eligible, the gross annual household income needs to be £80,000 or less when buying outside of London and £90,000 or less in London.
The size of your deposit will be determined by your mortgage provider's terms and conditions but usually ranges between five per cent to 25 per cent of the value of your share.
You will own a leasehold interest worth between 10 per cent and 75 per cent of the home’s value.
You will pay your mortgage and then rent on the portion of the house still owned by the housing association. You can buy a bigger share of the property known as staircasing when you can afford to — and you could eventually own all the leasehold property.
Is it a good idea for parents to offer their children money to put towards a bigger deposit?
Having a bigger deposit means that you will be borrowing less with a lower loan to value (LTV), so you could be eligible for a mortgage with a lower interest rate.
Buying a cheaper property could also help reduce your mortgage costs further by making a more affordable purchase.
Our mortgage advisers will be able to show you all your options. If your parents survive for seven years after making any gifts, then these will not be counted as part of their estate on death and will be exempt from inheritance tax, too.
