A NEW mortgage aimed at helping first-time buyers onto the property ladder lets up to six family members or friends apply for a loan.
The idea is this will either help groups of friends who want to live together or it will help lone first-time buyers struggling to get a large enough mortgage on their own.
Normally, lenders will only allow up to four people to apply for any one mortgage.
Lenders also limit how much house buyers can borrow, typically up to 4.5 times their annual salaries, leaving many first-time buyers locked out of the property market because they don't earn enough despite having the deposit.
But the Home Booster mortgage from start-up lender Generation Home lets multiple people apply for the same mortgage to increase the amount that can be borrowed.
In this example these "helpers" aren't put on the property deeds so it's not counted as a second home and there aren't any extra stamp duty costs.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20% of the home's value – or 40% in London – after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
"First dibs" in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20% discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.
Equally, they're not guarantors either so their property isn't used as collateral if the monthly mortgage payments can't be made.
But everyone named on the mortgage is liable for it.
Helpers, for example, could agree to contribute to monthly repayments and build up "shares" in the property, which can either be kept and repaid when it's time to remortgage, or gifted to the other mortgage holders.
Alternatively, they may agree to be silent partners and leave the monthly payments to others on the mortgage agreement.
For example, if a young couple applied for a mortgage with their parents, they could agree among themselves that monthly repayments will be made by the couple.
But if the young couple couldn't make the repayments one month then the parents would have to pick up the bill.
A missed payment will also be marked on everyone's credit score and could damage chances of any future borrowing.
The helpers don't have to stay on the mortgage forever though. The idea is that when it's time to remortgage, the buyers will have enough equity in their home – or maybe have had a pay rise – to take on the ful loan themselves.
"Buying with others may seem like a great way to own the home you live in, but you do need to think longer-term and discuss what your exit strategy may be," Paula Higgins from consumer group HomeOwners Alliance warned.
"For instance, what would happen if your financial helpers' own situation changes and would like to see their money back sooner than anticipated.
"Will they be happy to have money tied up in your home for years to come?
"It's important for everyone involved to seek their own independent legal advice and to agree when and how the property can be sold."
Darren Cook, mortgage expert at comparison site money.co.uk, added: "There may be different or unique mortgage terms and conditions attached to this type of mortgage, so it is imperative that a potential first-time buyer fully understands these and the consequences if their circumstances or their relationship with the co-owners change in the future."
How do the mortgages compare?
Unlike a high street lender, Generation Home products are managed entirely online. They are Financial Conduct Authority regulated too.
Generation Home doesn't offer mortgages to buyers with a 5% deposit – the impact of the pandemic has largely wiped out all of these deals across the board.
How much deposit do I need?
THE basic rule is the bigger your deposit the better the rate you’ll get and the smaller your monthly repayments will be, but not everyone can wait that long.
A decade ago, borrowers were able to take advantage of lots offers that meant they didn't need to stump up any money before getting their mortgage.
Nowadays, you'll need a deposit that's at least 10% of the property value before you can take out a mortgage.
That means you'll have to borrow the rest from a bank or building society – the chunk of cash you borrow compared to the deposit is called the loan to value (LTV).
So if you put down 10%, you'll take out a mortgage for 90% LTV, or 85% LTV if you've got a 15% deposit.
A few 0% mortgages have also slipped onto the market, which make it look like you don't need a deposit at all.
This is where the buyer borrows 100% of the mortgage without having to stump any of your own funds upfront, but most of them rely on you getting some sort of financial assistance from your family.
They are few and far between at the moment, but there are a couple of options from the Mansfield Building Society which are worth checking out.
The minimum deposit borrowers need is 10% – reassuring as there are only two lenders elsewhere, Virgin Money and Nationwide, still offering these deals.
Generation Home only offers two or five-year fixed deals on mortgages too, so you'll be better off looking elsewhere if you want to fix for longer.
Loans cost 4.25% interest on a two year fixed rate deal for buyers with a 10% deposit. There aren't any fees.
The rate is pretty steep, compared to a two-year fixed-rate 90% mortgage with Nationwide though, which charges 3.49%, although you'll be limited to up to two people on the mortgage and have to pay £999 in upfront fees.
The fee-free five-year fixed-rate deal for buyers with a 10% deposit from Generation Home is also more expensive than what you will find elsewhere.
Generation Home charges 4.25% fee-free, while Nationwide charges up to two people 3.74% without any upfront costs.
If you have a 15% deposit, you can get a two-year fixed-rate deal at a rate of 3.25% with the start-up if you're willing to stump up £999 in fees.
Meanwhile, Lloyds Bank charges 3.23% for a 15% deposit with fees worth £1,325.
Generation Home doesn't offer buy-to-let mortgages.
Mr Cook said: "Rates on offer are higher than market averages but this could be put down to a higher risk taken by the provider in return for a more flexible approach to get on the first rung of the property ladder."
Of course, it's worth bearing in mind that only the best rates will be offered to borrowers with the best credit scores.
The amount you will be offered may vary depending on your individual circumstances.
Ms Higgins added: "It could very well be the case for first time buyers that it may be less complicated to save a little longer, take advantage of the Help to Buy or the Lifetime Isa to qualify for the 25% government bonus and or look at shared ownership options."
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