Deposit / Purchase options for buying a home

Homebuy Direct

Introduced in Autumn 2008, this scheme covers newly built homes on specific housing developments across England.  The scheme works by allowing the home buyer a mortgage of up to 70% of the purchase price of the property and then an equity loan of 15% – 30%. The equity loan is partly funded by the government and the property developer.

Typically, no charges are paid on the equity loan in the first 5 years, although the home owner can make part or full repayment after the first 12 months. After 5 years charges apply.

Social Homebuy

This scheme offers housing association or council tenants the opportunity to purchase a share of their home. The home buyer purchases a share (minimum of 25%) and then pays a monthly rental for the amount owned by the association or council. A discount from the market value of the property may be offered to the home buyer, typically £9,000 to £16,000 depending on which area of the country the property is in. If the property is sold within 5 years of purchase, all or a proportion of the discount is repayable. This scheme is not available to all regions or housing associations.

Shared Ownership / New Build Homebuy

This scheme allows the home-buyer to purchase a share of the new build property, similar to many previous shared ownership schemes. The remaining share is owned by a housing provider, such as a housing association. Typically, the minimum share that can be purchased is 25% and the maximum is 75%. The home buyer would take a mortgage for the share they buy and pay a rental for the amount owned by the housing association. In many cases the home buyer can buy further shares in the property over the coming years which can be done in one or a number of stages. This is called ’stair-casing’.

Builder Gifted Deposit

Many of the leading UK developers offer Builder Gifts or a percentage of the deposit paid by the developer. Some also offer ’Deposit Match’ whereby for example the person buying the property comes up with 5% of the deposit, the developer gives another 5% and there is a mortgage put in place to pay the remaining 90%.

How does this actually work? It can take a little though to grasp the concept, however, it is actually incredibly simple. To use easy figures, lets say a property is worth £100,000 and is being sold advertised at £100,000 sale price with a ’Builder Gifted Deposit’ of 5%. This means that in reality the developer is proposing that the property is worth £100,000 on the open market, however, they are willing to sell for £95,000. The contracts are drawn up for a sale at £100,000 with a declared deposit contribution from the vendor. This does not mean that the vendor physically pays 5%, they in effect create a voucher for the 5% off. The solicitor checks that the paperwork is legal and correct and they will also check that the lender is fully aware of the structure of the deal and that there is an incentive offered.

Vendor Gift Deposits on pre-owned properties is an option that is currently supported by mortgage lenders, however, where a tenant has an option to buy the house they are renting from their Landlord, some lenders may consider a deposit contribution in the same way as a builder gifted deposit.

Deposit gifted from Parents

More and more first time buyers get some help from family to raise a deposit. Lenders normally require confirmation that this is a gift, unless of course it is going to be a loan. Less lenders accept a loan from family for a deposit than those who accept a gift. The lender will also want confirmation that there is no encumberance to the gift/loan. In other words, confirmation that there will not be a charge on the property or equitable interest in the property from the person giving or lending the deposit money.

Taking a loan to cover the deposit

This is acceptable to some lenders, but they would need to confirm that you are able to afford the monthly payments of both the loan and the mortgage. If you are taking a loan you should always declare this to your mortgage broker and the lender. As part of money laundering laws, the Solicitor involved in the purchase will need to know where your deposit has come from and if it is a loan, they should check the lender is happy with this. If it has not been declared, it could mean that the Offer of mortgage is withdrawn. Getting a loan for the deposit is fine provided it is affordable, simply let yoour broker know and it can form part of the recommendation for the mortgage and as such would not cause any issues further down the line.

Rent to buy

This option is rapidly becoming popular. Sometimes available on certain new build properties and available on pre-owned properties also. It is designed to allow the potential home-buyer to save a deposit. The home-buyer can rent the property for a period of time and is given a preferential option to purchase the property within the rental period. There is usually two contracts, one for the tenancy which covers the rental aspect and the other which details the option to purchase. Sometimes the purchase price of the property is agreed up front, or the other alternative is that an indendent valuation takes place when the tenant is in a position to buy – and that valuation determines the purchase price.

New Buy Scheme

The New buy Scheme is an exciting and relatively new initiative. Only available on new build properties that are purchased from New Home Developers who have been approved for the scheme. This is a was to purchase a home outright, but only need a 5% deposit to do so. Mortgage lenders see such a small deposit as high risk, however, the gorvernment and the new home developer back the scheme with a Mortgage Indemnity Guarantee (MIG) Essentially, this is an insurance policy which protects the lender against losses made if they have to repossess. Rather than some of the other schemes available, such as Shared Ownership, this scheme allows the buyer outright ownership of the property from the start.

Do you want to find out more?

Simpy complete the form below and we can contact you to discuss your requirements – or call us on 02921754150

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Your home is at risk if you do not keep up repayments on your mortgage

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