For the first time since the financial crash in 2008, a deposit free mortgage has been launched to allow first-time buyers the opportunity to obtain a loan which covers the total value of the property they are wanting to buy. This mortgage product is being introduced to help renters get on the property ladder. It enables first-time buyers to purchase a property without needing to rely on the financial support of family or having to save for a deposit, something which has proven to be challenging amid the cost-of-living crisis and the rise in house prices.
This deposit free mortgage is a fixed five-year loan and works in a similar way to most other mortgage products in terms of being charged the same interest rate throughout the five-year period. This mortgage is only available to those who are first-time buyers, 21 years old or above and to those who can provide evidence that they have a good history of being up to date on rental payments and bills for at least 12 consecutive months.
As part of the deposit free mortgage, first-time buyers will only be allowed to obtain a mortgage which is the equivalent to their monthly rental payments. This will ensure that the borrower can afford the property. For example, if you pay £900 a month on rent you will have a maximum monthly mortgage payment of £900. There is also a cap on the amount that can be borrowed which stands at £600,000 and this mortgage product is not available for those who are trying to purchase a new-build flat.
Where you are planning to live will play a part in how beneficial the deposit free mortgage will be to you due to the value of properties varying based on location. At present, the average property being purchase by a first-time buyer is priced at £238,000. To be able to obtain a deposit free mortgage for a property of this value you will need to be paying £1,300 already in rent a month which of course not everyone does. Some people will be paying less than this making purchasing the average first property not achievable for everyone.
This does come with its own risks and is reliant on the housing market remaining buoyant and stable. First-time buyers will need to have a plan in place of what would happen if the housing market plummeted, and the property went in to negative equity. First time buyers may not remember the 2008 financial crash which saw repossession figures increase by 68%
Is it worth waiting and trying to save for a 5% deposit?
Skipton are offering a set rate of 5.49% on their 100% mortgages whereas other lenders are offering 4% rate on 95% percent mortgages. Where the purchase price is £300,000 this would provide a yearly saving of £2,788.00 which would help with rising costs.
Our dedicated team is on hand to provide expert advice to you in connection with the conveyancing process. For more information on the conveyancing we offer, please visit our Conveyancing web page.
To book an appointment or to discuss your individual circumstances in further detail, contact us today on 01603 693510 or email us using the 'Make an enquiry' form on our website.
*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.
