UK Property, Financing Options

Building A Deposit

A deposit is the amount of money that you will be required to provide towards the purchase of a property, with the balance made up from mortgage finance. Building a deposit isn’t easy these days!

A house deposit is something you should save for and gather before you start thinking about which property you want to buy. Having said that, if this is a real problem there are other options where you can buy a first home without saving for a deposit at all, also gifted deposit.

The size of your house deposit may affect the interest rate you pay for some mortgage packages – the more you put down as a mortgage deposit, the lower the rate of interest you may be charged.

To find out what sort of deposit you might be required to get together – find out how much you can borrow – take mortgage advice.

A typical deposit would be 5 -10 per cent of the price of the property. So, for instance, if you were required to provide a 10 per cent deposit and the purchase price was £150,000 you would need to put down a £15,000 deposit. A very large mortgage – 100% or more of the property value would attract additional higher lending charges. These days, many parents make gifts to boost the size of the mortgage deposit.

One initiative that other housebuilders might like to copy is the ‘Save to Buy’ type scheme, which involves buyers saving up to 5% of the deposit over 18 months; an amount which is matched pound for pound by the builder. This eventually enables the buyer to accrue the 10% deposit required to purchase the house.

Buying a Property with friends

Buying with other individuals is known as joint ownership or joint equity or co-buying.

Buying property with a friend is becoming increasingly popular as sharing mortgage payments, bills and other expenses can make the difference between getting onto the first rung of the property ladder or not. With regard to family and property, some say that buying property with family can be a better idea – if you buy property with your brother, sister, father or mother you can always appoint a family member as mediator in case of a dispute but you can end up with family ‘baggage’ getting in the way.

Combining financial muscle means that as a pair or group you can borrow a lot more – sometimes up to 3.5 x joint annual salaries. Seek mortgage advice to see how much you can borrow together.

It is because of potential disputes that many have reservations about buying property with friends. Before you buy together you should agree what to do in the event of someone not paying their part of the mortgage, death, wanting a girlfriend or boyfriend to move in, having to move to another area. The last thing anyone wants is to be left having to pay the mortgage on their own or face repossession.

It is for this reason that if you buy with a friend, family member or even a stranger you have met with the purpose of investing together, you should have the right agreements set up. Your local family property law specialist can help you draw up a co-habitation or joint ownership agreement. They can also help you find a mediator in the event of such a dispute.

How Parents Can Help

It’s a fact that the high property prices in the UK are preventing first time buyers buy their first homes.

Those same high prices often mean that parents are ‘equity rich’.

Much can be done to help grown up children buy a first home – without breaking the bank or significantly impacting on parents’ own finances; there are a good deal of innovative mortgages around to help you all out too.

To find out which mortgage is best for you and/or your children, seek mortgage advice from a mortgage advisor who will have access to all the mortgages on the market and can help you choose the right product for your financial situation. You will probably be pleasantly surprised by the options and the costs.

Lease Option

It’s not just social housing tenants who can access right to buy – you can too, by taking out a lease option on a property of your choice. In some schemes you don’t even have to take out a lease option – schemes vary.

Based on a US model, a lease option, option to buy or rent to buy scheme could provide the perfect hybrid between renting and buying your first home.

The companies offering this service allow you to either choose your own property or choose one from a portfolio of theirs – it depends on what sort of lease option scheme or right to buy scheme they are offering. You can rent the property from them – typically a new-build flat – and have the right to buy the property yourself within a three-year period. With some schemes you don’t even need to pay for the option. To be considered you will need to know how much you can borrow, so take mortgage advice at the outset.

The main advantage of rent to buy is rather than playing a game of ‘savings catch-up’ whereby you can’t save as fast as house prices rise, the price of the property will be fixed from the day you move in as a tenant. And, as the property will be yours one day, any time effort and money you put into its décor will not be wasted.

Of course this opportunity will cost you somewhere along the line. If you sign the tenancy agreement there may be an ‘option fee’ of around two per cent of the current property value. However, this may be lower than the market value as they buy properties in bulk. This option fee secures your ‘irrevocable right to buy’ within the three years but it doesn’t tie you into doing so. If you don’t, it is possible to re-enter into the three-year agreement. Details may change depending on which of the rent to buy schemes or lease to buy schemes you are researching.

Before you can embark on lease option of rent to buy you will need to establish what sort of rent to buy mortgage you could afford, so speak with a mortgage advisor at the outset.

The rent you pay while waiting to buy may also be priced at a premium of around 10 per cent. However, if you have not managed to save for a deposit by this time, you should have one by default. This is because the mortgage you need to buy the property should be considerably less than its value – providing of course that property prices have continued to rise.

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