New Mortgage Loan For First-Time Home Buyers
Necessity is the Mother of Invention, or so they say, and since one of the dreams many people have is to be home owners and get on the property ladder, and climbing that ladder can be difficult, banks and mortgage lenders are trying to come up with new ways to help those get on the ladder; a little boost if you will.
One of the main hurdles many first-time home buyers face is the deposit. Saving up thousands of pounds for a deposit can prove daunting.
Mortgage lenders require some for of a deposit, if you want to be approved for a mortgage. The larger the deposit, the higher a borrower’s chances of the loan being approved. This is due to the fact the larger deposit reduces the lender’s exposure or risk on the loan.
However again, saving up a deposit can be difficult.
If the average home in the are you wish to live is £180,000, a 20% deposit is £36,000, a 10& deposit is £18,000.
That is a lot of money to save up.
So more and more, lenders are finding ways to ease this problem of saving up for a deposit, ways to reduce the amount of deposit required, and alternative ways for first-time buyers to find the money for a deposit.
Alternative Deposit Schemes
In the world of alternative deposit schemes, the first way to help first-time buyers with a deposit, is to not require one. Lend 100% of the sale price of a property, waiving the deposit requirement.
However, not all lenders agree with that type of solution. 100% loans for mortgages typically have a higher default and repossession rate. The buyers have nothing invested in the property, so they are more likely to let it go back and be repossessed.
Other alternative schemes include gifting equity, which can take on two (2) forms. One is having a family member sell a property to someone for a less than market value price, which immediately gives them equity in the property.
The other is having a family member pledge part of the equity they have in their own property as a deposit, almost like a co-collateral scheme. This is also called pledged equity.
There are variations on this, such as having a family member pledge a percentage of the deposit in the form of savings they may have. The family member pledges 10% of the sale price of a property in the form of savings they may have as a deposit.
This gives the borrower a 10% deposit, and they do not need to save up.
Lloyds Bank has taken this scheme a step further, and has a mortgage loan that allows borrowers to get a loan to by a property for 100% of the sale price, or valuation of the property, if they have a family member who can deposit 10% of the sale price in a savings account with the bank.
The borrower gets a 100% loan, at 2.99% for three (3) years, and the family member who opens the savings account, gets a rate of return of 2.5% that is fixed for three (3) years.
On the surface, it sounds like a pretty good deal.
The Group Director of Retail Banking at Lloyds, Vim Maru, stated, “We are committed to lending £30billion to first-time buyers by 2020 as part of our pledge to help people and communities across Britain prosper – and Lend a Hand is one of the ways we will do this.”
“At the heart of this market-leading product is helping to address the biggest challenge first-time buyers face getting on to the property ladder, while rewarding loyal customers in a low rate environment.”
“Although times have changed, children still have a similar ambition to their parents – to own their own home. Lend a Hand helps parents to invest in their children’s future and get the best return on their cash.”
It is good to see mortgage lenders addressing the issue, one of the main issues facing first-time home buyers, which is the deposit.
Of course another issue/hurdle facing any home buyer, are the prices of properties across the country.
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