First time buyer? You can get a £500,000 house with NO deposit
Want to buy your first house but don’t have a deposit? That’s no problem if you can enlist the help of your family
July 4, 2019
If you think buying your first home is out of your reach because you don’t have a deposit, think again.
Barclays has revamped its Family Springboard Mortgage, which offers first-time buyers the chance to get on to the property ladder deposit-free by linking their mortgage to a friend or relative’s savings.
Barclays Springboard mortgage isn’t new. But recent changes to its rules mean customers can now borrow larger sums, up to £500,000. Borrowers can also take out a mortgage with a term of up to 35 years, compared to the previous limit of 25 years. Plus the fixed rate period has been extended from three to five years.
How does it work?
It’s quite a simple process. Instead of gifting the money to the first-time buyer, the friend or relative opens a Barclays ‘Helpful Start’ savings account which is linked to the buyer’s mortgage. The guarantor must deposit savings equal to 10% of the price of the house.
This money is then locked away for five years. When the time is up the relative or friend has their cash returned with interest. The interest rate on the Helpful Start account tracks at 1.50% above the Bank of England Base rate.
The idea is the homeowner will have paid off enough of their mortgage to be able to remortgage to a lower loan-to-value mortgage after the five years.
Other providers to offer family-orientated deals include Lloyds Bank, which launched its Lend a Hand mortgage earlier this year. While the Family Building Society offers a ‘Family Mortgage.’
What are the benefits?
If you’re a first-time buyer there are huge benefits for you. The biggest is obvious: you don’t need to save for a deposit, which means you can get on the property ladder sooner.
You’ll also get a fixed-rate mortgage deal for five years at 2.95%, however you can cut this to 2.75% if you have a 5% deposit to put in on top of the 10% savings.
Also the fact Barclays have increased the maximum mortgage term on this product from 25 to 35 years will make monthly payments more affordable. However it’s crucial to note you’ll pay considerably more interest over the course of the mortgage if you take it out over a longer term.
For the guarantor, it means you can help your loved one without needing to actually give them the cash. You’ll get your money back with interest on a fixed time-frame and you can open up to six Helpful Start accounts.
Is it risky?
For the guarantor, it might sound like a brilliant way to help your child. But you need to consider carefully before proceeding because in the absolute worst case scenario you could lose the money you put in. In fact, Barclays requires the guarantor to get independent legal advice because they want them to understand the implications of putting their money into a Helpful Start account.
The bank warns on its website: “If the homebuyer can no longer make their mortgage payments, we’ll keep your deposit in the Helpful Start Account for slightly longer than the agreed term.
“If we need to repossess the property, you could lose some or all of the money in the Helpful Start account if there is a shortfall between what we’re owed and the amount we sell the property for.”
Buyers still need cash to buy a home
Not requiring a deposit may take an enormous financial burden off first-time buyers. But it’s essential to remember you will still need a decent sum of money set aside to buy a home.
Firstly, you may need to pay Stamp Duty. First time buyers are exempt from the tax on the first £300,000 for properties worth up to £500,000. But depending on the value of the property you could face a hefty bill. See our guide on How much is stamp duty and when do I have to pay it?. The guide includes a handy stamp duty calculator.
Plus you’ll need to budget for conveyancing. This is the legal process involved in buying a house. There’s the cost of getting a survey done too.
Every little helps
It’s important to get yourself in the best possible position to buy a home by saving as much money as possible.
Setting a budget and sticking to it is still one of the best ways to make sure you’re not spending more than you earn and identify possible savings. Take the time to sit down and work out where your money is going.
And make the most of any savings you do have. Scour the market for the best deals and take advantage of ISAs if you can.