Four achievable ways to buy a home including WITHOUT a mortgage

IF you dream of owning a home – then don’t give up.

There are first-time buyer schemes and ways to help make home ownership achievable, even for those with a low salary or small deposit.

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According to data from MoneySuperMarket, the average deposit first time buyers are putting down for their house is £50,174.

With average mortgage repayments standing at £674 too, it means getting on the ladder is an expensive task.

From guarantor mortgages to rent-to-own schemes, we outline four mortgage schemes you can use that aim to be more affordable – and explain the pros and cons of each one.

Mortgage “free” deals

Budding buyers have had to face taking out pricer mortgages to bag a home as house prices surge.

This means that many are having to weigh up whether they can afford to make their money stretch to cover higher monthly mortgage repayments.

But a new mortgage deal has launched where buyers don’t have to take out a mortgage to bag a home at all.

Property company Wayhome has launched a “gradual home ownership” scheme where Brits only need to have at least £12,500 saved up for a 5% deposit to secure a home – and don’t need to take out a loan for their home.

You’ll be matched with a “funder” – a pension fund – who will cover the cost of the rent of the house – and then you’ll pay rent to the funder for the part of the house you don’t own.

Each month – or in lump sums up to 5% of the property’s value per year – you can buy more of your home and “staircase” until you own 40% of the house.

As you buy more, your rent will go down in price.

Pros

If you’re in a hurry to buy, you could get on the property ladder much quicker using this scheme.

This is because you only need a 5% deposit to secure your home – usually, you’d have to put down at least 10%.

Be aware that you’ll need at least £12,500 saved up to put down this deposit though.

That means you’ll have to be looking at properties valued at least around £250,000 – which may not be suitable for everyone.

Although Wayhome’s scheme sounds similar to the government’s shared ownership scheme – where you also part buy, part rent your home – you’re not restricted to buying a new build.

That means you can buy a house listed on the market and avoid new builds, which can often be pricier than older properties.

Cons

If you’re a first time buyer, you could end up paying a stamp duty – even though through other schemes you might not have to on the same value property.

First-time buyers are exempt from paying stamp duty on a property worth up to £300,000 – but you won’t benefit from this relief using Wayhome’s scheme.

This is because you’re buying your house with a funder who is classed as a “corporate buyer”, you’ll have to pay for the tax.

Wayhome says you’ll pay stamp duty in proportion to how much of the house you own – so if you own 5%, you’ll pay 5% of the tax and your funder will foot the bill on the rest.

You also might end up taking out a mortgage after all for your home.

If you’ve staircased to hold the maximum 40% share in the house, you’re expected to buy out the remaining 60% without your funder’s help.

So your house was purchased for £250,000 and you own the maximum 40%, you’d still need £150,000 in order to buy out the rest.

Guarantor mortgages

A guarantor mortgage lets you add someone else to your mortgage who is responsible for making repayments if you can’t.

There are some deals you can get to buy your home if you don’t have money saved up for a deposit.

For example, Barclays is offering a Family Springboard Mortgage loan that means you can borrow the full purchase price of your home without a deposit.

Instead, a “helper” – which could be a family or friend – will have to stump up 10% of the price of the property as a security deposit.

This will be held over a five-year period, after which their money will be returned, along with interest.

While Lloyds is also offering a Lend a Hand Mortgage deal where a family member puts down 10% of the purchase price of your home into a three years fixed savings account – and you don’t have to put a deposit down too.

Pros

This could be a good option if you’re cash-strapped and have a family or friend willing to help you get on the ladder.

It means you could technically buy a house with little savings for yourself.

Having a guarantor can also help to boost your chances of borrowing cash.

This is because the bank will see you as less of a risk if there is someone to step in if you can’t meet a repayment.

Cons

It’s important to note that if you fall back on your mortgage repayment, it can have consequences for you and your family member/friend.

If you fall back on your mortgage repayment, you and your guarantor could see your credit rating fall.

When you buy a home you are always at risk of negative equity – but if you have a small or no deposit then the risk is much greater.

This is when you owe more money on your mortgage than the value of the property.

It could mean you are unable to sell your home or get a new loan – which means you could be stuck on expensive mortgages once your fixed-rate expires.

Trussle head of mortgages Miles Robinson said that although guarantors can earn interest on their security deposit, they can’t access this until the end of the agreed term – which can be up to five years.

He adds: “If the buyer falls into arrears and the property is repossessed, then you the family member risks losing some or all of their money deposited.

You may also find it hard or more expensive to get a mortgage, as you might not get the top interest offered by a lender.

Help to Buy loans

The government’s Help to Buy scheme can help to considerably lower your mortgage repayments per month.

The scheme sees the government lend up to 20% – or 40% in London – of the value of your property.

You only need to put down just a 5% deposit for an eligible home – which are new-build properties.

So far, 313,043 people have taken out a Help to Buy equity loan.

Pros

As you only need to put down a 5% deposit for your house – usually you have to put down at least 10% – you can become a homeowner quicker.

You also don’t have to take out a bigger mortgage as you would do buying a property through the traditional way – and a smaller mortgage means smaller, and more affordable, mortgage repayments.

You can staircase your way to owning more of your home – which means you can buy out the government’s stake in your house by buying chunks as bug as 10% of your home’s value.

Cons

Although your mortgage repayments may be lower because your mortgage is smaller, be aware that after five years, you’ll have to pay back interest on the loan you took out.

The amount of interest you have to pay back on your loan rises by 2%, at least, each year.

You will see the total amount you must pay back per month jump after this point.

You can only buy a new build home under the scheme – which means any old properties listed on the market are not eligible.

New-builds can often cost more than a traditional property, and the scheme has come under fire in recent times for helping to push up house prices, leaving lower income Brits priced out of the market.

 Experts have also previously warned that you could be at greater risk of being in negative equity if you use the Help to Buy scheme.

Shared ownership homes

Similar to Wayhome’s “gradual home ownership” mortgage deal, the government’s shared ownership scheme lets you part buy, part rent your home.

But there are some crucial differences – you need to take out a special shared ownership mortgage for the government’s scheme, so it’s not mortgage free.

But as you don’t buy all of your home, your mortgage – and monthly repayments – will be much less.

Shared ownership lets buyers purchase a portion of the equity in a property if they can’t afford to take out a mortgage for the total value of the home.

You’ll co-own your home with a housing association, which will charge you rent on its portion of the property.

The scheme is open to anyone looking for their next home, not just first-time buyers, but they are reserved for specific properties.

You will also still need to put down a deposit, and you can take out a regular mortgage for the part you own.

Monthly mortgage repayments will be on top of the rent you pay to the housing association.

Homeowners must purchase between 25% and 75% of the property to use the initiative, and they can then “staircase” – buy more shares in instalments – until they own 100% of it.

Pros

Using the shared ownership scheme means you can get onto the property ladder much quicker.

You only need to put down a 5% deposit – although in some cases, this can rise to 10%.

Unlike private renting, you won’t have a landlord who can ask you to move out at any time, and your rent rate is likely to be less than market value.

Cons

If you haven’t staircased to own 100% of your property, you may have to sell it onto a buyer who meets the shared ownership scheme criteria – limiting your pool of potential buyers.

Each housing association/developer will have its own rules for this, so it’s worth asking beforehand.

You may also find that its harder to get a shared ownership mortgage – there are fewer lenders offering these types of loans compared to traditional mortgages and they can be more expensive too.

You may have to move further afield to get a shared ownership home too – there may not be a scheme going in your preferred location.

This post first appeared on thesun.co.uk