Buy your first home without a deposit
By Vin Parmar on 26 Apr 2018 in Buying
Many people struggle to save for a deposit to buy their first home. Sound familiar?
Well now you can. The Post office has launched the family link mortgage where first-time buyers can get onto the property ladder without a deposit.
The mortgage gives first-time buyers a 90 per cent loan-to-value mortgage secured against the property they’re buying, plus an interest-free five-year loan which is secured on a close relative or parent’s home. However, the parent’s or relative’s home must be mortgage free.
Unlike other family mortgages, with this one it doesn’t cost parents if the buyer keeps up with the loan repayments.
How does the family link mortgage work?
The deal is fee-free, but the buyer will make two separate repayments for the first five years:
- One payment towards the assistors mortgage, which is interest free.
- The second payment is towards the 90 per cent mortgage, but this is charged at a very high rate of 4.98 per cent for the five years at a fixed rate.
What does this mean in figures?
If you want to buy a home costing £200,000, you would take a £180,000 mortgage at a five-year fixed rate of 4.98 per cent. Then you would have a £20,000 interest free loan which is secured against your parent or relatives home.
With a standard 25-year term, your monthly mortgage repayments for the first five years would be £1,050 a month. You would then also pay £333 for the 10 per cent loan. Altogether you would have to prove that you can afford to pay £1,383 a month.
The small print
- Maximum mortgage is £500,000.
- Maximum term is 35 years.
- The assistor must be a close relative including parents and step-parents, brothers, sisters, step-brothers and step-sisters.
- You must be a first-time buyer to apply. For joint applications, this applies to both buyers.
- You’ll be assessed on your ability to meet the repayments for both mortgages.
- Your minimum income must be at least £20,000 and evidence must be provided.
How does it compare
The Post Office rate of 4.98 per cent is expensive for a 90 per cent LTV deal. If you have a 10 per cent deposit, the cheapest rate is 2.34 per cent with a £900 fee from Atom Bank. This is available to buyers who can give a cash deposit – either saved themselves or been gifted to them by family. On the same mortgage as above, the monthly repayment would be £793 – that’s £590 a month less than the Post Office mortgage.
There are also other alternatives for first time buyers looking to buy with a help of a relative. Nationwide, Barclays, Aldermore Bank, Harpenden Building Society and The Family Building Society also offer versions of a family mortgage.
The best mortgage option for you would depend on your financial circumstances. It’s advisable to speak to an independent mortgage broker who can advise you on the different options available and what is best suited to you.
Image credit: GotCredit