Finding the deposit for a mortgage is one of the biggest barriers to entry in the property market, so developers have started offering ways for people to get on the property ladder. Part exchange schemes as well as shared equity arrangements are some of the options on offer and some developers even offer to pay interest payments to your parents if they have lent you money for a deposit.
Since the credit crunch began the housing market has been suffering significantly and developers are very keen to attract people back into the housing market. They are hoping that these incentives will do exactly that. Banks have been resistant to offering loans because they have suffered from consumers defaulting since the crunch began. They’ve also seen money they’ve invested in new housing developments lose a significant chunk of their value.
There was a problem with houses being overvalued before the credit crunch began and since this time builders and lenders have brought a great deal more transparency to the industry and this is helping to restore confidence in it. Incentives that developers are offering must be disclosed to a lender before any mortgage financing is arranged.
Housebuilders Federation spokesperson, Steve Turner has recently commented, “The increase transparency means that people buying homes are well informed of their value and the value has not been artificially inflated. Unfortunately mortgages are still quite unaffordable and getting financing from a bank is the biggest problem for younger buyers. The size of the deposit means that they cannot get a mortgage from most lenders.”
This lack of buyers has meant that recovery in the sector is happening very slowly, according to new figures from the National Housebuilding Council the registration of new homes has fallen significantly month on month this year. Many developers are hoping that the First Buy scheme that has been backed by the government is going to bring younger people into the market.
The scheme works by buyers only having to pay a small amount of the deposit if they are buying a new home. The deposit figure tends to be around 4% or 5%. The government are also offering interest-free loans for 20% of the property while the buyer has to make up the rest of the price with a traditional mortgage. Buyers should however be aware that interest-free still means that the inflation rate will have to be paid and if the current high rates continue this can amount to a significant sum.
The First Buy scheme is not available to everyone and there are several conditions that must be met if you wish to apply for it. First off, your household income must be below £60,000, you are more likely to be able to receive the benefits if you have previously been housed in social housing or have been in the Armed Forces.
Even for those who don’t qualify for the scheme, some developers are offering attractive packages that make it easier to afford a house. In some cases they have been offering up to 15% of the equity in a very similar way to the First Buy scheme. For those who are not buying for the first time some developers are offering to buy your previous property and use it as deposit on a new home.