Remortgage to clear a Help to Buy Equity Loan

The Help To Buy Equity Loan scheme launched in April 2013. This Help to Buy scheme was intended to make it easier for those with a smaller deposit to get on the property ladder. For those people who took out this type of loan at the start of the scheme, you may have found that the interest-free period has now come to an end. So what should you do next?

You may find that your financial position is a lot different to when you first took out the loan. This leaves you with a few options to consider as you move forward. In this guide, we will explore the options available to you once your interest-free period comes to an end.

What is the Help to Buy Equity Loan Scheme?

This government-backed scheme was designed to help first-time buyers on the property ladder with a smaller deposit. It was only available on New Build properties in England and Wales worth up to £600,000 in England and £300,000 in Wales. The scheme was supposed to end in April 2021 but has been extended until March 2023.

The new Help to Buy Equity Loan scheme opened to applications in December 2020. Once this scheme took effect, the old scheme was no longer available.

The scheme works by offering borrowers an interest-free loan to help them buy a property. The full property value is secured in three parts:

The borrower contributes a minimum 5% deposit.
The government lends up to 20% of the property value, and 40% when buying a property in London. This loan is interest-free for the first 5 years.
The remaining 75% of the property value is secured through a mortgage, usually on a 2 or 5 year fixed deal.

This is clearly an attractive prospect for borrowers who might struggle to secure a 25% deposit through savings alone. It allows borrowers to shop around for the best mortgage deal and save money on fees and interest rates.

What happens after 5 years?

Once your interest-free repayment period comes to an end, you will have to start paying interest on the remaining loan amount. This is on top of your mortgage repayments, so you could see your monthly repayments increase by quite a bit.

From year 6 onwards, you will pay 1.75% on the remaining loan
The interest rate will go up every year at the RPI (retail price index) plus 1% until you have repaid the full amount.

How Do You Pay Back Help To Buy Equity Loan?

Clearing the loan in the first five years is obviously the best way to avoid any additional charges, but this isn’t always that simple. Remember that the loan repayment is on top of your mortgage repayments, so you might struggle to clear the full loan amount in 5 years.

You have to pay back the loan in full either when you sell the property, or when your mortgage period comes to an end. If you sell your home, the government simply takes a percentage of the sale price. If your home has increased in value since you purchased it, you could end up paying back a lot more than you borrowed.

Can you remortgage out of an Equity Loan?

If you are in a stable financial position, you could consider remortgaging and clearing the equity loan. There are two options you can consider if you are nearing the end of your fixed term deal.

You could remortgage and keep the equity loan. You will continue making repayments as usual.
You could remortgage to pay off Help to Buy loan. This will incur an admin fee of £115.

The second option will leave you with a larger mortgage, so you need to consider if you can afford the bigger monthly payments. A mortgage broker can help you to determine if this is the right move. Make sure you stress test your finances to determine if you can afford the repayments and avoid defaulting.

Benefits of paying off the equity loan

If you want to keep the same property, you might want to consider raising the funds to pay off the Equity Loan. At the very least, start paying off the interest. Paying it off in full will help you to avoid interest charges, but this isn’t always an option unless you have the funds available.

If you cannot afford to pay off the loan, the government will continue to own a percentage of your property. This means that if you sell your home, the government will not simply repay what is owed, they take a percentage of the property sale. This could mean you lose out if house prices have increased.

Move house to pay off the loan

If you are thinking about moving house, another option would be to move house and pay off the loan in full. If the value of your property has increased, you could move to a less expensive area and have enough for a larger deposit. This would free you from interest charges and allow you to start fresh.

Is it worth paying off the Help to Buy Equity Loan?

This always depends on your personal circumstances and what you can afford. While the 5-year interest-free period might sound tempting, paying back what you can during this time is advisable. This will reduce the amount of interest you pay in the long term. There are a few key benefits to paying back your Equity Loan in full.

If the property increases in value, you get to keep all of the profit. With an Equity Loan, the government owns a percentage of your property, so you might pay back more than you borrowed.
You don’t have to worry about the interest charges piling up when the interest-free period comes to an end.
When you come to remortgage your property, you will own a larger percentage of your home, giving you access to more lenders. This will allow you to shop around for the best possible deal.

If you do decide to remortgage, remember that this may come with additional charges. Lenders will typically have early repayment fees that are applied when you change mortgage products.

How much deposit do you need for a mortgage?

Deposit. The first thing you need to consider before getting on the property ladder. The deposit is an essential part of the application process, and no lender will consider you without one.

In this article, we will look at the role of the deposit, how to maximise your deposit and schemes that can help those who might struggle to save a deposit. We’ll also share our top tips to help you save a deposit. So how much deposit do you need for a mortgage?

Why do I have to give a deposit for a house?

Not many people have enough money lying around to buy their home with cash. This means they will need to apply to a bank for the funding. When lending money, banks have to consider the risk that the money will not be paid back.

If a borrower can’t keep up with their payments, the bank must repossess and sell their property. Since banks often need to sell homes quickly, they will let the property go for below the market value. This means they could fail to get back their initial investment. This is where deposits come in.

A deposit reduces the amount of money that an applicant needs to borrow, but it also ensures they shoulder some of the risk. If you could just walk away from your home if you are unable to keep up with the repayments and start again, the housing market would be completely destabilised. But when you’ve paid a deposit, you risk losing your investment and any equity you have earned in repayments. So by paying a deposit, you’re sharing the risk with the lender.

What is the ideal deposit for a mortgage?

Any lender will say that the bigger the deposit, the better. The more deposit you can provide, the less you need to borrow. This means that your monthly repayments will be lower and you could save a lot of money in interest over the lifetime of the loan. You could also reduce the repayment terms to help you live mortgage free even faster.

A good deposit would be around 25% to 40% of the value of the property. This will give you access to a wide range of lending products and will ensure you can secure the best possible rates.

Can I get a mortgage with no deposit?

No, the days of zero deposit mortgages are now behind us. After the financial crash of 2008, the financial sector has undergone some significant changes. Eliminating 100% LTV mortgages is one of the biggest shakeups.

Lenders want to see that you are sharing some of the risk, so a minimum deposit of 5% will be required to purchase a property. By making the most of government lending schemes and savings incentives, even a modest deposit could allow you to secure a good deal on your mortgage.

Can you get a mortgage with a 5% deposit?

Many lenders stopped their 5% mortgages during 2020 due to the coronavirus pandemic. In 2021, the government then announced a government-backed scheme to encourage lenders to start offering this product again.

This 5% government-backed mortgage offers protection to the lender, but not the borrower. If you are unable to keep up with your repayments, the government will ensure the lender doesn’t lose out. But there is no additional protection for borrowers.

The government-backed scheme is not a guarantee that you will be accepted. You will still need to pass the affordability checks. However, if you are determined to get on the property ladder and only have a small deposit, there should now be more lenders willing to look at your application.

What credit score is needed for a mortgage?

Every lender will have its own criteria, so it’s difficult to say the exact score that is required to be accepted for a mortgage. Lenders will look at different credit scoring agencies and have their own rules for what is acceptable, what is cause for concern, and what will result in a rejected application.

In general, all lenders want to see a steady and reliable source of income. They also want to see a history of good financial behaviour. Lenders might consider an application even if you have adverse credit history such as missed payments, defaults and CCJs. Bear in mind that this type of lending is higher risk, so you can expect to be charged higher rates and be subject to higher fees.

Another factor that lenders consider is whether or not you are on the electoral roll. It might seem like a small factor to consider, but being on the electoral roll at your current address makes it easier for lenders to confirm your identity. This simple step could speed up your application and give your lender confidence.

What difference does the deposit have on a mortgage?

The amount of deposit you can offer has a significant impact on the mortgage you can acquire. In general, the bigger the deposit, the lower the rates and fees. This can have a significant impact on the lifetime cost of your home loan.

Another thing to consider is that you will have a larger pool of potential lenders to choose from when you have a bigger deposit. When you are working with a deposit between 5% and 9% of the property value, there will be fewer lending products available. By boosting your deposit to 10%, you’ll open more doors. It’s easier to shop around for the best deal when there are more deals available to you.

How can I boost my deposit amount?

If you have a small deposit and want to access more lending products, you will need to find a way to increase the deposit amount. The simplest way to do this is to set your sights on a cheaper property. £10,000 would be a 5% deposit for a £200,000 house, but it would be a 10% deposit for a £100,000 apartment. Consider if you can downside and compromise on the property to access better lending products.

You could also boost your deposit amount using a government-backed scheme. The most popular lending schemes are outlined below:

Lifetime ISA

The LISA is a savings account that can boost your savings by £1,000 every year. For every £100 that you put into the account, the government tops this up by £25 at the end of the year, up to £1,000. If you save £4,000 over the year, the government will add £1,000.

You can only use the money to purchase a home or for retirement
If you withdraw the money for another reason, you lose the government contributions
You have to open your account between the ages of 18 and 40
You have to make your first deposit by the age of 40
You can continue paying into the account and earning the bonus until the age of 50

Help To Buy Equity Loan

The government’s Help to Buy equity loan allows you to boost a 5% deposit with a 20% loan. This allows you to shop around for the best possible deal with a 25% deposit. You then pay back the equity loan alongside your mortgage.

You must be aged 18 or over
You have to be a first-time buyer
There are limits to the property value depending on where in the country you are buying
The loan must be used to purchase a new home

Shared ownership

If you have a smaller deposit, another option would be to choose a shared ownership scheme. This scheme allows you to purchase a percentage of a property and pay rent on the remaining percentage from a property developer or housing association. Over time, you can apply to increase your ownership until you have purchased it in full.

You can own between 10% and 75% of the property
Your household income must be below £80,000, or £90,000 in London
You must be a first-time buyer, have already owned a home but unable to afford a new one, or an existing share-holder looking to move

How to save a deposit

If you don’t have rich relatives willing to give you your deposit as a gift, you’re going to need to get thrifty with your income. Saving money is never easy, but if you dream of getting on the property ladder, it is an essential step.

You will need to be strict every month to keep your spending under control. You will also need to be disciplined to make sure you don’t dip into your savings. Follow these steps to maximise your savings every month.

Make a budget and stick to it

It sounds obvious, but many people fall at this hurdle. Saving requires discipline, but you can’t be disciplined if you don’t know what to expect in the month ahead.

Look at your income and outgoings for the past few months and identify how much you need for essentials like bills and food shopping. Add on travel and other essential expenses. Make sure you set aside something for treats.

Now you know what is left and what you can realistically afford to save. This should be your minimum, and any additional savings can easily be added if you find you can cut more corners throughout the month.

Save at the start of the month

It’s accepted that the best way to be disciplined with your savings is to set aside money at the start of the month. Once you know how much you can afford to save, take this out of your bank account as soon as your salary lands. This will remove the temptation to overspend throughout the month.

Review at the end of the month

If you are very disciplined, you might find you have money left at the end of the month, too. There’s no harm in topping up your savings further if you have been very good with money throughout the month. Just make sure you aren’t stretching yourself too thin.

Check your account regularly

Many of us are guilty of paying for subscriptions we don’t need because we forget to cancel them. Keep a close eye on your bank accounts and try setting up text alerts so you know what leaves your account and when. This is an excellent way to spot errors in your banking.

A forgotten gym membership could cost £40 a month, or £480 per year. Add this up over a few forgotten payments and you could be missing out on thousands in savings. Downgrading certain subscriptions, such as dropping the Movie option on your TV package is another way to save money.

Don’t be afraid to say no

We’re all guilty of folding under peer pressure and agreeing to do things with friends, even when we can’t afford it. When you’re saving for a deposit, every decision counts, so don’t be afraid to say no to plans if it would blow your budget for the month.

Plenty of people would destroy their savings goals and spend £1,000 on a hen party just to avoid saying no. But if you aren’t going to enjoy the weekend anyway, don’t be afraid to politely decline. Once you’re in your home you can make up for lost time with more confidence.

Keep an emergency fund

Before you start saving for a deposit, build an emergency fund. This should include around 2-3 months of expenses to help you manage any surprises. This is beneficial as it will prevent you from dipping into your house savings if you’re ever running short.

By using an emergency fund, you can also put your savings in an account that you are unable to withdraw from. This is common with savings accounts that offer a higher rate of interest.

Ready to find your mortgage?

If you’re hoping to get on the property ladder, we can connect you with mortgage brokers that can help find you the best possible deal. Working with a broker can help you to maximise a smaller deposit and secure the best possible deal for your situation.

When will 5% mortgages be back? How they work.

Many young people dream of getting on the property ladder. But with many mortgage companies asking for a minimum 10% deposit, and the price of houses spiralling out of control, this will remain nothing more than a dream for most.

Across the UK, the average deposit required to purchase a home is between £10,000 and £20,000. Unless you have rich parents willing to help you out, or you’ve managed to land a lucrative job from a young age and start saving, even this might be out of your reach.

In an effort to help more young people onto the property ladder, the government has announced a new mortgage guarantee scheme. This means that prospective homeowners could purchase a property with a small deposit of just 5%.

While this might sound like good news for those hoping to get on the property ladder, it’s important to consider the bigger picture. These mortgages certainly don’t come cheap, and might not be ideal for every borrower.

What is the 95% LTV mortgage scheme?

LTV means loan to value, and it shows how much loan is required as a percentage of the property value. A 95% LTV mortgage means that the borrower offers a deposit worth 5% of the value of the house. The mortgage provider offers the remaining 95%. Borrowing a higher amount can mean a longer repayment term, more interest and higher monthly repayments.

As a borrower, the mortgage scheme operates just like any other mortgage. There is no difference between 95% LTV mortgages under the government scheme and any other 95% LTV service.

The primary difference is in the way the lenders make their decision. With the government backed scheme, the government agrees to shoulder some of the cost if the borrower is unable to pay back the mortgage. This makes it possible for lenders to relax their lending criteria.

When will the 95% LTV mortgage scheme start?

This scheme opened on April 19th 2021 and will run until December 2022. This scheme is similar to one that operated between 2013 and 2017. This was called the 5% Help To Buy Government-backed mortgage scheme.

Not all lenders are signed up to the scheme, but if they do sign up, they have to agree to offer a 5-year fixed price mortgage as part of their selection of 95% LTV mortgage products. Fewer and fewer mortgage providers have offered mortgages with low deposits since the Coronavirus pandemic.

The introduction of this scheme is welcome news for those who have been unable to purchase a home as a result of strict lending criteria, spiralling house prices and an insecure job market.

Who can benefit from this scheme?

Not everyone is eligible for the scheme, so before you get your hopes up, consider the following. First and foremost, this scheme is not limited to first-time buyers. This is great news for anyone thinking about moving house and wanting to free up some equity.

The criteria for the 5% deposit mortgage scheme is as follows:

You have to be buying your main residential home. These mortgages cannot be used for second homes, holiday homes or buy to let properties.
The property cannot be worth more than £600,000. If you have your sights set on a high-value property, you’ll have to raise a bigger deposit.
The property cannot be a new-build. What qualifies as a new build will vary by lender, but they will typically be rejected for a 95% LTV mortgage. This is because new build properties often struggle to retain their value, so a mortgage provider could lose out if the borrower were to default on their mortgage payments. Since the government is offering a guarantee on the mortgage, they set the terms.
Your deposit must be between 5% and 9% of the property value. This means you are borrowing 95% to 91% of the property value.
You will need to pass the lender’s affordability checks. These will vary by lender and can cover everything from income to credit score.

Are 95% LTV mortgages a good thing?

While a government-backed mortgage sounds tempting, there is nothing special about this type of mortgage. The lenders might be hyping them up, but this isn’t for the borrower’s benefit. And while several major players might be taking part in the scheme, this might not be the best option for you.

If you are truly struggling to get on the property ladder, this can be used as a last resort, but prospective homeowners with a little more flexibility should widen their scope.

The only reason this type of mortgage has been introduced is to encourage lenders to start offering a lending product they had started to phase out. At the moment, the following lenders are signed up to the scheme:

Lloyds
Halifax
Bank of Scotland
Natwest
Santander
Barclays
HSBC

Remember that many of these were already offering 5% deposit mortgages before the pandemic, and the government-backed scheme is no different to their other products.

The government-backed mortgages are better for the lender, as they offer additional security. But they offer no additional benefits to the borrower. When shopping around for mortgages, remember that this scheme might not offer any additional benefits. You could be better off with a different mortgage type or saving a little longer to offer a bigger deposit.

An alternative to the 5% deposit mortgage

If you have a small deposit, a better option could be the Help To Buy Equity Loan. This will allow prospective borrowers with a 5% deposit to borrow up to 20% of the value of the property from the government.

This is an interest-free loan for the first five years and will enable buyers to increase their deposit amount from 5% up to 25%. However, these loans can only be used on new-build homes.

Experts are warning this scheme is expensive

Affordability should be your primary concern when securing a mortgage, and this type of mortgage might not offer the best value. If you are determined to get on the property ladder with a smaller deposit, be prepared for much higher rates and a more expensive mortgage in the long term.

The following table demonstrates how a bigger deposit will secure a cheaper mortgage, based on a £150,000 property.

	95% LTV	90% LTV	60% LTV
2 year fixed	3.69% + £594 fee Fees: £9,054	2.99% + £1007 fee Fees: £8,196	1.13% + £1001 fee Fees: £4,621
5 year fixed	3.45% + £35 fee Fees: £8,537	3.37% + £1,024 fee Fees: £8,220	1.28% + £1025 fee Fees: £4,354
2 year tracker	3.99% + £35 fee Fees: £9,034	3.59% + £999 fee Fees: £9,054	1.39% + £1016 fee Fees: £4,772

As you can see, a higher LTV will secure you a much better rate, which will reduce your expenditure and the lifetime costs of the mortgage. If you are able to stay put and keep saving, you could secure a much better deal.

How can I apply for a 95% LTV mortgage?

If you are still keen to go ahead with this mortgage type, you will need to apply as you would for any other mortgage. You can choose to go directly to a lender or work with a broker to shop around for the best possible deal.

If you are hoping to make this process as cheap as possible, working with a broker could help you to save money on your application. They will be able to help present you in the best possible light and minimise your risk of rejection.

While a broker does add additional fees, they also help to save you money in the long term by connecting you with the best possible lender. The lender they suggest might not be offering the government-backed scheme, but remember that the scheme offers no additional benefits to you.

Apply for a 90% LTV mortgage if you can

If you’re on the border with a 9% deposit, you might be better off waiting until you have saved a 10% deposit as this will open up far more lending opportunities.

If you aren’t already, using a Lifetime ISA account could help you to boost your savings. You can save up to £4000 per year and receive a government cash bonus of 25%. So after a year, you’d have an additional £1000 added to your savings.

LISA savings accounts can be used for retirement or purchasing a home, so you would be able to access the money without a penalty. You must be aged between 18 and 39 when you open your LISA account.

What happens if you default on a 95% LTV mortgage?

If you are unable to keep up with the payments on your mortgage, there is no additional help from the government. A government-backed loan does not benefit the borrower, rather, the lender enjoys some financial protection.

The government guarantees 95% of any losses above 80% LTV. So on a £200,000 property with a 95% mortgage, the lender would not guarantee losses on the first £160,000. They would guarantee 95% of the remaining £40,000.

If you miss your mortgage payments, your home could be repossessed and sold by the lender. They would look to recoup their original investment and any associated costs of selling your home. Since lenders typically sell repossessed properties below market value, you would likely lose your deposit.

This is why it is important to ensure your mortgage repayments are affordable now, but also if your circumstances were to change. Stress-test your finances to see what would happen if you or your partner were to lose their job.

The 95% LTV mortgage application

Although the government is backing this scheme and offering some protection to lenders, they are still required to carry out affordability checks to ensure you will be able to make repayments on time every month.

There are several stages to the mortgage application. Borrowers will typically apply for a mortgage in principle, which allows them to begin searching for a house with confidence. They can also put in an offer with a mortgage in principle, and then complete the application process once their offer has been accepted.

Lenders will want to see the following information as part of their affordability checks:

Proof of employment and income
Credit history
Bank statements for the past 3 months
Your deposit amount

Remember that all mortgage applications are simply an assessment of affordability and risk. Once a lender has determined you can afford the mortgage, they then decide how risky it would be to lend to you.

With a larger deposit, you are borrowing less money and shouldering more of the risk. So if you default on your mortgage payments, the lender has a better chance of recouping their investment.

With a 95% LTV mortgage, you expose the lender to greater risk, which means they will charge a higher interest rate. Prospective homeowners who are able to save more money or set their sights on a cheaper property might be better off in the long term by choosing a 90% LTV mortgage over a 95% LTV mortgage.

Rejection is still a possibility

The government guarantee does not extend to borrowers. This means that, although the risk is reduced for lenders, they still have an obligation to make sure they are lending responsibly. Rejection is possible, particularly if you have a small deposit, poor credit score and frequently run into financial problems, you might struggle to get accepted.

If you are rejected, we’ve provided a few recommendations to help get you back on track at the end of this article.

How to increase your chances of being accepted

If you are determined to go ahead with a 95% LTV mortgage, there are steps you can take to make your application look better to lenders. The following steps could help you to secure a better rate on your mortgage, or at the very least, reduce your chances of being rejected for a mortgage.

Improve your credit score

A higher credit score and spotless credit history will help to reassure lenders that you are responsible with money. If you have no credit history, this can reflect just as poorly as bad credit history. Try taking out a credit card with a low credit limit and using it little and often. Make sure you pay it off in full every month. You can also apply to have your rental payments included in your credit score.

Keep your spending under control

Lenders like to see that your expenses are what you say they are. So if you tell them in your application that you only spend £100 a month on takeaways, then you shouldn’t have £400 in UberEats charges every month. Keep your spending in check and make sure it matches your stated expenses. Make sure you end every month with a surplus in your account.

Get your deposit from savings

It’s common for parents to want to help their children onto the property ladder, but try to save your deposit if you can. This shows good financial responsibility and a monthly surplus in income. If you have to take your deposit from a family member, it isn’t the end of the world, but you could improve your position by adding this to your own savings.

Avoid end of the month transfers

When it reaches the end of the month, those who struggle to manage their money might ask for short-term loans from friends and family. Try to avoid this where possible. Mortgage underwriters will look at small loans from friends and family as a sign that you struggle to budget throughout the month. They might also interpret it as a sign that you are struggling to make your salary stretch to the end of the month.

Steer clear of betting websites

Betting is another kind of financial behaviour that lenders don’t like to see. The occasional flutter is fine, as long as you aren’t losing large amounts. But substantial or frequent transfers to betting websites can damage your chances of being accepted.

End each month with money leftover

Lenders want to see that you have a surplus of money by the end of the month. This shows that you have enough income, are in control of your finances, and can handle any unexpected blows. Working with a broker can help as they will tell you how many months of bank statements each lender will ask to see. This can help you to plan and make sure your finances are in order.

Pay down your debts

To boost your credit score, try to keep your credit usage under 40% of the total amount. Once credit cards are paid off in full and no longer required, consider closing them as this will give mortgage providers some reassurance that you won’t rack up additional debts.

Avoid large purchase

A common problem that mortgage brokers face is that borrowers have flawless finances when they complete their mortgage in principle application, but then things change when they complete the full application. It’s not uncommon for borrowers to purchase large items like cars on credit, which can drastically alter your credit score. Even if you have the funds for large purchases, wait until after your application has been accepted.

Steps to take if you are rejected

While the 95% mortgage might offer some guarantees for the lender, they are still required to make sure the mortgage is affordable. If the mortgage would put a big strain on your finances, your application could be rejected.

If your application is rejected, follow these steps to get back on track. You might lose out on a home you really like, but remember that new homes go on the market all the time, so there could be an even better home out there.

You should ideally wait a few months before submitting another application. This is because the application will show up on your credit report and this is a red flag to lenders.
Address the problems in your original application. For example, if your actual spending doesn’t match up to your budgeted spending in your application, this needs to be addressed.
Save more money. If you have to wait a few extra months, don’t be tempted to dip into your savings. Instead, focus on saving as much as possible. This could help to bump you up to the 90% LTV level, which will allow you access to more lending products.
Speak to a mortgage broker. Sometimes the reason for your application being rejected is nothing to do with your personal finances. Sometimes it’s an admin error or missing information. Work with a mortgage broker to ensure your application is in order and check if there are any areas that could be improved.
Stay positive. Being rejected for a mortgage application isn’t the end of the world. It might feel crushing at the time, but try to keep things in perspective. Waiting a little longer to get on the property ladder could allow you to save more money, access better lending products, and save money on your mortgage in the long term.

5% mortgage deposit summary

To sum up the points in this article:

The 5% mortgages guaranteed by the government offers protection to lenders, not borrowers.
If a borrower defaults on their mortgage, the government will cover any loss experienced by the lender.
You will need a deposit between 5% and 9% of the property value.
This type of mortgage is more expensive than other mortgage types.
A government-backed mortgage is no different to any other kind of 5% mortgage.
It is still possible to be rejected for a government-backed mortgage.
The same application rules apply, and you will need to pay close attention to your finances.
Saving a little extra money could give you access to a 90% LTV mortgage, which will offer much better rates.

What counts as a New Build property for the Help to Buy mortgage?

Looking at the Help to Buy scheme but confused about what counts as a New Build? You’re not alone. In this short guide, we hope to clean up some of the confusion around Help to Buy and New Build properties.

The Government’s Help to Buy will help those with a smaller deposit get on the property ladder using a low-interest loan to boost the deposit. One of the rules of the Help to Buy scheme is that it must be used to purchase a New Build. But what exactly counts as a New Build?

There is currently only one lender offering the Help to Buy mortgage, but it is still worth considering if you have a smaller deposit. It could boost your deposit amount, so you would only need a 5% deposit and the government would provide a loan of 20% of the property value. This would allow you to secure a 75% LTV mortgage.

If the property has been built in the last few years but has yet to be sold, this would count as a New Build. So you don’t have to look for the most recent developments to qualify. The property could also be considered if the developer has rented but not yet sold the property.

Would a 3 or 4-year-old property count as a New Build?

Yes, provided the property has not been sold to anyone yet, it would still count as a New Build for the Help to Buy scheme. If the property has been left empty, or the property has been rented but not sold, then it would be considered a New Build.

If you’re confused about the Help to Buy scheme or want guidance on the specifics of New Build properties, get in touch with Niche Mortgage Info today.

Securing a 95% mortgage as a foreign national with a visa

Lenders have strict criteria for foreign nationals living in the UK on Tier 1 and Tier 2 visas. Many will require a large deposit, which can rule some applicants out entirely.

In this article, we will look at some of the factors that will influence lending decisions for some of the biggest lenders. In many cases, foreign nationals will be better served by approaching a niche mortgage provider to help secure a better deal.

These are the things you will need to consider when trying to secure a mortgage in the UK as a foreign national.

Lending rates

The trade-off for many applicants is pretty clear. If you are unsure if you are even eligible for a mortgage, then any rate you are offered may seem like a fair price to pay to be able to purchase a property. However, it still pays to shop around. Rates vary by lender and then by their criteria. So an applicant with a 10% deposit and poor credit could be offered a similar rate to an applicant with a 5% deposit and excellent credit. That said, offering as much of a deposit as you can afford will help to bring down your rate. The difference between a 60% LTV mortgage and a 95% LTV mortgage could be significant.

Your visa status

Some lenders will differentiate between the types of visa, saving their best offers for applicants living in the UK on a Tier 1 visa. This treatment will vary between lenders so it helps to work with a mortgage broker who knows the market. If securing a 95% LTV mortgage is important to you, then we can help to match you with a broker who can help to make this happen.

Length of time in the UK

Lenders are concerned with the stability and affordability of your mortgage. This means they often look for a long working history to show that your job and income are stable. Many lenders will want to see evidence that you have been living and working in the UK for 6-12 months before your application. Depending on your visa status, some will want to see that you have been living and working in the UK for up to 3 years before granting a mortgage. This can limit your choice of lenders but wouldn’t necessarily be an issue.

The type of property you are purchasing

The majority of foreign nationals often want to purchase new-build flats in popular areas. This type of purchase is often seen as a higher risk for lenders, so they might be more reluctant to offer a high LTV for this type of property. You could adjust your search to include older buildings or even houses, or you could approach the right lender. As a foreign national looking to purchase a new build flat with a 5-10% deposit, you can expect to have a more limited pool of lenders to choose from.

The dangers of going it alone

The best option for a foreign national looking to secure a mortgage with a small deposit is to work with an experienced broker. There are so many factors to consider, from the type of employment to the source of your deposit. It’s not uncommon for lenders to reject applications when the deposit is a gift from abroad. An inexperienced broker might not know this, and so you could waste months waiting to apply again following a rejected application.

To avoid this, we recommend working with a whole-of-market broker to help find the best possible deal. While it might be cheaper to go it alone purely from the perspective of the fees you pay, it could cost you a lot more over the lifetime of the mortgage. Speak to our team about first-time-buyer mortgages for foreign nationals and start your journey to homeownership in the UK.

Help to buy scheme for foreign nationals

As it stands, only residents with indefinite leave to remain in the UK may take advantage of the Government Help to Buy and Buy New schemes. This excludes many non-UK and EU nationals, even if they have permission to live and work in the UK.

In our commitment to supporting the entire UK community, we are always on the lookout for ways to help niche mortgage applicants to make the most of schemes. In this blog, we will look at some of the rules and regulations that make up the help to buy scheme and how you can get on the property ladder as a foreign national.

Mortgage applications for visa holders

If you are a visa holder and are looking to purchase property in the UK, we can help. We have experience matching first-time buyers, buy to let landlords, high net worth individuals and remortgage applicants with the right lender. While some lenders might outright reject international applicants, we can help you find a lender that would be more likely to consider your application.

Mortgages for foreign nationals are often considered riskier as the lender might struggle to determine the source of the funds or the applicant may lose their right to live in the UK. Lenders will therefore have strict rules for visa applicants to protect themselves from riskier loans.

Applicants on a visa can expect to undergo much more thorough checks on income, visa status and the source of the deposit. This helps to cover lenders and ensure they fulfil their duties to prevent money laundering.

Another common problem that applicants will face is proving that they have been in the UK for long enough. Banks will often use the age of your bank account to determine how long you have been living in the UK, but some international residents will wait a while before opening their first accounts.

Larger banking institutions such as HSBC might appeal to international applicants due to their willingness to work with applicants in other aspects of banking. However, when it comes to mortgages, it’s not uncommon for HSBC to agree to a mortgage in principle only to retract their decision further down the line. This can be very disappointing for applicants who may lose out on non-refundable deposits and see their dream home go back on the market.

If you are thinking about securing a mortgage as an international resident, we can help advise you on the next steps. Often, the size of your deposit will determine the rest of the mortgage requirements.

DEPOSIT	COUNTRY OF ORIGIN	MORTGAGE RULES
10% deposit	Any country of origin	1 year of UK taxes 2 years left on visa
15% deposit	Any country of origin	3.5 years of UK taxes No minimum time left on visa
25% deposit	Any country of origin	No minimum UK taxes No minimum time left on visa

Securing a mortgage as a foreign national is a very complex procedure and we recommend seeking expert advice. Get in touch with Niche Mortgage Info today to find out more about our UK visa mortgage application support.

Help! I’ve been turned down for a help-to-buy mortgage, what can I do next?

The help-to-buy mortgage scheme is designed to help more people get on the property ladder, so it can be frustrating if you are turned down. If a lender turns down your application, this will prevent the sale from going ahead and you could lose out on your dream home. Such as the help to buy equity loan being declined. The good news is that being rejected by one lender does not mean that all lenders will reject you. Often, you just need to find the right lender with the right approach to help put your dreams of owning a home back on track.

The pool of lenders that will deal with help to buy applications is smaller, but by working with Niche Mortgage Info, you’ll have access to valuable insight for all of them. This means you could be in with a better chance of securing a mortgage by working with the right broker.

How Niche Mortgage Info can help with declined mortgage applications

Our brokers have experience dealing with many unique and challenging mortgage applications. There may be a difficulty with your application that even you aren’t aware of. Our team will help to dig out these issues to put you in the best possible position. This includes:

Self-employed workers with just one year of accounts
Foreign nationals on Tier 1 or 2 visa
Multiple income streams
Income from shift, car and large town allowance
Income from tax credits
Income from bonuses and commission
Securing mortgages above 4.5 income multiple
Gifted deposits
Arrears on personal loans and other credit issues
Missed payments on phone contracts, credit cards or catalogue cards

There are more serious credit report issues that can make it more difficult to secure a help-to-buy mortgage. These include:

Mortgage arrears. If you miss 1 payment in 12 months or 3 payments in 36 months this will reflect badly on your application.
CCJs. If you have 3 CCJs of any value, this can detail your application.
Defaults. Lenders may reject your application if you have 5 or more of any value on your credit report.
IVAs. If you are on a debt management plan, whether active or satisfied, this can prevent you from securing a mortgage.

There are also common issues with the type of property you would like to purchase. A less experienced broker, or working without a broker, can lead you to apply to the wrong lender. Some lenders will not consider:

New build blocks of flats that are up to 20 storeys.
New builds flats above commercial premises.
New build flats with a non-standard (NHBC) warranty.

If you are struggling to secure your help-to-buy mortgage, Niche Mortgage Info can help. We have helped countless first-time buyers over the years to get on the property ladder.

How to qualify for first-time buyer mortgage

How to qualify for first-time Buyer Mortgage?

Buying your first home can be overwhelming. You need to become a personal finance expert overnight and learn a whole new vocabulary. Buying a home is not an easy process, and neither is it cheap. This is why many first time buyers will flock towards something known as a first-time buyer mortgage.

This type of mortgage makes it easier to purchase your first home, either alone or as a couple. With a first-time buyer mortgage, you may have access to mortgages with a smaller deposit. Some lenders will ask for as little as 10% deposit. Or maybe 5%, if what we hear is right. Some will accept even less than this or help you to boost your deposit with Government schemes.

Above all else, the first time buyer mortgage category is excellent for those who need a little extra guidance. Your mortgage provider will explain the steps so that you feel confident and empowered every step of the way. Read on to discover how you can qualify for a first time buyers mortgage.

Check your eligibility

Perhaps the most obvious thing to state is that this has to be your first time buying a home. If you are buying with a partner and they have previously owned a home, you would have to apply for the mortgage alone to be able to make the most of any schemes.

To qualify as a first-time buyer, you cannot have owned any residential property in the UK or abroad. You’ll still be eligible if you own commercial property, but only if this property does not have a living space attached.

If you have inherited property or have had property purchased for you, you will be ineligible for a first-time buyer mortgage.

Save for a deposit

The days of 100% mortgages are long gone so you will need to save for a deposit. Use our first-time buyer mortgage calculator to find out how much you could expect to borrow based on your deposit and earnings.

Most lenders will expect you to save at least 10% of the property value. Some lenders will allow less in certain circumstances. How much you can borrow will depend on several factors such as your credit score, your salary, your monthly expenses and the size of your deposit.

To boost the value of your deposit you can use the help to buy equity loan, a lifetime ISA, starter home scheme or the shared ownership scheme. These schemes will all limit the type of home you can buy and the value of the home, so if flexibility is important to you, you will need to save your deposit without help.

Check your credit score

Mistakes on your credit report can quickly derail a first-time buyer application. Sign up to all the major credit checking agencies to find out what lenders can see. If there are errors in your credit report, it’s better to get these fixed before moving forward.

While it isn’t the only factor that lenders will consider, your credit score and report does help to paint a picture of your finances. A checkered financial past won’t hold you back if you are now on track with your finances. But it could mean that you aren’t offered the best interest rates available. This can increase the cost of your mortgage over the lifetime of the loan.

Secure an agreement in principle

To make the process of searching for a home easier, you can apply for an agreement in principle that will allow you to put an offer on a home before going through the final checks. During the coronavirus pandemic, some sellers were asking to see the agreement in principle before even arranging a viewing to help cut down on the number of visitors. This may continue into 2021.

Gifting money for house deposit: What's the process?

Getting on the property ladder is hard work, and with property houses at an all-time high, first-time buyers need to save for a bigger deposit than ever before. Not everyone has the means to save for a deposit, which is why some people will choose to support their friends and family with a gifted house deposit.

What is a gifted house deposit?

When you are looking to get on the property ladder, you need a deposit to secure a mortgage. Lenders will typically want to see a deposit of between 5-25% of the value of the property. If you don’t have this kind of money saved up, you could ask a friend or family member for the money.

Parents, grandparents and even friends can offer some of all of the deposit to make it possible for their loved ones to get on the property ladder. But this is a very tricky area, and it could impact your eligibility for a mortgage.

What is a gifted deposit?

Under UK tax law, you can’t just give your money away. Family members are allowed to give you as much money as they like, but if they pass away within seven years of the gift, you will be subject to inheritance tax on the amount.

A gifted deposit should not be used in place of a loan. The giver should have no intention of getting the money back and it should be given freely. A gifted deposit is a large sum of money when you consider that the average house price is £237,963 and the average deposit amount is 10%. This means that you’ll need around £24,000 to secure a mortgage.

As part of the mortgage application process, you have to let your lender know where your money is coming from. This is part of their anti-laundering checks. While anyone can give you the money, lenders prefer it when it is a close relative. Some may even specify that it must be a parent.

How do I prove that it is a gift?

If you aren’t sure if a relative is about to give you the money for your deposit, speak to a mortgage broker or your mortgage provider to find out more. The criteria will vary by lender, and each one will have their own procedures and requirements. Most lenders will ask for a declaration from the giver that the money is a gift. This will typically need to include:

Their name
Your name (or names, in the case of a joint mortgage)
The total amount gifted
A clear statement that it is a gift
A statement that the gift will not need to be repaid, has no commercial value, and will not afford the giver a financial stake in the property.
A statement confirming that the giver is in a position to give the money away.
Signed by a witness.

Your solicitor will help to ensure this letter is above board before you move forward with your application.

The person giving you the money will also need to provide proof of funds, usually in the form of bank statements. If the money has come from a deceased family member’s estate, you might need a copy of the will. And if the money has been saved over years, the giver might need to provide proof of deposits, to satisfy anti-laundering checks.

And finally, the person giving the money will need to provide photo-ID and two forms of proof of address.

What if the gift giver is overseas?

Accepting a large financial gift from someone overseas will be even more complicated. All documents will need to be translated and notarised, which can slow down the process. The anti-laundering checks will become much more stringent, so be prepared to provide proof of the origins of the funds.

If the gift giver passes away, will I pay inheritance tax?

For the purposes of anti-money laundering checks, a gifted deposit will be classed as a kind of “living inheritance”. This will be tax-free provided the gift giver is still alive, but if they pass away with seven years of giving you the money, this will be classed as an inheritance.

While there is a risk this could happen with anyone at any age, the risk increases when you accept a gift from an elderly relative. The standard inheritance tax rate is 40% which is only charged on the value of your inheritance over your tax-free threshold.

How else can parents help?

If your parents are unable to provide a lump sum, there are other ways they can help their children onto the property ladder. There are 100% deposits available for student properties, and these are secured against the parent’s property. This will allow the student to start paying towards a mortgage by letting out the property to their friends.

After graduation, they can keep the property and let it out to future students. The mortgage will switch to a traditional mortgage after three or five years, once the student graduates. After this time, the parent will no longer need to act as a guarantor.

This type of mortgage is not limited to students and you could act as a guarantor using your home or your savings as collateral. If you decide to become a guarantor, you will be responsible for mortgage payments if the homeowner cannot keep up with them, so it’s important to head into this type of arrangement with a plan.

If the borrower cannot afford a full deposit, you could make it a condition of the guarantor arrangement that they save an emergency fund to cover mortgage payments for a fixed period.

As with all guarantors and gifted deposit mortgages, it’s important to remember that you don’t have any financial claim over the home. If your relationship sours, you will have no right to claim your money back or stop being the guarantor, so think carefully before entering into this type of arrangement. If your own home or life savings is on the line, think carefully about how you want to proceed.

If you need any further advice, please see free to contact Niche Mortgages.

Guide to getting a mortgage

In this guide, we are going to look at how to secure a mortgage, common mistakes to avoid along the way, and what to do if you aren’t accepted the first time. Read on to discover the Niche Mortgage Info guide to getting a mortgage.

The boring stuff

A mortgage is a large loan from a lender to purchase a property. Since the average house price in the UK is now £237,963 and most people don’t have this kind of money lying around, the majority of people turn to mortgage providers to secure the funding.

There are a few different factors you need to know when applying for a mortgage. The amount of deposit you can provide will help to secure a better deal. The length of the mortgage term will also change the mortgage application. And finally, the interest rate structure will determine how your interest rate is determined.

Before the 2008 financial crash, it was common for lenders to offer 100% mortgages. This meant that anyone could approach a bank with proof of income and apply for a mortgage to buy a property, often without the adequate checks.

If a bank has to repossess a home because of missed mortgage payments, they will have to sell the property. If the value of the property has fallen, as many did, they are unable to recoup the full value of the home. This is one of the contributing factors that led to the financial crash. And this is why lenders now ask for a deposit and carry out stringent checks. Our Guide to getting a mortgage will now break all the stages down in more detail.

Deposits explained

The biggest obstacle for homeownership is often the deposit. Lenders will typically want borrowers to provide at least 5% of the property value as a deposit. Though Covid has led to most lenders only accepting deposits of at least 10%. With a smaller deposit, you can expect higher interest rates. Ideally, you should aim to save a deposit that is 20-25% of the property value.

If you are unable to save this amount of money, you could get help from a Government Help to Buy scheme. These schemes are intended for first-time buyers. The government tops up your 5% deposit with a low-interest loan. This allows you to secure a better deal on your mortgage. However, you will then need to pay your loan and mortgage payments, so this could drive up your monthly expenses until the loan is repaid.

Unfortunately, with 100% mortgages now a thing of the past, it has become more difficult for individuals to get on the property ladder. Setting your sights on a smaller property is one way to boost the value of your deposit. Once you have built some equity in your home, you could upgrade to a bigger home.

Your credit score and how it impacts a mortgage decision

Your credit score is a key factor that helps lenders to make a decision. A good credit score and a healthy deposit will give you access to the best rates and mortgage products available. But a poor credit score combined with a smaller deposit might hold you back.

Your credit score will be different according to different credit checking agencies. The three main agencies are TransUnion, Experian and Equifax. Different lenders may use different agencies, and some will look at all three, so it’s important to get a complete picture.

Your credit score takes into consideration the amount of credit available to you, how well you make repayments and other key financial information. Some lenders will automatically reject your application if they see signs of financial instability such as going beyond your agreed overdraft or transactions from betting websites.

Keep a close eye on your finances on the run-up to your mortgage application. You need to make sure you are spending within your means, making all payments on time and avoiding asking friends or family for money.

Lenders will also ask to see the last three months of bank statements. This will not only help to prove that the income you have stated is correct, but it also helps them to spot signs of instability. Avoid extravagant or outlandish purchases during this time. You can get a free check here.

Your income and your mortgage application

Above all else, lenders want to know that your mortgage is affordable. The best way they can confirm this is by looking at your income. Those in full-time salaried employment will have an easier time proving their income.

You may be asked to provide a P60 or your last few payslips. If you have recently started a new job, it may be helpful to wait until you have passed the probationary period before you submit your mortgage application. This will give the lender more reassurance that your income is steady.

If you are self-employed, the process of proving your income is altogether more complicated. Many lenders will ask to see the last three years of your trading accounts. If you cannot provide this – because you have recently switched to self-employment, for example – then you may have to shop around for a lender that understands your situation.

The self-employed may have to jump through more hoops to be able to secure a mortgage, but once approved, they will have access to all of the same lending products. In this sense, there is no such thing as a “self-employed mortgage” only a self-employed applicant.

Understanding brokers

When navigating the mortgage market for the first time, you might be overwhelmed by the options available to you. Many first time buyers make the mistake of going straight to their bank for a mortgage. They assume that the existing relationship they have with the bank will give them some kind of preferential treatment. This isn’t always the case.

We recommend working with a mortgage broker to help navigate the best deals available to you. Having a mortgage application rejected can be distressing to first-time buyers. This is why we recommend working with a broker who will help you to find the kind of deal you are most likely to be accepted for.

A broker can look at the whole market and match you with lenders and mortgage products that suit your lifestyle and financial goals. If you’re determined to pay off your loan as quickly as possible, a broker can help you find a lender that accepts overpayment without a fee. And if you want lower payments at the start of the term, a broker will be able to match you with a great introductory deal.

While a broker will cost money in the beginning, working with one could save you a significant amount in the lifetime of your mortgage. And the expertise they bring to the table could help you to avoid making a significant mistake. Not to mention, it can be helpful to be able to outsource this time-consuming part of the mortgage application process. (please see the list of top questions to ask a broker)

Mortgage timescales

The average time to secure a mortgage from start to finish is only around 30 days, but the actual home-buying process might take much longer. It can be risky to wait until you have found a property you love before applying for a mortgage. Instead, you should apply for something known as a ‘mortgage in principle’.

This is a stripped-back mortgage application that doesn’t go into too much depth. This allows you to start your search in the confidence that the bank is likely to lend you the funds, provided the property valuation is in order and you pass the final checks. A mortgage may be rejected once the mortgage in principle has been granted, but this doesn’t happen often.

As with all administrative tasks, the quicker you can respond with the required documents, the quicker the process will be. This is why it is helpful to be responsive during the mortgage application to keep things moving along. Working with a broker can help to speed up the process, but sometimes the checks and processes take longer.

Common reasons for a declined application

When a mortgage is declined, it’s stressful, but not the end of the road. Being declined by one lender does not mean that you can never secure a mortgage, it may simply mean that you need to wait a while, clean up your credit score and try with a different lender.

The most common reason that a lender will decline a mortgage is that they have uncovered something in your financial history that makes them nervous. This might be a discrepancy in your income, a transaction that hints at irresponsible spending, or late payments. Even something as simple as too many credit applications in a short space of time can be enough for a lender to turn you down.

If your mortgage is declined, try to find out the reason so you can fix it. If the reason is something like a CCJ that hasn’t been removed from your record yet, you can quickly amend this before making a new application.

If possible, try to avoid having any hard credit checks on your record before you resubmit your application. This could mean waiting around three months to submit another application. It might be stressful and you might have to say goodbye to a home you love, but this will increase your chances of being accepted the next time.

Choosing your mortgage rates

There are a few ways you can control the amount you repay every month. Your repayments will be determined by your deposit, your mortgage term and the interest rate. Increasing the mortgage term will lower your monthly repayments but increase the amount you pay back overall. The best way to secure a better deal is to shop around for the best interest rates.

Fixed vs variable rate interest

When you start your mortgage journey, you will notice that mortgages fall into one of two categories: fixed and variable rate. With a fixed-rate mortgage, your interest rate will stay the same for the duration of your mortgage. The only thing that will change it will be if you remortgage, but this would be an entirely new mortgage product.

A fixed-rate mortgage will typically be higher than the Bank Of England base rate (currently at 0.1% in October 2020). This is because lenders need to account for increases to the interest rates. A fixed-rate mortgage will make it easier to budget and could allow you to make regular overpayments to reduce the term and cost of your mortgage.

With a variable rate mortgage, your monthly repayments will depend on the interest rate set by your lender. Often, they will be linked to the Bank Of England base rate, but not always. A tracker mortgage will often be set at a percentage above the base rate. So, if interest rates go up, your monthly payments will increase. But if they go down, they will decrease. Many variable rate mortgage interest rates are set by the lender, so they can increase or decrease without notice. Only choose this type of mortgage if you are confident you will be able to make up the difference if the interest rate goes up.

A note on introductory offers

When shopping for a mortgage, you might feel like you are pleading for scraps, but you hold more power than you think. Lenders are keen to get your business, as there is no shortage of lenders out there. Provided you have a secure income and a healthy-sized deposit, there is no reason you shouldn’t be able to secure a mortgage.

With this in mind, think about how you can make your status work to your advantage. Some lenders will offer a fixed term as long as 10 years, which should give you plenty of time to budget, make plenty of overpayments and then remortgage when you hold a greater portion of the equity. You may also find lenders willing to cover things like conveyancing fees to help convince you to sign with them.

With all mortgage products, always think about the lifetime value of the offer and how this will shape your finances in the next 5, 10 or 20 years. Understanding the lifetime value of your interest rates and repayment term will help you to make a rational and sound choice.

We hope you found this guide to getting a mortgage helpful. If you need any help with getting a mortgage then please try our mortgage qualifier via the button below.