Little known lender launches 3% deposit mortgages to help first-time buyers get on the ladder
FIRST-time buyers could find it easier to get on the ladder thanks to a new range of mortgages that require a deposit of only 3%.
The 97% loan to value (LTV) deals are offered by a specialist mortgage provider which usually caters to borrowers who have been rejected by high street banks.
Most mortgage lenders require borrowers to have a deposit of at least 5% and for some the minimum is 10%.
Vida Homeloans said its new range called ‘3 and easy’ will also help people such as long-term renters and is available to those with an adverse credit history, complex or second job income, as well self-employed or contract workers.
A 3% deposit based on the average house price of £297, 166 in December would work out as £8,914 whereas a 5% deposit works out as £14,858 or a 10% one is £29,716.
The new range includes five and seven-year fixed rate products with rates starting from 7.4%.
This is relatively high compared to 95% LTV products currently available.
For example, a five-year 95% LTV deal at Halifax or HSBC can have a rate as low as 5.14%.
However, it can be trickier to get a mortgage if you have a low credit rating or your job set-up is not straightforward.
This is where specialist lenders and smaller providers such as building societies can help – they will look at your individual circumstances and decide if you can afford the loan.
The payoff is that the rates are usually higher than what you would find with a high street lender.
If you think that you don’t need a specialist mortgage it could be better to save up an extra 2% for the deposit to access lower rates from high street lenders.
You also need to be sure that you won’t want to move within five or seven years if you take out the deals or else you will face hefty repayment fees.
Experts said Vida’s new deals were exciting for new buyers.
Nicholas Mendes, mortgage technical manager from broker John Charcol, said: “This initiative addresses a crucial gap in the market.
“Historically, individuals with adverse credit have faced significant barriers, such as the need for larger deposits, effectively locking them out of homeownership opportunities.
“Vida’s entry into the higher LTV space could serve as a much-needed lifeline for many prospective buyers, enabling access to the housing ladder for those who have struggled due to limited options in the past.”
The deal is only available through mortgage brokers so you will need to find an adviser to access the deal.
You can search for a well-rated local broker through unbiased.co.uk.
Helen Cawthra, head of intermediary relationships at Vida, said: “The 3 & Easy range can be game-changing for so many people.
“From those who feel trapped in rented accommodation to prospective first-time buyers still living with parents.
“They now have an option to buy their home sooner, with a smaller deposit of 3%. The products are also ideal for those young families looking to move on in life to a larger property to better suit their needs, without the need for a large deposit or savings.”
What other first-time buyer mortgages are available?
In recent months, more lenders have announced deals to give first-time buyers more help getting on the ladder.
These include small or no deposit mortgages, higher earnings multiples and more ways families can help get relatives onto the housing ladder.
For example, Skipton Building Society’s Track Record mortgage offers you a no-deposit option if you can show you have been paying rent for a year or more.
Another option if you only have a small deposit is Yorkshire Building Society’s £5,000 deposit mortgage.
It only requires a deposit of £5,000, which could mean borrowing as much as 99% of the property value as it is available on properties costing over £100,000 and up to £500,000.
The Helping Hand option at Nationwide lets eligible first-time buyers borrow up to six times their income – ideal for those on smaller incomes or looking to buy in pricey areas like London.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.