New mortgage scheme for first-time buyers with just a 5% deposit – can you apply?
A LENDER has launched a new mortgage scheme for first-time buyers with just a 5% deposit.
The New Build Boost scheme from Generation H has hit the market promising home buyers with low savings the chance to get on the property ladder.
The scheme offers buyers with a 5% deposit a mortgage with an 80% loan-to-value.
Generation H then tops up the remaining 15% with an equity loan, which the buyer has to pay back.
The loan is interest-free for the full length of the mortgage term while buyers can pay it off at its original value within the first five years.
After this point, the value on the loan will go up or down based on the value of the property you have purchased.
Buyers can get a mortgage through the scheme if they are buying a Persimmon home across 130 sites in England.
Generation H has launched the new scheme claiming it is picking up where Help to Buy, a government scheme, left off.
The Help to Buy scheme, which has now closed to new applicants, lets you borrow between 5% and 20% of the cost of a new-build home as an equity loan.
However, you have to start paying interest on the loan after five years, whereas this isn’t the case with Generation H’s offer.
Will Rice, founder and chief executive officer at Gen H, said: “The housing crisis that our country faces can only be solved by building more new homes and ensuring that suitable financing solutions are available for people to buy them.
“We have designed New Build Boost to open up home ownership to a wider audience – especially those who are not fortunate enough to have access to family support – while also giving home builders the confidence to ramp up the delivery of new homes to market.
“We applaud the ambition and urgency shown by the government to tackle the housing market’s structural problems.
“New Build Boost is our rallying cry to the private sector to raise its game and show that it too can be a part of the solution.”
Is the scheme worth it?
Nicholas Mendes, from broker firm John Charcol, said the main advantage of Generation H’s scheme was the 5% deposit requirement meaning those with low savings can get on the property ladder.
He added the equity loan remaining interest-free for the length of the mortgage term was another.
Under the Help to Buy scheme, the equity loan you take out is interest-free for the first five years, however from the sixth year you are charged yearly interest of 1.75%.
Meanwhile, Nick said the simplified application process was one other perk.
Unlike Help to Buy, the New Build Boost lets home buyers apply for both the mortgage and equity loan in one go too.
However, experts have also said there are some drawbacks to Generation H’s offer.
David Hollingworth, from L&C Mortgages, said with the rate on the mortgage fixed for five years at 6.49%, it is higher than a lot of other five-year fixed deals on the market.
The latest data from Moneyfacts reveals the average rate for a five-year fixed mortgage is 5.18%.
Nick Mendes added: “One other potential drawback is that the scheme is restricted to new-build properties, which limits buyers’ choices.
“New-build homes are often sold at a premium, meaning buyers may pay more for a property than they would for an equivalent older home.”
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.
“Another significant risk is that equity loan repayments could increase over time.
“If borrowers do not repay the equity loan within five years, the repayment amount will be linked to the property’s market value.
“This means that if house prices rise, buyers could end up paying significantly more than they originally borrowed.”
You can apply for Generation H’s New Build Boost via www.generationhome.com/new-build-boost.
If you’re considering taking out a mortgage with Generation H, it might be worth getting help from a mortgage broker.
A broker will be able to tell you whether they think a specific mortgage is worth your time.
Bear in mind though, some do charge a fee for their services, typically ranging from 0.35% of the loan size to up to 1%.
In other news, with a key Stamp Duty deadline fast approaching and house prices falling, our interactive map will allow you to see what’s happening to prices in your area.
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