Major lender launches ZERO deposit mortgages for right to buy home loans
A MAJOR lender has launched a new zero deposit mortgage for Right to Buy home loans.
Barclays has said people applying for a Right to Buy mortgage with the bank no longer needs to put down a deposit.
The Right to Buy scheme lets tenants in social housing or a council house buy the property they live in at a discount.
Barclays previously had a 5% minimum deposit requirement for anyone looking to buy their home through the scheme.
But now, it has said it will use the Right to Buy (RTB) discount in place of a direct deposit.
Borrowers will also receive the benefit of reduced rates available for lower loan-to-value (LTV) mortgages.
Your loan to value is the amount you put down as a deposit vs the amount you borrow.
Usually, having a lower loan-to-value gives you access to cheaper mortgage rates, so having zero deposit would normally mean higher rates.
But under the Barclays scheme, someone receiving a 40% discount on their home under the RTB scheme will be considered to have a 40% deposit, giving them access to 60% loan-to-value (LTV) rates.
Lending is capped at 90% of the full market value to help ensure responsible borrowing, Barclays said.
This means that Barclays can lend up to 100% of the discounted price, as long as this does not exceed 90% of the valuer’s open market valuation.
Deposits are still required for loan amounts on “high value properties” – those above £640,000 for houses or £310,000 for flats.
In these cases, Barclays can lend up to 85% of the discounted price, as long as this does not exceed 80% of the open market valuation.
Lee Chiswell, head of mortgages at Barclays, said: “The right to buy scheme has long been a crucial route to home ownership for council and housing association tenants, yet we know that saving for a deposit remains a key obstacle.
“By lending for the full value of the property, we’re removing the need for buyers to have any deposit at all, helping many completely sidestep their largest barrier to home ownership.”
Rather than offering specific RTB mortgage products, Barclays makes its mortgage range generally available to RTB customers.
Nick Mendes, head of marketing at brokers John Charcol, said one major perk of Barclays’ offer is that people will still get access to lower interest rates.
“What stands out is that Barclays will now let buyers use their full discount to access lower loan-to-value rates – so someone with, say, a 40% is treated like they’ve got a 40% deposit,” Nick said.
“That’s a big win for borrowers, who can now access better mortgage deals without needing to put down any cash upfront.”
What is Right to Buy?
Right to Buy is a Government scheme that first launched in 1980 and lets council tenants buy their home at a discount.
The scheme is only available to households in England with it abolished in Scotland in 2016 and Wales in 2019.
You can only buy your council home if:
- it’s your only or main home
- it’s self-contained
- you’re a “secure” tenant
- you’ve had a public sector landlord (for example, a council, housing association or NHS trust) for 3 years – it does not have to be 3 years in a row
The level of discount you can get on your home depends on the type of property you live in.
For example, if you live in a house and have been a public sector tenant for between three and five years you get a 35% discount.
After five years, the discount goes up 1% for every extra year you’ve been a public sector tenant up to the maximum discount amount.
If you have lived in a flat for between three to five years you get a 50% discount.
After five years, the discount goes up 2% for every extra year you’ve been a public sector tenant, up to the maximum discount amount.
The maximum discount you can get is either 70% or the maximum discount for your region.
The maximum discounts for each region can be found via www.gov.uk/right-to-buy-buying-your-council-home/discounts.
Advantages and disadvantages of 0% deposit mortgages
THESE are the advantages and disadvantages, according to comparison website MoneySupermarket.
Advantages
- You don’t need to put down a deposit to buy your home
- You may be able to get onto the property ladder faster and benefit from rising house prices
- Mortgage repayments might be cheaper than renting
- You can build up equity in your home and remortgage to a better deal once your introductory mortgage deal ends
Disadvantages
- You may face higher interest rates then you would if you put down a deposit – even if that deposit was only 10%
- It’s easier to fall into negative equity. If property prices fall, your loan-to-value ratio (LTV) could be less than you owe on the mortgage, meaning you cannot move
- You may have to use a loved one or family member as a guarantor
- If your family contribute to a family-deposit mortgage, their own savings will be tied up for a set period of time even if you stay on top of repayments
- You may fall into debt to repay the mortgage
ALL CHANGE AT BARCLAYS
The latest move by Barclays follows several major updates to its mortgage offering.
In January, the lender launched “mortgage boost”, a scheme which lets both first-time buyers and existing homeowners add another person to their application to increase the amount they can borrow.
The new offer means those with a smaller deposit are more likely to be able to get on the property ladder.
Anyone on the application is responsible for the mortgage, but the extra name doesn’t have to own the property or be named on the deeds.
In an example provided by Barclays, someone with an income of £37,500 a year and a deposit of £30,000 could typically borrow £168,375, allowing them to buy a home worth up to £198,375.
But with the mortgage boost, if they added another person with an income of £37,500 a year, they could borrow up to £270,000.
Nicholas Mendes, head of marketing at mortgage broker firm John Charcol, said of Barclays’ new offering: “In a year where 1.8million households will be coming off a low fixed rate into a higher rate environment, this will be a welcomed addition to the market supporting many existing borrowers and perspective buyers looking to get onto the property market.
“One of the main advantages of this scheme is that it allows borrowers to increase their borrowing capacity by including another individual’s income, which can be particularly useful for first-time buyers struggling to meet affordability criteria on their own,” he explained.
The new offer from Barclays runs alongside the lender’s existing “family springboard mortgage”, which lets helpers deposit a lump sum of up to 10% of the loan to help first-time buyers get a mortgage.
It comes with the Financial Conduct Authority (FCA) currently encouraging lenders to be more flexible with their mortgage rules to help more people to access home loans.
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