So, you want to buy a house, but what are the different types of mortgages available?
Shared Ownership mortgages
If you’re a first-time buyer earning less than £60,000 a year, you might be eligible for a shared ownership mortgage. This means you can take out a mortgage on a percentage of a property, and a landlord/provider owns the rest. You’ll then pay rent on the value of the property that’s not yours. You might be able to buy a larger share of the house when you can afford it. Staircasing is the term that is used to describe this.
As you will see there are different types of mortgages available including shared ownership. The first and main difference between shared ownership mortgages and standard mortgages is that the mortgage amount is based only against the share of the property you are buying. Subsequently, this means that your deposit could be much less.
For example, if the property value was £150,000 and you are buying a 50 per cent share at £75,000, the minimum deposit would be 5 per cent of that £75,000, so £3,750. Whereas if you were buying a property outright on a standard purchase at £150,000 your 5 per cent deposit of the whole £150,00 would be £7,500.
Help to Buy mortgages
If you’ve saved a five per cent deposit, you might be able to use the Help to Buy equity scheme.
Under this scheme, the government will pay a further loan of up to 20 per cent or 40 per cent in London. The scheme is open to first-time buyers and those who are looking to move up the ladder. There are regional cap prices for the price of the property you can buy.
The Help To Buy deposit loan is interest-free for the first five years. You’ll be charged 1.75 per cent interest on the loan amount from your/the 6th year. The amount of interest you pay will then rise with inflation, and 1 per cent will be added on top too.
The government did also offer a Help to Buy ISA through certain banks, building societies and credit unions. This was designed for first-time buyers. Depending on how much you pay into your ISA, you could get a savings top up of between £400 and £3,000. You are only eligible for this if you had opened your account before the help to buy isa deadline ended as new accounts can no longer be opened.
This is suitable if you are buying a property with someone else. This could be either a partner, friend or family member. With both sets of deposits and income you may be able to take out a larger mortgage loan and own a home together.
A joint mortgage could mean you and the other person own equal parts of the property – joint tenants – or you might own a share of the home – tenants in common – which may be different amounts.
You should take legal advice before taking out a joint mortgage so all areas are covered.
A guarantor mortgage is a mortgage that is taken out on the premise that if you miss payments, someone else will pay them for you. This is usually a parent or close family member. This could help you take out a larger mortgage for your first home.
As you can see there are different types of mortgages available. You should get legal advice before asking someone to be a guarantor (or becoming a guarantor) as although their name will not be on the mortgage, there may be some complications.