First Time buying - Are we making the correct choice?

Andy_Kate_Kernow

Hi

We are a couple and do not have a great handle on mortgages and how they work (So Laymans terms where possible please). We tried enrolling with the Homebuy scheme and got let down with that - by lack of funding.

We have an eye on a couple of properties
both priced between 160,000 - 170,000

We earn about 39k between us.
We have about 20k Deposit
We also have 20k available from relatives which they will happily let us use for the Lloyds Tsb Lend a hand scheme (Shown in blue beneath):

Lend a Hand - Lloyds TSB - First Time Deal:

With the Lend a Hand Mortgage, you only need a 5% cash deposit, plus the backing of someone who wants to help you onto the property ladder by putting their savings up as additional security for the mortgage.
Your Helper will need savings equal to 20% of the property value.
Your deposit of and the savings of your helper must equal 25% of the property value.


They still earn interest on their savings, but it means that you can benefit from the lower mortgage rates normally available to customers with a 25% deposit.

Our questions are
1. Are there any other banks doing this kind of deal other then TSB/Lloyds
2. Would you do the same if you where in our position?
3. Is there any other scheme that may be of some use to us?

Any help is much appreciated?

Cheers
Andy&Kate

beecher

Personally speaking I'd continue to save up and wait til you have a 20 or 25% deposit.

I wouldn't touch the Lend a hand mortgage, but it may work for you.

The savings are held as additional security for the mortgage by way of a legal charge, but your Helpers should be able to get their money back provided you don't default on the mortgage

That 'should' worries me, as do these parts

You can ask for the charge to be removed and your savings released (only if the 42 month period has expired) when the mortgage represents 90% or less of the property's value (provided the initial fixed rate period of the mortgage has expired at that time).

The 90% point could be reached either because the value of the property has gone up or the borrower has made repayments that have reduced the amount they owe. If property prices don’t go up or there is a prolonged period of falling property prices, the legal charge (or guarantee) may not be released for a significant period.

In saying that, if you put in 20k (I assume you have money set aside for fees etc) and your relatives put in 20k, it could work for you. I'd be looking to overpay that 20k over the course of the term, and with your salary that should be achievable. If you don't aren't disciplined enough to do this then you'd end up in the same or even worse position LTV wise when the deal came to an end.

Andy_Kate_Kernow

Thanks for your speedy input

So when you say look to overpay that 20k over the course of the term.
I take it you mean over the first 3 years - and in doing so we should increase the likelihood of our relatives getting there money back sooner and move us into paying for bricks and mortar instead of interest sooner as well?

Sorry I'm a newbie to all of this.

beecher

Andy_Kate_Kernow wrote: »

Thanks for your speedy input

So when you say look to overpay that 20k over the course of the term.
I take it you mean over the first 3 years - and in doing so we should increase the likelihood of our relatives getting there money back sooner and move us into paying for bricks and mortar instead of interest sooner as well?

Sorry I'm a newbie to all of this.

Yeah, I meant over the first 3 years - not only do you have to pay back your relatives, but you also want to keep your Loan to Value ratio down as low as possible. Only be overpaying can you hope to achieve this - the days of relying on house prices increasing exponentially are gone, for a while at least.

So I'd say either save 20k over the next 3 years and then buy, or buy now and overpay that 20k. Only you can weigh up whether you think house prices will be lower than they are now in 3 years, and what sort of rate you'd pay, and also factor in how desperate you are to buy. You also need to think about how much impact the mortgage and other bills (insurance, maintenance etc) will have on your ability to save.

Good luck

lowtidesurf

Just went to get a lend a hand scheme from lloyds, Got accepted and a mortgage in principle. but then after making an offer they turned around and told us that on a new build property on any lloyds mortgage they would require a 20% deposit. They advertise that you only need a 5% deposit but its only on old houses. And they didnt know there products, Very unimpressed. Stay clear if you ask me