First-time buyers with 5% deposits can expect to pay perhaps two to three percentage points more than someone who is borrowing with a 40% deposit. This can cost you hundreds of pounds extra per month.
Even so, the interest rates you'll have to pay are still, on average, very low by historical standards, and they've sunk further this month.
Barclays Family Springboard mortgage
The new mortgage from Barclays is called Family Springboard.
It's a three-year fixed rate at 4.69%, which works out at around £570pm for a 25-year, £100,000 mortgage. You pay £500 in booking fees, which Barclays calls an “application fee”. Expect to lose this fee if you pull out of the deal without a great reason. Barclays' current account customers don't pay this fee.
Property valuation costs will probably be £250-£300 and you'll pay solicitor's costs, as usual – another few hundred pounds.
The big snag
To bag this 5% deal, you'll need guarantors to put up cash, which will be lost if you fail to repay your mortgage.
Your family has to put savings equal to 10% of the purchase price into a Barclays Helpful Start savings account. No withdrawals are allowed for three years.
The Helpful Start savings account pays the Bank of England base rate plus 1.5%, which currently means getting 2% interest before tax. This is not a lot of interest, considering the long tie-in period.
[SPOTLIGHT]If your family can put up with a potentially far longer period without its savings, it would be much, much better for you all financially if they simply added the money to your deposit. You'll then pay less mortgage interest due to getting a lower interest rate and having a smaller debt. This more than makes up for the lost savings interest of 2%.
Alternatively, your family could lend you less than 10% cash and still help you onto a 90% mortgage (with a 10% deposit). You might end up with a higher interest rate, but they could then put the rest of their savings to better use elsewhere.
Alternative mortgages for 5% deposits
The following table shows the best alternative mortgages I can find. I'll explain the jargon I use underneath.
Note that some of these mortgages are available in England and Wales only.
|
Mortgage |
Interest rate |
Fees |
Cashback and freebies |
ERC period |
|
3.99% discounted for full length of mortgage |
£100 |
£500 on completion |
Two years |
|
|
4.19% fixed for three years |
£1,100 |
N/A |
Three and a half years |
|
|
5.39% variable for three years |
£1,000 |
N/A |
Three years |
|
|
5.49% fixed for three years |
£1,000 |
N/A |
Three years |
|
|
5.49% fixed for five years |
£200 |
N/A |
Five years |
|
|
5.49% fixed for five years |
£500 |
N/A |
Five years |
|
|
5.69% variable for full length of mortgage |
£1,000 |
N/A |
Two years |
*These mortgages require a guarantor. More details below.
The deals shown last from two years to the full term of the mortgage.
There are a variety of mortgages here, from fixed rate mortgages to discounted. A discounted mortgage means that you get a discount on the lender's Standard Variable Rate (SVR). Note that since the lender can increase its standard rates at any time, discounted rates will go up simultaneously, irrespective of what happens to base rate
The interest rates for these mortgages range from 3.99% to 5.69%. On a 25-year, £100,000 mortgage, that would cost you between £530pm to £630pm.
The up-front fees range from £100 to £1,100. These include booking fees (also known as admin or application fees), which you normally lose if you pull out of the deal, and arrangement fees (also known as product fees and completion fees), which you pay once the deal goes ahead.
The ERC period shows how long you'll have to pay hefty early-repayment charges if you pay off your mortgage early (perhaps by selling up or switching to another mortgage within the deal period).
Other conditions
Perhaps surprisingly, most of these mortgages don't require a guarantor to put savings down, but you'll notice that you get a lower interest rate if they do.
The following table tells you which mortgages require a guarantor and what terms you get, and it shows other important terms and conditions, particularly where they vary considerably from the norm:
|
Mortgage |
Guarantors |
Guarantor savings interest |
Overpayments |
Special terms |
|
Market Harborough Family Deposit Mortgage |
One family member must save 20% of the property value, usually for five years |
2% variable savings interest rate |
Up to 10%pa of outstanding mortgage |
No flats £95,000 minimum loan Not portable |
|
Lloyds TSB Lend A Hand Mortgage |
Up to two family members or friends must save up to 20% of the property value for at least three and a half years (potentially longer). You have to make up the difference to 25% with a deposit. |
2.7% fixed savings interest rate for three and a half years |
N/A |
New-build properties require 20% deposit (i.e. just 5% savings from a family member allowed) |
|
Melton Mowbray FTB Variable Mortgage |
No guarantor required |
N/A |
Up to 10%pa of outstanding mortgage |
£90,000 minimum loan |
|
Melton Mowbray FTB Fixed Mortgage |
No guarantor required |
N/A |
Up to 10%pa of outstanding mortgage |
£90,000 minimum loan |
|
Hanley Economic Fixed Mortgage |
No guarantor required |
N/A |
One repayment of up to 10%pa of outstanding mortgage |
£70,000 minimum purchase price |
|
Furness 95% Mortgage |
No guarantor required |
N/A |
Up to 10%pa of outstanding mortgage |
|
|
Leeds 95% Variable Mortgage |
No guarantor required |
N/A |
Up to 10%pa of outstanding mortgage |
|
The top two mortgages in the table require a guarantor to put up savings. As with Barclays, you'd be better off if your guarantor simply lent you the money to use as a deposit.
Notice the special terms. Market Harborough's mortgage is not portable, for example, which means you can't move your mortgage with you if you move home. Hence, if you move within its two-year ERC period, you'll have to pay a hefty fine.
I've just highlighted some of the most important terms and conditions, but there are always more to beware of. Market Harborough, for example, charges £30 if you take out your buildings insurance from another provider, but it's probably worth taking the hit, since you'll likely get a better deal elsewhere. If not, it'll be worth switching in the second year.
Consider government-supported schemes
Barclays itself has an alternative mortgage for buyers in England with 5% deposits, using the government's NewBuy scheme. A few lenders are signed up to this scheme or similar ones in other parts of the UK, but they are complicated and quite limited. You generally have to buy a new-build property from a developer who is signed up to the scheme.
It's not so easy to buy a property at a fair price under these circumstances, so make sure you get your own independent valuation.
Read more about government-supported mortgages in What is a shared ownership scheme?, What is a shared equity scheme? and What is the NewBuy scheme?
Get free mortgage advice from the lovemoney mortgage service
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.