New Habito tool lets first-time buyers make cash offers while they wait for mortgages
FIRST-time buyers can now make cash offers on a home before they're even approved for a mortgage, thanks to a new tool from broker Habito.
The so-called "Habito Go" tool allows buyers who are looking for mortgages with a minimum deposit of 15 per cent to "upgrade" their buy to a cash purchase.
The broker provides customers with the full amount of cash needed to buy the property while they wait for the mortgage, but they have to pay a hefty 1.95 per cent fee on the entire cost of the house once completed.
You can get the money for properties costing up to £750,000 with a 20 per cent or more deposit or £500,000 with a 15 per cent or more deposit.
This means that if your new home cost the same as the average house price for September - £232,574 - you'd be hit with £4,535 for the trouble.
If the house purchase falls through for whatever reason, you don't have to pay the fee.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The Government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
The deal is available to first-time buyers aged between 25 and 55 who are earning a minimum of £30,000 a year.
Habito claims that customers can get their loan offer in as little as ten days, thanks to speedy valuations and legal work.
This could put you in a better position to have your property offer accepted quickly, while cash buyers are also likely to get a cheaper price.
Of course, to speed up the home buying process you can always get a mortgage in principle, which are informal mortgage offers given by lenders to prospective buyers that typically last between 60 and 90 days.
How does it work?
After a first-time buyer applies for a mortgage with Habito, the broker then completes a soft credit check, which won't affect your credit score, as well as affordability checks.
Once you have passed the checks, you're issued the loan and your solicitor given the money as a lump sum, which is used to put an offer on the property as a cash buyer.
When your mortgage has been secured, the lender will transfer the money to your solicitor and the latter pay the original lump sum back to Habito, including the fee.
If you use the Habito Go loan to buy your home before the broker has secured the mortgage, you'll have to pay interest of 0.5 per cent of the loan per month, calculated daily.
This is charged until the mortgage comes through on top of the 1.95 per cent arrangement fee.
Habito then cancels the customer's original mortgage application and applies for a remortgage instead.
How to find a mortgage broker
A BROKER will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You need to be able to trust your broker, so it's worth checking with friends and family whether they can recommend any.
If they aren't able to, you can use Google to search for mortgage brokers.
Just make sure you look for an independent, whole-of-market broker, meaning they have access to the widest possible range of mortgage deals and not just a select group of lenders.
You can also use adviser search tools available such as one by or to find a suitable broker for you.
Once you've found one, double-check that it's properly qualified by checking the .
The broker says it will the make sure you get the same kind of deal as the original mortgage that it cancelled.
If it's more expensive, Habito will pay the buyer the difference between the new monthly payments and the payments they would have made with the original mortgage offer.
If the Habito loan comes through after the broker has secured the mortgage, you won't have to pay the 0.5 per cent monthly interest rate but the arrangement fee will still apply.
You'll be in touch with Habito until you get the mortgage, after which you'll be in contact with the lender only.
What do the experts say?
Paula Higgins, founder of consumer site HomeOwners Alliance says the tool could come in handy for first-time buyers but stresses that the fee may wipe out any savings made from being a cash buyer.
She told The Sun: "It's great to see new lenders innovating and developing first time buyer friendly products, especially as getting onto the property ladder has been consistently the top UK housing concern in our annual survey.
"But although there is definitely an advantage to being a cash buyer, this could be wiped out by the 1.95 per cent of the purchase price fee charged and does not come without risks.
"First-time buyers need to reassure themselves that they are saving money by negotiating on the asking price or that it is worthwhile to secure their dream home.
"We would always advise first time buyers to get their finances in order and a mortgage-in-principle first before starting their search, and once they get an offer accepted, that they move quickly."
But property expert Henry Pryor advises homeowners to avoid the deal altogether and speak to a mortgage expert instead.
He told us: "At least once a month someone comes up with a solution to a problem that doesn’t exist.
"If you’re a first time buyer who understandably needs a mortgage then get one before you go shopping or at least get a mortgage offer.
"Speak to an independent mortgage broker, one who can search the 4000+ different mortgage products out there for the one that suits you best.
"Get what's called an ‘Agreement in Principle’, a document that you can show to an estate agent when you are negotiating a deal that shows you are good for the money.
“What developers, estate agents and sellers want to see is that despite what may be a disappointingly low offer it is real, it is something that you can deliver and they are rarely impressed by buyers who they think are exaggerating their position with some clever words."
More on first-time buyers
First-time buyers using a Help to Buy equity loan are forking out up to almost 22 per cent more for homes than those who bought without one.
Meanwhile, the most popular cities for first-time buyers to escape from London have been revealed - and you could save thousands of pounds in a deposit by moving there.
Last month, HSBC rolled out new mortgage rules which make it easier for zero-hours contract workers to get on the property ladder.