What are the best mortgages for first time buyers including 5% deposit deals?
YOU'VE finally scraped enough money together for a deposit, but how do you find the best mortgage deal for your first home?
We round-up the best rates currently available for first-time buyers.
House prices had their biggest monthly rise in 16 years in August in what's been described as a "mini-boom".
It follows a property price bounce back of 1.6% in July, after prices fell March, April and May, and stayed the same in June.
The "mini-boom" is partly down to post-lockdown demand, as well as the temporary stamp duty holiday which has helped boost the market.
Buyers now pay no stamp duty on homes under £500,000 instead of £125,000 until March 2021.
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. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% 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% 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% 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% discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
How much deposit do I need?
Mortgage offers with a 5% deposit are thin on the ground, with hundreds of lenders pulling these types of deals following the coronavirus crisis.
But it isn't impossible to find these types of deals - although you may need a guarantor to secure your mortgage.
With these mortgages, first-time buyers borrow up to 95% of the purchase price of the home they're looking to buy.
You'll typically be allowed to borrow around four times your salary, which can also be combined with someone else for a joint application.
The advantage of having a smaller deposit is that it makes it quicker for first-time buyers to get on the property ladder.
So, for a £150,000 property you'll need to put down a £7,500 deposit.
But if you can afford to put down a larger deposit, it'll make your monthly mortgage repayments cheaper in the long run.
For example, some mortgages will require a 10% or 20% deposit.
This means if you're still looking at a property that's worth £150,000, you'll need to put down a £15,000 deposit.
How do I find the best mortgage deals?
Once you've got your deposit together, you can start looking for a deal.
Websites like Moneyfacts have mortgage sections so you can compare costs and all the banks and building societies have their offers available on their sites too.
If you're getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, who will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You'll also have to decide on if you want a fixed-deal where the interest your charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
What are the best first-time buyer mortgages on the market?
Moneyfacts shared their top picks for the best first-time mortgage deals currently on the market.
The following rates are accurate at the time of writing:
5% deposit mortgages:
mortgage requires the property buyer to put down a 5% deposit - but they'll need a family member to stump up another 10% of the property value into a Helpful Start savings account.
Their money will be locked away for five years, and the family member will get the money back at the end of the five years, plus interest, if the mortgage repayments are paid on time.
The rate on this deal is 2.85% fixed for five years.
Another option is a joint borrower sole proprietor mortgage with .
Moneyfacts recommends this for first-time buyers who are struggling with affordability for their own 95% mortgage, as the deal can take a family member's income into account.
Saffron Building Society's deal is fixed for five years at 3.47%.
10% deposit mortgages:
offers 90% mortgage deals, fixed at 3.24% for either two years or five years.
However, it recently changed the rules of this mortgage so that parents can now only contribute 25% of the deposit.
These deals aren't available on flats and new builds, and have a maximum repayment term of 25 years.
Keep in mind Nationwide also charges a minimum fee of £999 for this mortgage.
Moneyfacts says another option could be a 90% mortgage from .
Virgin offers seven and ten year deals, fixed at either 3.79%, 3.89% or 3.99%.
This deal requires a maximum purchase price of £400,000, a term of at least 25 years, and can't be used on flats or new builds.
There is a fee of £995 with this deal.
Eleanor Williams, finance expert at MoneyFacts, told The Sun: "Anyone who wishes to consider one of the specialist products available to take that first step onto the property ladder would be very wise to seek independent, qualified advice beforehand.
"Not only is the mortgage market a changing landscape at the moment with products constantly updated, but speaking with a mortgage broker may well be invaluable in navigating the various products available."
More on money
We explain how to lower your car insurance costs.
The Sun also has a guide on how to find the best home insurance policies.
Plus, here are the best interest-free credit cards for 2020.