Whether you’re buying your first home via the traditional estate agent route or looking for a buy-to-let investment property at auction, understanding your funding options can be a bit of a headache. We’ve split out some key considerations for purchasing property and outlined some of the funding options that might be available.
Buying property via an estate agent
The standard route for most buyers is to secure a mortgage via a lender or broker. The best mortgage product will vary for everyone based on their circumstances and will vary in terms of repayment period, interest rates and conditions attached.
It is always recommended that you do your research thoroughly around mortgage products and, if in doubt, speak to an independent advisor for advice.
Help to Buy, Shared Ownership and government schemes
There are a number of government schemes in place to help first-time buyers onto the property ladder. The Help to Buy ISA is a savings scheme in which the government pays a bonus for every £200 saved a month up to £3000. The Help to Buy Equity Loan is a lending scheme where the government can lend you up to 20% of the cost of a newly built home (with 0% interest for the first five years), meaning you only need a 5% deposit and 75% commercial mortgage to fund the rest of the purchase.
Shared Ownership offers prospective buyers who are unable to afford a mortgage on 100% of a home the opportunity to buy a share of their home and pay rent on the remaining share. The buyer can then purchase larger shares as time goes on.
As with all lending or savings schemes, there are eligibility criteria for each.
The most straight forward way of purchasing property is if you are a cash buyer, meaning you will not need to take out any form of loan or mortgage and repay any interest. Cash purchases are generally much faster, do not need to rely on housing chains and tend to be more attractive to sellers.
Buying property with help from parents
A common option for many first-time buyers today comes from the Bank of Mum and Dad, with this being the 12th biggest form of lending in 2018. This is most commonly in the form of a financial gift, but can also involve a loan, a linked bank account or the parent or guardian acting as a guarantor on a mortgage.
In some circumstances, receiving help to buy from family members can cause complications in terms of inheritance tax or drawing up agreements, and some lenders may not accept borrowed or loaned deposits.
Buying property at auction
Buying property at auction is a great solution for a fast purchase, also providing opportunities to snap up a below-market-value property or buy a property that typical lenders might not usually lend money against. However, the key consideration around property auctions sits within the speed of purchase, as you must be prepared to place an immediate deposit and complete within 28 days. So what are your options?
Approach an auction lender for an agreement in principle
If you’ve seen a property at an upcoming auction, have been to view it and can rule out any major issues that might prevent you securing finance, you should aim to get an agreement in principle from an auction lender so that you know what you have to work to and, importantly, a maximum budget. The key thing to note with an agreement in principle is that you must stick to your budget, or else risk bidding too high if things get carried away.
Don’t forget to consider the additional fees you are likely to incur when buying at auction to ensure you’ve costed these into your overall plan.
Many buyers at auction take out bridging loans as a temporary means of financing a purchase until more permanent finances can be secured. With such a short turnaround in which to complete a sale, these can be ideal, but make sure you check interest rates as these are often higher for short-term loans. Generally, however, as auctions have become more commonplace in recent years, there are more specialist lenders willing to offer competitive rates.
If you’d like to find out more about your options for purchasing property, please get in touch with a member of the Austin Gray team and we will be happy to help.