Contractors and Freelancers can get Help-to-Buy mortgages. A simple enough statement, but one that needs reiterating. If you only have a small deposit, but a pristine credit score, they’re well worth considering.
What’s more, for those new to contracting, H2B could be a SMART way to get that leg up onto the property ladder.
First off, what is Help-to-Buy?
The Government launched Help-to-Buy mortgages in 2013 to counteract high deposits lenders were asking. In truth, the Government’s own FSA (now FCA) had forced mortgage lenders’ hands.
Responsible Lending Guidelines and the later Mortgage Market Review proposed strict criteria for borrowing. Also true is that lenders did take the guidelines to the extreme. High deposits became the norm; only those with perfect credit and high earnings stood any chance of getting a mortgage.
The net result was that a swathe of the population looked like missing out on getting mortgages at all. Both the construction and housing industries were on their knees. The government had to do something.
The Government scheme came at us in two parts. First, we had the ‘Equity Loan’, then the ‘Mortgage Guarantee’. The differences between the two Help-to-Buy mortgage products are slight, but important. A specialist broker will help you decide which of the two is right for you.
In the meantime, here’s why H2B is a SMART move for contractors looking to get onto the property ladder:
Specific – tailored to one market only
Help-to-Buy mortgages are for people with access to only 5% deposit. This can be set against new build properties via the Equity Loan scheme. Or you can access the Mortgage Guarantee scheme to buy an existing property.
As these are 95% loan to value mortgages, you must also have perfect credit. By borrowing such a large percentage of the purchase price, the lender needs to be sure.
Measurable – with only 5% deposit, you can do the maths
If you’re buying a home for £200,000, you need to find £10,000 deposit. £300,000? £15,000, etc. But the real measurable stat of Help-to-Buy is the money you can save.
With the “Equity Loan” scheme, the home builder lends you 20% of the home purchase price. You find the 5% deposit, the 75% balance comes from the mortgage lender. But here’s the good bit…
Achievable – contractors are in a great place to make this work
…the 20% ‘Equity Loan’ from the home builder is interest free for the first five years. As a contractor, it makes sense for you to save this portion of the property price over those five years. Then, before you start paying ‘interest’ (it’s really a fee), settle the loan with the home builder.
You then own at least 75% of the home after five years. Plus, you’ll not have to sacrifice that 20% of the sale price when you come to sell your home.
That’s the Equity Loan scheme. The Mortgage Guarantee scheme is attainable as you only have to find 5% deposit. That’s it. Providing you meet the other criteria, that’s all the cash you need up front.
Realistic – interest rates reflect you’re only parting with 5%
Okay. There are more competitive mortgages for contractors who can find a bigger deposit. But let’s keep it real.
Despite all the credit checks in the world, things can go wrong. The lender needs to make sure that they’re getting value for loaning 95% of a home’s value.
Is a higher interest rate a pay off for only putting down 5%? You have to say it is. But look to the positive and don’t be blinded by that fact. You’re on the property ladder, you’re not wasting your income on rent.
When the time comes to move up the property ladder, you’ll have a history to bargain with. You’ll have a property as equity. That’s worth a small sacrifice at the outset, don’t you think?
Timebound – you know what you need and when you need it
As with all mortgages, they run for a set amount of time. But unlike other mortgages, you have built-in timescales to use to your advantage. As per the “Achievable” goal above, use your five year interest free window to your advantage.
But even if you’re going for the Mortgage Equity scheme, you can still be savvy. Sure, you can pay the set amount month after month. But most lenders in the current climate place no restrictions on what you can overpay.
Just like contractors setting aside the 20% for the Equity Loan, you accrue cash for the Mortgage Guarantee. By paying off a lump sum once a year, you’ll shorten the 25-year repayment plan, and some!
If you’re looking for a contractor mortgage with only 5% deposit, Help-to-Buy is an option. Don’t be put off by the initial interest rates. Use the scheme as a step up onto the property ladder and give yourself time to build up a head of steam. Once you have a home and regular payment history to bargain with, you’ll then be able to access more competitive contractor mortgages.
Here’s what you need to do next.
Simply call us on 0208 421 7788 or click on our Request a free quote button below and we’ll start searching for the best contractor mortgage for you.