Major lender launches ZERO deposit mortgages for right to buy home loans
A MAJOR lender has launched a new zero deposit mortgage for Right to Buy home loans.
Barclays has said people applying for a Right to Buy mortgage with the bank no longer need to put down a deposit.
The Right to Buy scheme lets tenants in social housing or a council house buy the property they live in at a discount.
Barclays previously had a 5% minimum deposit requirement for anyone looking to buy their home through the scheme.
But now, Barclays has said it will use the Right to Buy (RTB) discount in place of a direct deposit.
Borrowers will also receive the benefit of the reduced rates available for lower loan-to-value (LTV) mortgages.
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Your loan to value is the amount you put down as a deposit vs the amount you borrow.
Usually, having a lower loan-to-value gives you access to cheaper mortgage rates, so having zero deposit would normally mean higher rates.
But under the Barclays scheme, someone receiving a 40% discount on their home under the RTB scheme will be considered to have a 40% deposit, giving them access to 60% LTV (loan-to-value) rates.
Lending is capped at 90% of the full market value to help ensure responsible borrowing, Barclays said.
This means that Barclays can lend up to 100% of the discounted price, as long as this does not exceed 90% of the valuer’s open market valuation.
Deposits are still required for loan amounts on “high value properties” – those above £640,000 for houses or £310,000 for flats. In these cases, Barclays can lend up to 85% of the discounted price, as long as this does not exceed 80% of the open market valuation.
Lee Chiswell, head of mortgages at Barclays, said: "The right to buy scheme has long been a crucial route to home ownership for council and housing association tenants, yet we know that saving for a deposit remains a key obstacle.
“By lending for the full value of the property, we’re removing the need for buyers to have any deposit at all, helping many completely sidestep their largest barrier to home ownership.”
Rather than offering specific RTB mortgage products, Barclays makes its mortgage range generally available to RTB customers.
ALL CHANGE AT BARCLAYS
The latest move by Barclays follows several major updates to its mortgage offering.
In January, the lender launched "mortgage boost", a scheme which lets both first-time buyers and existing homeowners add another person to their application to increase the amount they can borrow.
The new offer means those with a smaller deposit are more likely to be able to get on the property ladder.
Anyone on the application is responsible for the mortgage, but the extra name doesn't have to own the property or be named on the deeds.
In an example provided by Barclays, someone with an income of £37,500 a year and a deposit of £30,000 could typically borrow £168,375, allowing them to buy a home worth up to £198,375.
But with the mortgage boost, if they added another person with an income of £37,500 a year, they could borrow up to £270,000.
Nicholas Mendes, head of marketing at mortgage broker firm John Charcol, said of Barclays' new offering: "In a year where 1.8million households will be coming off a low fixed rate into a higher rate environment, this will be a welcomed addition to the market supporting many existing borrowers and perspective buyers looking to get onto the property market.
"One of the main advantages of this scheme is that it allows borrowers to increase their borrowing capacity by including another individual’s income, which can be particularly useful for first-time buyers struggling to meet affordability criteria on their own," he explained.
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The new offer from Barclays runs alongside the lender's existing "family springboard mortgage", which lets helpers deposit a lump sum of up to 10% of the loan to help first-time buyers get a mortgage.
It comes with the Financial Conduct Authority (FCA) currently encouraging lenders to be more flexible with their mortgage rules to help more people to access home loans.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a mortgage comparison tool to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
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