A Clever Way To Double Your Deposit?
Could this be the helping hand first-time buyers need?
For many aspiring first-time buyers, this summer is one of sitting tight and saving. With house prices creeping down and mortgage criteria tight, it's no wonder that many people (including me) have decided to spend 2008 bumping up their deposit and waiting for prices to bottom out.
But one deal has just been launched that could help you increase your deposit quickly and easily -- by doubling it!
Housebuilder Persimmon Homes, and the UK's largest mortgage lender, Halifax, have teamed up to offer first-time buyers this helping hand onto the ladder.
The Double your Deposit scheme does what it says on the tin -- doubles your savings up to £5,000, which you can then use as a deposit on a Persimmon Home. So maximum savings of £5,000 will be doubled £10,000.
Giving you extra
The firms say the deal is to help first-time buyers onto the ladder and I admit, at first I was cynical.
"It's a way for Halifax and Bank of Scotland to get more people to take out one of their mortgages," I snorted.
But no, you can take a mortgage out from any lender with the offer.
"If the maximum you can save is £5,000 then even if it's doubled, it will still only amount to £10,000," I sneered, "and that will mean the borrower is likely to be forced onto an expensive high loan-to-value* mortgage at over 90%."
(*The loan-to-value ratio is your mortgage borrowings as a percentage of the value of your home.)
But I was wrong here too. Borrowers are able to add any other savings to the deposit, so the scheme is not just limited to those who can only save £5,000. You are free to lump any other cash on top if you are lucky enough to have it, bringing down your loan-to-value ratio and giving you access to more attractive mortgage products.
So what's the catch?
Well, of course there is the big one. The fact that your money is only doubled if you buy a new home from Persimmon, which you might not want to do. And there may not be a Persimmon Home development in the area you want to live.
The cynic in me would also suggest that all Persimmon Homes needs to do is price its properties at £5,000 higher than it was planning to. This would wipe out the cost of the exercise, meaning you won't actually benefit at all. If you have had a `free' £5,000 somewhere along the line, and perhaps so have your neighbours, there is a chance that when you come to sell or remortgage you may find that its market value is £5,000 less than you thought.
Your savings are restricted
The other restriction lies around the savings account -- you can only choose one from Halifax or Bank of Scotland. Plus you have to hold the account for at least six months and you should be making regular payments into it. When I asked Halifax what `regular payments' meant they didn't have strict definition, except to say that the deal is not designed for you to put in a £5,000 lump sum in one go. It is aimed at aspiring first-time buyers who are saving for a deposit.
But despite these restrictions there is one fact that convinced me that it is a good deal -- the savings rates on offer from the two providers, while not market leading, are pretty close.
Bank of Scotland's instant access savings account at 6.5% or the Halifax guaranteed saver reward at 6.25% are not bad at all. Only a handful of easy access accounts beat Bank of Scotland, and then only by a maximum of 0.05%, a negligible difference on £5,000 over six months.
So even if you are only considering buying a new build home and there are some Persimmon developments in your local area, this is a deal worth doing. You'll get a good return on your savings with instant access if you need to move quickly on a purchase. And if you do decide to go for a Persimmon property, your savings up to £5,000 are doubled.
But perhaps you don't want a new build property at all. For all their positives -- brand spanking new and cheap to heat -- remember that new builds can be more difficult to add value to than older properties. One of the big selling points is their newness, which quickly disappears.
There's no doubt this deal's not for everyone -- in fact it's not for many -- but it would be great to see other homebuilders and lenders coming up with similar innovative ideas to kick-start the first-time buyer market.
More: You Can Borrow £104,000 More From This Lender | When you're ready to buy a home speak to a broker at The Motley Fool Mortgage Service
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Iniq, you explain a solution but you don't specify the problem. If the problem is that you're losing equity in your home then that solution will help you because it will pump extra money into the housing market. More money = higher prices.[br/][br/]The way I see it, expensive housing is a problem because it leaves us less money to spend on other things; young professional couples are living in worse quality accomodation than their parents had and are putting off starting families and paying less into pensions because they have to cover an expensive mortgage.[br/][br/]Rather than making tax payers prop up the housing Ponzi scheme it would be better to have public funding to educate people as to when a house is overpriced, what interest rates have been in the past and how to work out whether renting is cheaper than buying.
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The Wife and I both opened halifax regular savers accounts and put in £250 each (£500 total) each month to suppliment our other saving before we bought our house.[br/][br/]We'd done this to build up our savings and to prove to banks that whilst I was self employed I could still afford to put £500 a month into a bank account regularly.[br/][br/]Theory being we'd proove we could afford to put a similar amount into the mortgage. [br/][br/]They didn't accept this, but it did help boost our deposit by £6.4k.[br/][br/]The downside to regular savings is that if this is the deposit, you are tied into the savings for 12 months (or similar) and effectively saying you will not buy a house in that time.[br/][br/]As the governemnt want people buying the house now they don't have the time to impliment a "Regular deposit saver" scheme.[br/][br/]-AS
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Just as I have posted here more than once, this sounds very much like what I advocated the government should do: encourage more saving, less borrowing and larger deposits by first-time buyers by boosting regular savings accounts opened in order to save a deposit.[br/][br/]Would-be first-time buyers should be encouraged to open a "House Buyer's Monthly Savings Account" with any a approved bank or building society. When eventually used as the deposit of at least 10% to buy their first house, the income tax on such savings should be refunded plus a small cash boost.
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10 August 2008