Microsoft asked me if it is possible to get on the property ladder with no money.
My answer was yes, of course.
READER’S QUESTION
As a 20-year old first-time buyer, can you still get onto the property ladder without a deposit?
AJAY’S ANSWER:
The short answer to your question is Yes!
Even though the 100%+ mortgages have been withdrawn it is still possible. You have to be a bit inventive but there are 3 ways you can get on the property ladder with nothing in the bank.
1. Combine an Overdraft with a Cashback Mortgage
There are mortgages out there that pay you a cash gift when you take out the mortgage which can be up to 6% of the amount borrowed. Now these mortgages are a maximum 95% loan to value so you need a 5% deposit.
Now here is the clever bit. You go to your local branch manager and ask for an overdraft to the value of the 5% deposit which most banks are glad to do since they earn a nice tidy sum if you use it.
When the solicitor requests for the deposit you access the overdraft to pay over the deposit and then pay back the overdraft when the cashback comes in. So for example if you saw a property for £100,000 then the deposit needed to be raised, costs of borrowing and the cash back will be:
(A) Deposit needed to be raised: 5% x £100,000 = £5,000
(B) Costs of borrowing 7 days interest at 15.9% APR = £15.24
(C.) Cashback: 95% x £100,000 x 6% = £5,700
Total amount of money needed to buy the property: C – A – B = -£684.76
In effect you get paid to buy a property! In reality the remaining of the cash goes to pay for solicitor fees and other sundry costs but the key point here is you got on the property ladder with no money from any of your savings.
I’ll let you know this is how I bought my first property I used to live in.
2. Combine a Personal Loan with a 90% mortgage
Its fairly widely known that if you put down a 10% deposit the borrowing rates are much more sensible. If you do not have a 10% deposit just borrow it!
So if you see a house for £100,000 then all you need to do is borrow is 10% which equates to £10,000. Your total monthly outgoings will be:
Personal Loan of £10,000 borrowed over 5 years repayment only = £200 approx
Monthly mortgage cost of £90,000 borrowed interest only at 5% APR is £375
Total monthly cost of borrowing = £375 + £200 = £575
This way you can get on the ladder quicker than having to wait to save up for a 10% deposit (while property prices rise as well) and benefit from great rates such as 5% APR and there are no Higher Lending Charges either.
If you cannot afford the £200 a month personal loan you could go for borrowing £10,000 on credit cards at 0% APR which will bring the cost to nil but you will have to do a bit of juggling as the 0% offers typically only last for 1 year max.
I bought the property I live in currently this way.
3. Create Vendor Deposit
This is where in effect the vendor pays the deposit for you. It involves the property being valued in excess of what the vendor is selling to you for. If this is the case then you can avoid paying a deposit of up to 5% which is the maximum allowed vendor deposit for most lenders.
So for example if you found a property for £95,000 and the property got valued at £100,000 then you could structure the deal as:
Purchase Price: £100,000
Vendor Deposit: £5,000
Net Price: £95,000
Then if you went in for a 95% LTV mortgage the lender will lend 95% on the purchase price which has been set at £100,000 thus the amount being lend is £95,000 which is the net price agreed with the vendor.
So:
The net price: 95,000
The amount lent: £95,000
The amount required from you: NIL
Again no money is required from you other than the other costs such as solicitors fees, survey etc.