Question
Where can I find information on a range of mortgages that cover the situation where a large cash deposit input comes from parents?
What are the options for this type of mortgage, i.e. shared ownership? loan to young couple etc.Answer
If you and your partner have sufficient income to borrow the remaining amount required (lenders usually allow up to three times your combined annual salaries) then it's simply a case of shopping around for the best mortgage deal you can find.
Because the deposit gifted by your parents means the amount you need to borrow is likely fairly small compared to the value of the property (called the 'loan to value' (LTV) ratio) then you should have pretty much the whole mortgage market open to you - some of the best deals are only available to those wanting to borrow smaller amounts relative to the purchase price (i.e. lower LTVs).
Good sources for finding the current 'best buys' available are comparison sites like Moneyfacts and Moneynet.
Your main decision will be whether to opt for a variable or fixed rate. There's no right or wrong, the decision really depends on the extent you could afford higher monthly payments if interest rates rise. However, as fixed rates are currently higher than good variable deals you'll pay a premium to effectively insure against rate rises over the next few years which, in the current climate, don't look that likely. And, if you want to repay the mortgage during the fixed period (e.g. you decide to switch to a variable rate) there's usually a penalty for doing so.
If you go the variable route consider discounted rate deals which usually reduce the interest rate for the first 2-3 years. Provided you can repay the mortgage without penalty when the offer ends (i.e. re-mortgage to find a better deal elsewhere) then there's little downside. Or, take a look at 'tracker' mortgages, which usually fix your interest rate a set amount above the Bank of England Base Rate, ensuring you should get a fairly competitive deal over the life of the mortgage (potentially avoiding the hassle of re-mortgaging in future).
To give some examples, the following deals are as at the time of writing:
Fixed:Yorkshire BS (75% LTV) 3.99% fixed for 5 years.
Discounted Variable: Leek United BS (75% LTV) 2.49% discounted for1st 2 years (no penalty to repay thereafter)
Tracker: HSBC (60% LTV) 2.59% (base rate + 2.09% for life of mortgage).
There may be extra charges in addition (e.g. application fees etc) but the above should give you a general feel for how rates currently stack up.
You might see 'first time buyer' mortgages advertised, these are probably less relevant for you given your high deposit - the rates tend to high as they offer more generous LTVs than usual.
Shared ownership mortgages are relevant if you're unable to borrow sufficient money to buy a property outright. Some housing associations offer homes whereby you buy a share in the property (usually up to 75%) and pay a low rent on the balance, which is owned by the housing association. There's usually the option to buy the remaining share in future.
You may find it helpful to get quotes from a couple of independent mortgage brokers. You should be under no obligation to use them and hey can provide advice specific to your situation.
Finally, stating the obvious, be really careful not to over commit yourselves by borrowing more than you can realistically afford. No point buying a lovely home if it becomes a millstone or gets repossessed.
Good luck house hunting!
Where can I find information on a range of mortgages that cover the situation where a large cash deposit input comes from parents?
What are the options for this type of mortgage, i.e. shared ownership? loan to young couple etc.Answer
If you and your partner have sufficient income to borrow the remaining amount required (lenders usually allow up to three times your combined annual salaries) then it's simply a case of shopping around for the best mortgage deal you can find.
Because the deposit gifted by your parents means the amount you need to borrow is likely fairly small compared to the value of the property (called the 'loan to value' (LTV) ratio) then you should have pretty much the whole mortgage market open to you - some of the best deals are only available to those wanting to borrow smaller amounts relative to the purchase price (i.e. lower LTVs).
Good sources for finding the current 'best buys' available are comparison sites like Moneyfacts and Moneynet.
Your main decision will be whether to opt for a variable or fixed rate. There's no right or wrong, the decision really depends on the extent you could afford higher monthly payments if interest rates rise. However, as fixed rates are currently higher than good variable deals you'll pay a premium to effectively insure against rate rises over the next few years which, in the current climate, don't look that likely. And, if you want to repay the mortgage during the fixed period (e.g. you decide to switch to a variable rate) there's usually a penalty for doing so.
If you go the variable route consider discounted rate deals which usually reduce the interest rate for the first 2-3 years. Provided you can repay the mortgage without penalty when the offer ends (i.e. re-mortgage to find a better deal elsewhere) then there's little downside. Or, take a look at 'tracker' mortgages, which usually fix your interest rate a set amount above the Bank of England Base Rate, ensuring you should get a fairly competitive deal over the life of the mortgage (potentially avoiding the hassle of re-mortgaging in future).
To give some examples, the following deals are as at the time of writing:
Fixed:Yorkshire BS (75% LTV) 3.99% fixed for 5 years.
Discounted Variable: Leek United BS (75% LTV) 2.49% discounted for1st 2 years (no penalty to repay thereafter)
Tracker: HSBC (60% LTV) 2.59% (base rate + 2.09% for life of mortgage).
There may be extra charges in addition (e.g. application fees etc) but the above should give you a general feel for how rates currently stack up.
You might see 'first time buyer' mortgages advertised, these are probably less relevant for you given your high deposit - the rates tend to high as they offer more generous LTVs than usual.
Shared ownership mortgages are relevant if you're unable to borrow sufficient money to buy a property outright. Some housing associations offer homes whereby you buy a share in the property (usually up to 75%) and pay a low rent on the balance, which is owned by the housing association. There's usually the option to buy the remaining share in future.
You may find it helpful to get quotes from a couple of independent mortgage brokers. You should be under no obligation to use them and hey can provide advice specific to your situation.
Finally, stating the obvious, be really careful not to over commit yourselves by borrowing more than you can realistically afford. No point buying a lovely home if it becomes a millstone or gets repossessed.
Good luck house hunting!
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Mortgage Note