NO DEPOSIT? NO PROBLEM!

1 Comment | Sunday Mirror, Mar 1, 2009 | by SHEILA PROPHET

GETTING on the first rung of the property ladder has always been tough. And, with the credit crunch and Gordon Brown having put paid to the 100 per cent mortgage, that step has just become harder to make.

These days most lenders demand a deposit of at least 30 per cent which, when you work it out, means first-time buyers have to save pounds 48,000 to buy the average pounds 158,946 home - impossible for most of us.

But help IS at hand. Housebuilders and housing associations have devised a number of schemes to help buyers get round the deposit dilemma.

We look at the best of these new deals and assess their advantages - and the pitfalls...

1. RENT TO BUY

Launched in the autumn by a handful of housing associations, this scheme has proved so popular it's been rolled out across the country.

It offers homebuyers the chance to rent a newly-built property at around 80 per cent of the market rate for between three and five years.

The lower rent allows you to save a deposit. You can then buy the home in whole or in part under another scheme called New Build Homebuy.

This lets you buy a share of your home, usually 25 to 75 per cent, and pay rent on the rest to a housing association. You then have the option of buying further shares until you own the entire property.

PROS: Gives customers plenty of time to save up for a deposit.

CONS: If you decide not to buy, there is no guarantee your tenancy will be renewed.

2. TRY BEFORE YOU BUY

Similar to Rent To Buy, this scheme from housing group Places For People gives customers the chance to rent a home for a year before deciding whether to buy.

If you do go ahead, the rent you've paid is used as a deposit, meaning in effect you have lived rent-free for a year. The rent is set at the market rate and the purchase price agreed at the start to protect you if house prices rise during the year. If you decide the house isn't for you, you're under no obligation to buy.

PROS: As the rent is part of the deal, saving for a deposit is automatic.

CONS: Rent can only be used as a deposit and is not refundable if the customer decides not to buy.

3. SAVE A DEPOSIT

Places for People are also trying out another idea, Save A Deposit. Currently available at just one development, Wolverton Park in Milton Keynes, if it proves successful it could be offered elsewhere.

It's similar to Rent To Buy in that you get a home rent-free for a year but the difference is you're committed to buying at the end. Instead of rent, you pay into a savings account, which builds up a five per cent deposit. Places For People matches this to make up a 10 per cent deposit.

PROS: Agreement to double the customer's savings is a great opportunity for first-time buyers.

CONS: It's only for customers committed to buying - if you pull out, you have to leave the property and lose your savings and a small deposit.

4. DEVELOPERS' RENT TO BUY

Homebuilders have devised their own versions of the above schemes. For example, Dandara's scheme for "undecided" buyers at its Spectrum development in Manchester allows customers to rent homes for between six and 12 months with a view to buying. If you decide to buy, the rent is given back to you to use as a deposit.

PROS: Allows the buyer to build up a deposit without having to make extra savings.

CONS: Unlike the housing association schemes, rents on these properties are not subsidised so may be beyond many people's budgets.

5. HOMEBUY DIRECT

New Government-backed scheme provides a fiveyear interest-free "equity loan" of up to 30 per cent of the property price.

After five years, there's a fee to pay but the loan can be repaid before then, either in full or gradually.

PROS: Five-year interest-free loan is a generous deal from the Government.

CONS: Not all lenders will accept the loan as a deposit, limiting the number of mortgages available.

6. OWNHOME

Places For People have their own version of Homebuy Direct, called Ownhome. It provides a five-year interest-free "equity loan" of between 20 and 40 per cent of the property price.

PROS: Established scheme with mortgage arranged with the Co- operative Bank, so you don't have to worry about finding a deal.

CONS: Loan is tied to the value of the property, so if the price goes up so does the amount to be paid back.

7. DEVELOPERS' EQUITY LOANS

Housebuilders also have their own version of HomeBuy Direct, each with their own catchy names.

Barratt, for example, have Dream Start, while Bovis Homes have Jumpstart, both of which offer up to 25 per cent of the value of the home as an interestfree deferred loan, to be paid off in 10 years or when the property is sold.

PROS: Genuine bargain buys available from big-name companies desperate to sell their homes.

CONS: Many of these offers are on "selected properties only", so check development plans to make sure your dream home is not next to the dustbins.

There are some genuine bargains from firms who are desperate to sell

Who you can contact

TO apply for schemes such as Rent to Buy and Homebuy Direct, available through housing associations, you must approach a Homebuy agent, who acts as a matchmaker between customers and associations. If one development is sold out, or not suitable, they can point you to others in the area. You can find your local agent through the Home and Community pages of www.directgov.uk, at www.homesandcommunities.co.uk or by calling 0300 123 4500.