Worth the risk? Homebuyers could be left with negative equity if prices don’t rise (Daniel Lynch)
Rising house prices, rising rents, a cost of living crisis and the imminent end of a scheme to help the government are making it more difficult than ever for London buyers to save up for deposits, which cost an average of over £151,700 Has been. According to the Financial Times last year.
There’s potentially some light at the end of the tunnel: Neo-Lender Ratio has announced a zero-deposit mortgage product aimed at helping people who can’t raise the five percent deposit amount at which many mortgage providers set a minimum. As emphasis.
The company plans to offer a zero-deposit plan as part of its current offering, which helps customers access the finance they need to get on the property ladder through a mortgage booster loan.
This loan is paid back on an interest-only basis and the capital amount does not have to be repaid until the buyer eventually sells his property, hopefully for a profit.
So far, the company has financed over £100m of homes and helped more than 260 people with the property market.
Sarah Tucker, founder of The Mortgage Mum, says the main benefit of this plan is clear: helping thousands of first-time buyers climb the property ladder before they would have otherwise.
But, like anything that sounds too good to be true, there are caveats.
The success of the plan depends on the value of the asset rising over time.
Proportionality has created a complex piece of technology, called the Probability Home Index (PHI), which identifies undervalued and overvalued homes so that buyers can make smart decisions and accurately assess a property’s potential.
More than 150 data points are analyzed, including property size, crime rates, transportation links and energy performance sources.
Gerard Boon, Boon’s managing partner, cautioned, “It will be a challenge for people to trust this home index, because if it miscalculates the property that serves as an anomaly in the index, it can result in the buyer’s loss.” could be in negative equity. Broker.
PHI accuracy is more important when zero deposits are involved and finances are so finely balanced.
There is also an issue of how mortgage providers, who never want to enjoy the risk, will react to a proportionately-funded application with zero deposits.
“I expect lenders to be skeptical at first until they see the positive results of the massive plan,” Boon says.
“This plan may prompt an alarming flashback to the 100 percent debt-to-value mortgage products introduced prior to the 2007-8 financial crisis, which largely ended in disaster and negative equity.”
While it is touted as an alternative to help buy equity loans and aims to capture the estimated £4.4bn gap left behind when it expires in October, there are some differences to be aware of.
The Proportunity plan requires no deposit, has low limits on the type of property you can buy and has a maximum value of up to £1 million.
If Opportunity’s combination of innovative financing and technology proves successful, there are potential rewards for those willing to take the risk.