Lloyds Banking Group, one of the biggest UK banking institutions, is to start offering 100% mortgages to first-time buyers. This means that the typical first-time buyer no longer needs £33,000 to secure the home of their dreams. Although, you must have a close relative willing to place 10% of your home’s value in a Lloyds savings account first. But, despite this safety net, a deposit-free mortgage still isn’t risk-free. So, how do you safeguard your finances with such an investment?
Avoid costly cities
Research from Lloyds Banking Group has revealed that the typical UK city home price has risen by 37% in the past five years. Yet, earnings have only increased by 11%. As a result, many of the country’s most popular cities are unaffordable for first-time buyers. To ensure that you can afford your monthly repayments and day-to-day living costs, it’s wise to take out a 100% mortgage on a property in one of the more affordable UK cities, such as Londonderry, Stirling, Newry, Bradford, or Lancaster.
Increase the value of your home
One of the biggest risks associated with a 100% mortgage is the possibility of it losing value, thus meaning you fall into negative equity. And, with Brexit looming, the housing market could go either way. By increasing the value of your property, the chance of this occurring reduces. One way to do this is to make home improvements by using your savings to makeover your kitchen, or to extend your home. Whereas, older homeowners can boost their property’s value later on in life by releasing equity from their home.
Safeguarding your relative’s ‘deposit’
The ‘lend a hand’ mortgage being offered by Lloyds requires a close relative to lock in 10% of your home’s value for three years. They’ll benefit from earning 2.5% interest throughout this period and it can be withdrawn after this time. However, you’ll need to safeguard this lump sum by ensuring you meet all your repayments. A failed repayment will result in your relative’s cash being used to cover the payment, a loss in interest and, quite possibly, a disgruntled family member. And, in the worst-case scenario, your home could be repossessed if there’s not enough cash in the pot. So, it’s wise to ensure the cash is in your bank account a few days before each payment is due.
Lloyds’ decision to offer 100% mortgages to first-time buyers provides millions of individuals with the opportunity to own their own home. However, before you make such an investment, it’s advisable to weigh up the risks and find ways to protect both you and your family member’s investment.