Tenants don't plan on renting for their whole lives, but the road to home ownership can seem long and challenging, especially considering variable interest rates in recent years.
With so much to consider when saving up for a mortgage, here are some tips on how renters can finish their tenancy and become homeowners.
Mortgage guarantee scheme
Some renters postpone climbing the property ladder due to the up-front costs.
When purchasing a home you need to afford a deposit to take it off the market.
Your deposit goes towards paying for the house of your choosing, then the remaining value is covered as a loan which you pay back via your monthly mortgage repayments.
The bigger your deposit, the less you'll have to pay back via a loan.
Mortgages have a loan to value (LTV) ratio to signify how much of the property's value needs to be paid up front via a deposit in order to secure it.
This can be challenging for renters who do not have a significant amount of savings.
This is where the mortgage guarantee scheme comes in. The mortgage guarantee scheme has increased the availability of 95% loan to value mortgages, meaning you only need to pay 5% of the property's value upfront to secure a mortgage.
For example, a home worth £100,000 on a 95% LTV mortgage would require only £5,000 as a deposit, significantly lowering the upfront costs.
Numerous high street lenders are partaking in the scheme such as Barclays, Natwest and Nationwide.
Our partner Embrace Financial Services can compare different offers lenders have so you can explore your options without wasting time. To find out more, book a no-obligation mortgage appointment.
Build up your credit via your rental payments
Lenders will perform a credit check when you apply for a mortgage. For renters, a lack of credit history can be a barrier to entry.
However, you can build up your credit score just by paying your rent to your landlord on time each month.
Rent payments are not reported to credit bureaus by default, so reporting them yourself will help build up a healthy credit history.
There are services available to report your rent to credit bureaus which come with a small fee. Experian offer their own credit boosting service known as 'Experian Boost'.
Through 'Experian Boost' you can report your rental payments while also taking advantage of their other credit-boosting services.
Pay less rent to save for a deposit
The Rent to Buy scheme is another government scheme aimed at helping renters enter homeownership.
The scheme allows renters to pay a reduced amount of rent each month so that building up savings for a deposit is easier.
Renters taking advantage of the scheme pay 20% below the market rent on their chosen property.
To be eligible:
- The landlord of the chosen property must be partaking in the scheme
- You must be in full or part-time employment
- You must be a first-time buyer
- You must be able to save up for a deposit at the same time as paying rent
The deposit you save up can then be used towards your next home. In cases where your landlord is looking to sell their property, you could use your deposit to purchase their property or enter into shared ownership.
Curious what your mortgage options could look like? To get a Mortgage in Principle in just 15 minutes, book a no-obligation mortgage appointment at a time that suits you.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Your initial mortgage appointment is without obligation. Embrace Financial Services normally charge a fee for their services; however, it is payable only on the submission of your mortgage application. The fee will depend on your circumstances but the standard fee is £549. Complex cases usually attract a higher fee. Embrace Financial Services will discuss and agree the fee with you prior to submitting any mortgage application.
Please be aware that the information provided within these archives has been pre-published, as of the date published on each article. The information contained within, including references to taxation, legislation, regulation, or any other issues or concerns may no longer apply.
Reeds Rains E-marketing Executive
