A rare mortgage designed to help first-time buyers get on the property ladder has launched – and you’ll only need a 5% deposit.
Gen H‘s new “part and part” mortgage aims to help new buyers access home ownership sooner by offering them both a low deposit and lower monthly repayments.
A part and part mortgage – also known as part interest, part repayment – means you can take out some of your mortgage on an interest-only basis.
This means you’ll only need to pay the interest on the amount borrowed every month, instead of your full mortgage repayments.
You may be left with a remaining balance at the end of your mortgage term, which you’ll need to repay, but buyers will also have the option to overpay their mortgage down the line to avoid this.
Experts say the mortgage is most suitable for people who want to own a home right now and can’t afford the full loan amount, but are expecting their income to increase in the future.
For the Gen H mortgage, buyers will need a minimum household income of £50,000 and can take out up to 80% of their mortgage on an interest-only basis.
Pete Dockar, Gen H Chief Commercial Officer, said: “For most people, the path to homeownership isn’t straightforward.
“In a country where the average house price is eight times the average salary – to say nothing of places like London – the best mortgage products are those that can be carefully tailored to suit the needs of individual buyers.
“Part and part mortgages do exactly that. No more renting. No need for family help. And unlike shared ownership, there’s no staircasing, no frustrating administration, and no rent to be paid; just 100% homeownership from day 1.
“We are thrilled to make this product available to our broker panel and to the growing number of clients, who may now be able to support.”
Nicholas Mendes, mortgage technical manager at John Charcol, said the biggest advantage of this new mortgage products is “flexibility” for first-time buyers.
“Borrowers who narrowly miss full repayment affordability can dial in an interest only slice to bring the monthly cost within reach while still owning 100% from day one and retaining the ability to overpay,” he said.
However, he added: “The trade-off is that any interest only balance must still be cleared at the end of the term, so borrowers need a credible plan via overpayments, future income, or equity growth.
“Costs should also be assessed on a true cost basis rather than just the headline rate, including fees and any early repayment charges.”
Rachel Geddes, strategic lender relationship director at the Mortgage Advice Bureau, told The Sun: “The main benefit of the part and part mortgage is to assist with affordability.
“For instance, if you know there are going to be changes to your job role that will result in an increase in your income, this could be a suitable option.
“You could afford the mortgage repayments on an interest-only basis, before making lump sum payments as time goes on (or more likely, reverting to a capital repayment mortgage down the line).”
She added: “In terms of the cons, with any-interest only element, if you don’t make any overpayments or convert to capital repayment at a later date, then when it comes to the end of your mortgage term, you still have to pay that debt back.”
It comes after Gen H launched a new mortgage scheme for first time buyers earlier this year.
Its New Build Boost scheme offers buyers with a 5% deposit a mortgage with an 80% loan-to-value.
Gen H then tops up the remaining 15% with an equity loan, which the buyer has to pay back.
The loan is interest-free for the full length of the mortgage term while buyers can pay it off at its original value within the first five years.
What other help can first-time buyers get?
Several lenders have eased rules and introduced new schemes this year to aid struggling first-time buyers as the housing market heats up.
Major lenders slashed their affordability rules earlier this year, allowing buyers to borrow more.
Meanwhile, Nationwide now allows customers to borrow six times their annual income through its helping hand scheme, and buyers only need a 5% deposit.
However, the offer is only open to people taking out a five or ten-year fixed mortgage.
Santander announced in August that it would start allowing buyers borrow up to 5.5 times their income.
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