In this brief guide, we will discuss no mortgage needed properties and the associated risks with buying them
No mortgage needed
There are very few options where there is no mortgage needed and you can make arrangements with the seller but every now and then properties get listed on the market as “no mortgage needed”.
You should, of course, be wary of cash buyers or sellers who are insisting that no mortgage is needed.
There are some options when no mortgage is needed or sellers will offer the buyer the option to buy the house by using rental income to make monthly repayments to the seller. These are of course only reserved for buy to let properties where there is rental income generated each month
You will usually begin to see houses advertised with the “no mortgage needed” tag when the housing market and economy generally begin to suffer.
There is an inherent risk with buying a “no mortgage needed house” if you don’t do this with an appropriate conveyancer who can ensure your liability is mitigated and any risk of buying a no mortgage needed house is reduced.
You should avoid buying a no mortgage needed with an informal agreement or an agreement which hasn’t been reviewed by an appropriate legal adviser.
You can find no mortgage needed houses for sale on the News Now classified website, Gumtree, the Trovit homes website, the property Mutila website.
The problems with no mortgage needed houses
The issues with no mortgage needed houses are that no mortgage needed houses will prevent you from being able to use most government schemes as they all insist that you use a mortgage when buying as if you can afford to buy a property without a mortgage then you don’t really need any government help.
Government schemes will also only allow you to buy a house the traditional way except you are buying through an approved scheme provider.
This means you won’t be able to have an arrangement with the seller where you repay them on a monthly basis.
Some of the Government schemes you would miss out on include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Getting a mortgage
If you do end up realising you should get a mortgage then you may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In this brief guide, we discussed No mortgage needed houses and how to get one. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.