First-time buyers will now have the chance to make a cash offer on a home before they are even approved for a mortgage, with an unusual deal from broker Habito.
The deal, ‘Habito Go’, allows buyers who are seeking a mortgage at up to 85 per cent loan-to-value to ‘upgrade’ their mortgage purchase to a cash purchase, for a fee.
The broker provides customers with the total amount needed to buy the property, while simultaneously continuing their mortgage application, but they must pay a chunky percentage fee on the deal.
It claims that customers can get their loan offer in as little as 24 hours, helping them to secure their property earlier and putting them in a stronger negotiating position on price.
Habito Go lets first-time buyers make a cash offer on a home before the mortgage is approved
After a first-time buyer applies for a mortgage with Habito, the broker then performs a number of checks prior to approving the loan.
These include a ‘soft’ credit check, which won’t affect the customer’s credit score, as well as affordability checks.
Once the customer has passed, they are issued the cash loan, which is used to put a cash offer on the property.
Habito reckons these buyers should definitely get a mortgage and if they don;t it makes a form of bridging loan to them, charging 0.5 per cent a month interest, or 6 per cent a year.
The buyer will then continue to apply for their mortgage through Habito’s brokerage, with the mortgage sometimes being secured on the property prior to completion.
In the instance that the mortgage doesn’t come through in time, the buyer then buys their home with the Habito Go loan and pays interest at a fixed rate of 0.5 per cent of the loan a month, calculated daily.
Habito then cancels the customer’s original mortgage application and applies for a remortgage instead.
The broker says it will then ensure the customer gets a remortgage deal for the same amount, the same term, and at a similar cost as the original mortgage that it cancelled.
If it’s more expensive, Habito will pay the buyer the difference between the new monthly payments and the payments they would have made with the original mortgage offer.
The mortgage is then used to pay off the loan.
This isn’t a free service. In fact, it is expensive as borrowers will have to pay a fee of 1.95 per cent of the total value of the property if the deal goes through.
There is also the 0.5 per cent interest on the loan per month until the mortgage is completed.
Though this seems high this is actually on the lower end of the spectrum when it comes to this type of deal, with most bridging loans averaging between 0.5 per cent and 1 per cent per month.
A spokesperson for the broker said: ‘The term of the Habito Go loan is 12 months and the interest will therefore not exceed 6 per cent.
‘We will only be issuing Habito Go loans to customers we know have a high degree of confidence will get their main mortgage well within that timeframe – hence our focus on underwriting and getting valuations and comprehensive conveyancing underway in a timely and thorough manner right at the very start.’
The deal is not available on new-build properties.
Could this save you money?
According to HM Land Registry, cash purchases account for between 30 to 40 per cent of all housing transactions.
While not an option available to everyone, buying a home this way has its advantages, the biggest being the speed with which you can close the deal.
Sellers like the certainty this gives them, and sometimes a cash buyer can secure a lower price on the home as a result.
The deal is available to first-time buyers applying for mortgages up to 85% loan-to-value
Habito put us in touch with a homebuyer called Oliver Lambert who works for a private equity firm with a stake in Habito.
He says he recently managed to shave £12,700 off the asking price of his new home by paying cash up front using Habito Go.
The North West London flat Oliver wanted was on the market for £595,000. Oliver was offered the opportunity to upgrade his HSBC mortgage application to an all-cash purchase using Habito Go.
Oliver then offered the seller £572,000 as a cash buyer, which the seller accepted. It is not clear whether the seller would have accepted that anyway, however.
Within five working days, a valuation on the property was carried out and a report was delivered. At the same time, solicitors were engaged and, simultaneously, Oliver’s mortgage application was progressed, submitted and accepted with HSBC
The process took 26 days from start to completion, after this Oliver got the keys to his first home.
Oliver, who works for a private equity firm with a stake hold in Habito, recently bought a flat with Habito Go
Taking the latest listing price, minus the accepted sale price, Oliver made an overall saving of £23,000 or around 3.9 per cent.
This also allowed him to make a stamp duty saving, only paying £18,850 on the £572,000 accepted cash offer instead of the £19,750 he would have had to pay on the £595,000 listing price, saving him £900 in tax.
After paying Habito Go their fee of 1.95 per cent, or £11,154, Oliver saved a total of £12,746 by managing to negotiate down the price.
On his current 1.79 per cent five year fix, over 25 years Oliver would also save an extra £2,689 in interest.
In London’s struggling housing market many buyers are accepting lower offers anyway, so there is a chance that Oliver could have secured a discount without the service.
His success story does not mean that this tactic will work every time, however.
London is currently experiencing the steepest fall in house prices since the recession and Brexit uncertainty has hit the housing market in the capital the hardest of anywhere in the UK.
Elsewhere in the UK, particularly areas where the housing market is strong, sellers might not be in such a rush to sell, and may be less willing to accept lower offers.
However, for those who believe they can negotiate the asking price of a home down to cover the fee, or those who simply don’t mind paying the fee if it gives them a greater chance of securing the home more quickly, this deal might work.
Personal finance expert Andrew Hagger said: ‘Habito Go has the potential to wipe out some of the major hassle factors encountered by first-time buyers.
‘The speeding up of the process and ability to negotiate a cash buyer discount could be highly beneficial and many borrowers could see some or all of the product fee costs negated due to a lower purchase price being achieved.
‘It also gives first-time buyers a greater chance of getting their number one choice of home – rather than having to settle for second, third or fourth choice.’
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