Perhaps the quickest and easiest way to buy a property is to leverage or use another property. By using another property, you may be able to raise the full deposit you need to get on the property ladder in one single step.
So if you are looking to raise a deposit to become a homeowner, you should start by considering if there is a property, owned by someone you know, which you may be able to utilise.
1. Finding a property to use
Ideally you need to identify a property which is owned by a:
- Other close relative.
Other property owners are a possibility but a deal with them is less likely, may be harder to structure and may present greater risks.
The property can be:
- Residential (someone’s home)
- Investment (such as a property which is rented out).
It is normally easier to use a property if it is free of mortgage, but a property which is subject to a mortgage can be utilised just as well.
2. Five common ways to raise a deposit from a property
There are at least five common ways you can use a property to raise a deposit (set out in paragraphs 3 to 7 below) – which show the power and versatility of the method.
One important consideration is the status of the deposit provided. Will it be a loan or a gift? If a loan, when must it be repaid? Will there be interest and, if so, how much?
To minimise the risk of misunderstandings or disputes, it is advisable that you and the property owner seek financial and legal advice in advance of any arrangement or agreement.
Depending on the nature of the transaction, it may be advisable for each side to have their own lawyer and the deal recorded in writing.
Quick house deposit (BOOK: 50 ways to raise a deposit in 6 months)
3. Take out a mortgage
If the property is free of mortgage, the owner can take out a mortgage against it to raise the amount needed for a deposit.
4. Go for a remortgage
A remortgage is where you replace one mortgage with another one. The replacement mortgage is for a greater amount with the additional borrowing being used for the deposit.
5. Get a second mortgage
If a property is already mortgaged and the owner does not want to remortgage – for instance because they are on a low interest rate – an option is to raise the deposit by taking out a second mortgage.
6. Take out a further advance
A further advance is where an owner is advanced further money on the back of the existing mortgage.
It can be a quicker and easier route to borrow money than some of the previous options.
7. Equity release
Where the owner has equity in their home and other forms of borrowing are not appropriate – for instance because of the age or employment status of the owner – equity release is an option.
Part of the equity in the property is made available to the owner as a cash lump sum and that becomes available as a deposit.
Equity release schemes come with several disadvantages and risks and it is vital for the owner to seek independent financial advice before signing up for such a scheme.
FINANCIAL HELP AND STRATEGIES FOR FIRST TIME BUYERS
Government help to buy (government financial help for first time buyers)
More help from the government (right to buy, right to acquire and shared ownership)
Mum & dad to the rescue (how parents can help their children to buy their first home)
Cut spending – grow house deposit (raise a deposit fast by cutting your spending)
Boost income – grow house deposit (raise a deposit fast by increasing your income)
8. Add value to a property
A smart way to raise a deposit from a property is to add value to the property before using it to raise a deposit.
The added value may allow a bigger deposit to be obtained.
The value of a property can be increased in many ways, including adding:
- An extension
- New kitchen/bathroom
- Loft conversion
Once value has been added, the property can be sold or refinanced to take out some or all of the value added.
Have you tried using a property to get a deposit together? What were your experiences? Are you willing to share them? Other readers may benefit from learning about your experiences. Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com