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27 Oct 2019

New mortgage service turns first-time buyers into cash buyers: should you be tempted?

Habito Go claims to help buyers secure lower house prices, but it comes at a cost

An online mortgage broker has launched a service offering first-time buyers the chance to become cash buyers, potentially enabling them to negotiate lower house prices.

'Habito Go' offers the chance of a cash loan while you wait for your mortgage application to be processed - but the service is pricey and, arguably, pretty risky.

Here, we explain how Habito Go works and offer advice on which types of buyer could benefit.

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The mortgage deal that makes you a cash buyer

Online mortgage broker Habito has launched a new service called Habito Go, which claims to help first-timers by transforming them into cash buyers.

The argument is that sellers find cash buyers more appealing, as there's less chance that the sale will fall through due to mortgage complications, and it can also speed up the process.

But how does it work in practice?

Habito Go loan process: step-by-step

  1. The first-time buyer applies for a mortgage through Habito and gains an agreement in principle after undergoing a 'soft' credit search.
  2. Habito provides the buyer with the guarantee of a short-term loan, allowing them to go ahead and make an offer on a property. The broker says the loan can be processed in as little as 24 hours.
  3. In the background, Habito continues to process the mortgage application. If the mortgage doesn't come through before the house purchase is completed, the buyer is charged 0.5% interest per month on the cash loan.
  4. Once the mortgage goes through, the loan from Habito is closed.

Who can use Habito Go?

Habito Go is available to first-time buyers aged 25-55 who earn at least £30,000 a year.

The buyer will need a healthy credit history and must be purchasing a home to live in (not a buy-to-let property).

Buyers with a 20% deposit can borrow up to £750,000, and for those with a 15% deposit the maximum is £500,000.*

Are there any benefits to being a cash buyer?

Land Registry data shows that around 30-40% of homes are bought without mortgages - and in some cases, cash buyers can make big savings.

Habito told Which? that its research shows cash buyers pay 4.5% less than people buying with mortgages.

And the broker claims that the prospect of lower prices isn't the only benefit of being a cash buyer.

According to Habito, transactions progress more quickly for cash buyers, and not having to wait for a mortgage to go through can give you the upper hand in a competitive market.

How expensive is Habito Go?

Habito charges a hefty-sounding fee of 1.95% of the property's purchase price, which would work out at £4,875 if you were buying a home for £250,000.*

This is significantly more expensive than the up-front costs involved with getting a standard mortgage. However, Habito claims the fee is justified, as it covers up-front costs such as valuation surveys and property searches as well as the 'cash buyer' status.

Should you use Habito Go?

Habito Go hasn't been greeted with widespread approval. Some rival mortgage brokers have said that it is essentially a bridging loan service, and have criticised the 0.5% monthly interest rate.

But Habito says the fee is clear and reasonable, and emphasises that it will only offer loans to borrowers who it is convinced will comfortably obtain a mortgage in good time.

While there are certainly some positives to Habito Go, it's not going to be the right product for everyone.

First of all, if you don't have a deposit of at least 15%, you won't be eligible.

If you do have the funds, you'll need to do your research on the local market and ask yourself these questions:

  • Is there a lot of competition?If quality properties in your area are highly sought after (perhaps because they're in the catchment area of a great school, for example) and attract several bidders, Habito Go might help you beat the competition. If - as in many places - the market is slow, and houses are taking months to sell, it's unlikely that sellers will turn down an offer from someone who needs a mortgage.
  • Is the cost justified?Nearly £5,000 on a £250,000 loan is a lot of money, so you'll need to think about risk and reward. If you're able to secure a big discount on the property due to being a cash buyer, perhaps because the seller is in a rush, then the fee will be worthwhile. If not, it's a hefty outlay to ultimately get a traditional mortgage.
  • How soon do you want to move?There's no guarantee you'll make a big saving on price with Habito Go, but it may well help you get into your new home more quickly. If a quick move is your top priority, this product could be an appealing option.

Mortgage rates for first-time buyers

If you're able to save a sufficient deposit, it's a great time to be a first-time buyer, with mortgage rates at some of the lowest levels we've ever seen.

If you've got a 15% deposit and are applying for an 85% mortgage, there are two-year fixed-rate deals at 1.5-1.6%, and five-year fixes at around 1.8-1.9%.

And rates are continuing to tumble for those with smaller deposits, too. With a 10% deposit, you could obtain a two-year fix at around 1.7-1.8%, or a five-year fix at 2.2-2.3%.

Market-leading deals tend to come with fees of around £1,000-£1,500, so you'll need to factor these costs into your calculations.

Should you use a mortgage broker?

Habito is just one of many mortgage brokers, all of whom will survey the market to find you a suitable home loan.

One of the main benefits of using a broker is that they can access deals that aren't available directly to consumers. Which? analysis of data from Moneyfacts shows that more than a third of deals currently on the market are only available through brokers.

A good broker should offer a whole-of-market service (meaning they can look at deals from all lenders), and should inform you if the best mortgage is only available if you apply directly to the lender yourself.

To find out more about the pros and cons of professional mortgage advice, check out our guide on choosing a mortgage broker - and to compare online brokers such as Habito and Trussle, visit our guide to online mortgage brokers.

Note: This article was updated to reflect that *£750,000 and £500,000 are the maximum loan values, rather than the maximum property values and **the 1.95% fee is based on the final agreed purchase price, not the mortgage amount.