Can you really buy a house with no money down?
May 30, 2007
The web is full of articles and workshops that promise to build a 1m property portfolio for ₤50,000. Other sites promise that first-time homebuyers that they can buy the house of their dreams with zero down.
Many people are lured into the buy to let market by promises that they can have £1m worth of properties, and ₤50,000 in the banks. The pitfall is that you can do this. Investors are building multimillion pound portfolios in months, by following a few rules.
First time homebuyers are warned away from these schemes, not because they don’t work, but because they are high risk.
First Time Homebuyer
Most first time homebuyers want a property to live in. They do not have the money for a down payment, so they buy into one of these schemes – and wasted their money. Here are a few rules to help you avoid losing your money, and ending up homeless.
Property Brokers
First time homebuyers do not need a property broker to help them get a home with no money down. The broker simply does some paperwork that is normally done by a lending company, and keeps a nice fee for their efforts.
If a mortgage company offers zero down mortgages, then anyone can apply either directly or through a mortgage broker. Property brokers do not have an ‘in’ with the mortgage and property companies. They are not alerted to new developments, and projects before hand. If they tell clients this, they either read the newspaper and found the information, or they are lying.
Property Portfolios
It only takes a short drive around London to see that there is something wrong with the promises of wealth in the buy-to-let market. "For Rent" signs are popping up faster than Tulips in the spring. All of these buy-to-let landlords with 1m property portfolios are looking at vacant properties that still have hefty mortgages due. This money needs to come from somewhere. The ₤50 000 in the bank will disappear quickly if one property is vacant for a few months each year. In fact, while ₤50,000 sounds like a lot of money to have in the bank, it isn’t when managing a £1m property portfolio.
The math doesn’t add up. The scheme promises this. You to start buying homes with ₤50 000, and then own 4 or 5 homes, with ₤50 000 still in the bank, after all mortgage fees and taxes. Something is wrong. The problem is that you owe 100% on each property, in a first and equity release mortgage.
That means that your normal mortgage fees are compounded. Most people who enter the buy to let or property accumulation schemes look at rents and the monthly repayment of the first mortgage. The math works, because there is a couple hundred pounds of rental profits each month.
Unfortunately, what the property owner forgets is that the second, equity release mortgage, is expensive. In some cases, it might be as high as half the first mortgage, even if it is only for ₤20,0000 – ₤30,000.
Interest Only Mortgages
These are one of the most dangerous mortgage products on the market. The interest only mortgage often requires a smaller down payment, but after 25 years, not one sterling pound has been paid off the capital.
Here is the catch. The entire mortgage is due when the mortgage matures. If the capital has not been paid off, the house must be remortgaged. Unfortunately, after 25 years, the house will not be worth what it is today. Even if it is well maintained, most people prefer to buy new homes.
Reality Check
Most households in the UK are struggling to maintain their current standard of living. Many are doing without luxuries just to meet basic needs. It is not only unethical to make promises to young adults that they can become rich with property investment, it can be considered morally wrong. Promising young people that they will make a fortune with a property portfolio is akin to the mutual fund nightmare of twenty years ago.
The risk is astronomical. A couple months with 2 or 3 vacancies, an increase in interest rates, illness, or unemployment can topple the entire house of cards leaving the dreamer in bankruptcy court, and hunting for a cheap house to rent.
Written by Peter Kenny · Filed Under Mortgages
Hi, nice article, I have just bought a house and im currently in the process of waiting to exchange contracts. We were offered a 97% initally but decided to put 5% down to help reduce the mortgage payments.
All the best
Andy Coates
This article is extremely misleading in its own right especially concerning the market in London which is absolutely phenomenal at the moment. None of my nine properties there have ever had one day of being empty. Also, the information about mortgages and equity release is totally inaccurate. I hope I can establish my credibility here, being a successful full time property investor. I started investing in property three years ago and have acquired a portfolio of £3.7m using very little of my own money. I have fixed rate mortgages on all my 15 properties so have not been affected by interest rate rises. I have a passive income of £2500.00 net profit per month. Therefore, if some of my properties were empty, I can weather the storm. There are indeed pitfalls in property investment. The key to overcome them is simple. Whether you are a first time buyer or wanting to build a buy to let portfolio – get yourself educated. Learn how to manage and minimize the risks. The less money of your own that you put into a deal, the less risk it is!. I now have a property business, since I gave up the rat race last year. Please visit http://www.4wallsandaceiling.com and click on “recommended education course” for further details of the course that I found to be the most practical and thorough education. There is a free two hour taster session available to give you some insight into how professionals make money in property. With regards to property clubs or schemes, yes do be very wary of them. I have never bought a property through a club or scheme myself because I took the trouble to educate myself how to do it. It’s that simple. The problem is that people in this country seem to have an issue with paying for education. I have now paid to do several property investment courses, because I believe that my financial security and future is worth investing in. The price of ignorance is far greater than the cost of any course to learn how to invest in property safely and get your advice from someone who is actually doing it and making a success of it.
Vannessa can you buy a buy let propety with no money down? providing you get it for 15% under market value that is?
“Unfortunately ,after 25 years the house will not be worth what it is today”
Why is it unfortunate that its value has gone up (conservatively) by 3 or 4 times?
After 25 years a well maintained property will have appreciated but the ongoing maintenance costs are not included in any of the BTL for fun and profit sites.
You need a cash surplus from rent vs. mortgage+insurance every month to fund these ongoing refurbishments
i am tracy charles i have been renting all of my life. Sometimes I think that there is no way out for me. I looked many times to get a house but there is no hope for the hopeless. Ii would love to have a house one day but that’s a hoax.
I cannot believe what I have just read. Your article is completely wrong. You can buy property with no money down. OK, you have to have the right connections and intelligence to make it work. This process must be used where property is discounted but it can and is being done every day.
Interest only mortgages are the safest form of loan because they protect cashflow and that is critical. The true value of an interest only mortgage goes down as the value of the pound diminishes. £100K in 8 years time will buy what £50K buys today.
Houses must climb in monetary value because the pound keeps devaluing and almost nothing will stop it. Todays drop in price is just a minor fluctuation that will pail into insignificance in the future. Houses do not go down in value.
Peter, wake up, you haven’t got a clue what you are talking about.
Phil Barber.
Phil Barber – have you lost the plot? House prices have gone down – nationally by 16% on the average house price. Which planet have you been on? They will bottom out sooner or later. Once this happens they will start to rise over time. See the recession as resetting greed. One lot moves out, the others move in!
I would like to find out how to buy a propperty with no money at all
please email me or phone me on 07942960670
No Ive not lost the plot. Whilst houses have been falling in price Ive been buying them below the lowest price they can fall to. The pressure to diminish the value of the pound is massive and the government have been doing the one thing that devalues the pound most, printing money.
We are already seeing the beginning of price rises and property has a long way to go to catch up. I’m going to look back at the houses that I purchased in 2009 and marvel at how cheap they were.
This has been a great year for property investors. Probably the greatest in my lifetime.
Can you buy houses with no money down? Yes you can but it easier if you use other more standard mechanisms.
Phil.
well tbh i think everyone going over the top here!!i would say to rent a council flat until you are able to buy it of the council for relatively cheap then sell it on for a very good pfofit then you have money for the next house