Would-be first-time buyers have been given the opportunity to crowdfund their deposit thanks to a new social enterprise platform.
The Gifted Deposit website is set to launch in April and will tap into the model created by the likes of charity platform JustGiving, giving first-time homebuyers the ability to pitch for funding.
They will be able to post videos explaining why they need support to get on the property ladder they can share with their family, friends and even total strangers.
Gifted Deposit: Borrowers can seek help from friends and strangers alike to raise a mortgage deposit
There will be no financial returns to investors but the hopeful homeowners will be able to offer their own rewards – perhaps a home-cooked meal in the new pad, or the odd Christmas card?
With the average property price in England and Wales £188,270 in December, according to the Land Registry, a 95 per cent loan-to-value mortgage – which is all some cash-strapped potential buyers can manage – would require the borrower to stump up £9,414 as a deposit.
A 75 per cent LTV mortgage – more typical for the average homebuyer rather than a first-timer – would require a more hefty £47,068 deposit.
That is where Gifted Deposit is hoping to step in and help borrowers make up the shortfalls.
The site will be run by Paul Lamm and Owen Angel, founding members of Financial Conduct Authority-regulated property crowdfunding platform Propnology.
Users are expected to seek around £5,000 and use other savings to make up the balance of the deposit required and the platform will take a 5 per cent servicing fee of any funds raised.
Is there any guarantee the money raised will be put towards a deposit?
Gifted Deposit says the money raised can either be used to put in savings for a deposit or directly towards a home loan.
Campaign owners (those asking for the money) must sign terms and conditions that state they will use the money for a mortgage deposit.
They will be asked if they are in the process of buying a property, or if they are saving the deposit in advance of the purchase.
For campaign owners who have identified a property, and are going through the buying process, any funds raised would be paid directly to the solicitor acting on behalf of the buyer.
Alternatively, for campaign owners who are saving in advance of purchasing a property, the site would conduct enhanced due diligence on the borrower about the type of savings account they have in place.
There will also be credit report checks to see if borrowers are really first-time buyers, and any fraud suspicions will be reported.
As most money is expected to be raised by friends and family, this should provide a buffer to users just blowing the cash, but there is always the risk that the campaign owner simply change their mind and use the money for another purpose.
Could a crowdfunded deposit scare off mortgage lenders?
Mortgage lenders are likely to ask about the source of funds for a deposit when it comes to the application process but Coreco mortgage broker Andrew Montlake doesn’t think it will be an issue, and neither does Gifted Deposit’s Paul Lamm.
Lamm explained that all donors must consent to not expect any financial return and fundraisers will be given a certificate that can be sent to the bank confirming where and how the funds were raised.
Montlake added: ‘Usually where gifted deposits are concerned lenders need to see where the money has come from and ask for a letter from the giftor stating that the money is a loan and does not have to paid back.
‘If this meets the lender’s requirements and they are comfortable with the deposit monies coming from this avenue then there is no reason to believe there is an issue.’
However, he added: ‘It does need to be very clear that any monies raised by this method are transparent and it will be interesting to see if the prospective borrower needs to put any money in themselves to start the ball rolling.
‘And until all the small print is really known it is hard to ascertain whether this will be a cost-effective way to go rather than the time-honoured tradition of begging at the feet of family and relatives.’
Will strangers really contribute?
Lamm said: ‘Social platforms, such as Just Giving and Gofundme, have demonstrated that people are willing to give to good causes and make a difference to the lives of others.
‘Traditionally, this was limited to charitable campaigns, but there has been a shift towards more local and personal causes, where the success of a campaign is perhaps more visible and immediate.
‘We all have social wealth in our ever-expanding network of friends, followers, subscribers and connections and we emphasise that it is the quality of each campaign, and the manner in which it is promoted, that will ultimately determine its success.
‘The power of social media is now so great that a well-crafted campaign has the potential to reach literally millions of people worldwide.’
‘A GIFTED DEPOSIT WILL MEAN WE CAN SPEND NEXT CHRISTMAS AS A FAMILY IN OUR OWN HOME’
First-timers: Carly and Aaron hope to raise £5,000 through Gifted Deposit
Like many first-time buyers, Aaron and Carly Grabham are facing the challenge of saving a sizeable deposit in order to realise their dreams of home ownership.
When Carly, 29, fell pregnant with their first child last year, they were faced with the prospect of surviving on a single salary, so made the reluctant decision to move out of their rented home and back in with her parents.
Aaron, 34, explains: ‘While renting, we were both working full-time and our priority was to save any disposable income towards the deposit for our first home.
‘With a baby on the way, we knew that it would be difficult to save and didn’t want to raise a child in rented accommodation with no prospect of owning our own home in the future.
‘The only realistic option available was to move back with Carly’s parents.’
They did so in April 2015 and the baby was born in December.
Aaron first became aware of GiftedDeposit.co.uk on social media and he contacted the platform to find out more information. He is confident people within his network of friends and family will be willing to contribute to his campaign, along with other members of the Gifted Deposit community, who may relate to the couple’s story.
He said: ‘Although I had heard of the Government’s Help to Buy scheme, I was unaware of the Help to Buy Isa that was introduced in December 2015 until I had spoken to Gifted Deposit.
‘We have both now opened our own Help to Buy Isas, which will enable us to benefit from a 25 per cent bonus on the total amount we manage to save.
‘The additional funds, to be raised in our Gifted Deposit campaign, will mean that we can enjoy our next family Christmas In the comfort of our own home.’
In preparation of the platform’s launch, having registered on the website, Aaron is now busy working on his campaign video to help maximise his chances of raising the remaining funds they need and is considering what rewards they could offer to people who donate.
The couple is hoping to raise a total deposit of £27,000, and, as they have not been paying any rent at Carly’s parents, hope to have a personal contribution of £22,000. The remaining £5,000 balance is what they hope to raise through the Gifted Deposit platform.
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