The home-financing service, which is similar to a bridging loan, will allow buyers to ‘upgrade’ their mortgage recommendation as it gives them a loan to make a cash offer on a property.
The borrower’s eligibility for a mortgage of up to 85 per cent loan to value will be assessed along with the likelihood of being approved for mortgage financing. Once approved, the homebuyer can make the cash offer and will only be charged if they complete the purchase of the property.
If a mortgage application is not completed on time, the buyer would buy their home with the Habito Go loan and pay interest at a fixed rate of 0.5 per cent of the loan per month – which is calculated daily – until the mortgage is completed.
The borrower will pay a 1.95 per cent fee on the cash offer once they have completed the purchase of the property, which also includes fast-tracked valuation and legal work.
Once they are a homeowner, their mortgage purchase application will be cancelled, and they would need to apply for a remortgage, which will be offered at the same amount and on the same terms.
If there is any difference in the cost of that new mortgage over the fixed term, Habito said it will pay the buyer the difference as cashback.
A hefty fee
Founder and CEO of Springbok Properties, Shepherd Ncube, said the overall idea was “very innovative” as making first-time buyers appear “ready, willing and able” was “bound to be a winning solution”, but did raise concerns.
He added: “The caution, of course, is in the cost. Habito charges a 1.95 per cent arrangement fee. That’s pretty chunky on a typical £250,000 first purchase. Then there’s interest too at 0.5 per cent per month, far higher than a standard variable rate mortgage.
“In effect, you’re buying the advantage of speed and position but that could be the difference between edging out a competing buyer or not, so you should balance out the pros and cons before proceeding.”
The wrong market
Lucy Pendleton, founder director of independent estate agents James Pendleton, said this was an “intriguing proposition” which would help put first-time buyers on an “equal footing” with landlords who tend to make cash offers on cheaper properties.
She added: “Generally, this product will be most suited to a market where everything is selling in a heartbeat and cash is king.
“This is not the market we’re in at the moment so, to begin with, it may well be a solution people reach for if they face the prospect of losing out on a very special opportunity or their dream home.”
Approach with caution
Jeremy Leaf, north London estate agent and a former Royal Institution of Chartered Surveyors (RICS) residential chairman, said: “The estate agent wants to try and establish the most serious buyer.
“If there is even the remotest chance of an offer falling through then it could have serious financial repercussions for the seller if they miss out on an offer from a prospective purchaser who is in a stronger position.”
He added: “Whether we would accept an offer from a prospective buyer who is awaiting their mortgage to be approved depends on what they are waiting for.
“If it is fairly fundamental, they will be taken less seriously. If it is incidental, they have references and the agent has already seen evidence of their earnings, they will be taken much more seriously.”
Habito said it will fund the first phase off its own balance sheet and is in the final stages of agreeing terms with an investment partner.
Daniel Hegarty (pictured), founder and CEO of Habito, said: “With Habito Go, we hope to arm buyers with the power of a cash offer for their dream home while giving sellers the reassurance of a guaranteed sale that is achievable in a fraction of the time normally required to complete a purchase.
“Typically, approved Habito Go customers can get their loan offer in as little as 24 hours, so they can make an attractive cash offer to estate agents and sellers, putting them in a stronger negotiating position on price.”