In This Article
What is a Proportunity Loan?
A proportunity loan is an equity loan against the property for a certain percentage, for example, 20%. This means that Proportunity has a financial interest in the property and when it is sold in the future, they are paid back that same percentage of the future value.
It works in a similar way to Help To Buy in that a loan is against the property as an equity loan but it’s not linked to any government schemes so it’s privately funded. The intended use is to help you to buy a property that you may not otherwise be able to afford.
One key difference with a Proportunity loan is that there are monthly payments payable on the property from the very beginning unlike Help To Buy where they begin after five years.
As a result, the amount that they can lend is based on affordability to make sure that you are in a position to pay.
The facility is not just available to first time buyers, it’s also available to home movers but it must be for a property that they intend to live in.
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Why would someone take a Proportunity loan when buying a property?
There could be several reasons but the main reason that a person would take a Proportunity loan would be to top up their deposit or borrowing capacity so they can buy a property that they were unable to afford without the equity loan.
This may be because you need a larger house due to the size of your family or otherwise you need to be in a certain area that is a bit outside of your budget on a standard purchase. In a situation like this, a Proportunity loan may be the difference in whether or not you buy a property that’s suitable for you.
How much do you need to put down when buying a home with a Proportunity loan?
To qualify for a Proportunity loan, you would need to put down a deposit of at least 5%. Proportunity would then lend a further 10% to 25% meaning that a mortgage would be taken on the rest.
Following completion, you would be making payments on both the mortgage and the Proportunity loan.
Do all lenders accept Proportunity loans?
Not all lenders accept a Proportunity loan as a deposit and the list of lenders would continue to change. If you are considering taking one, it would be wise to speak with a mortgage adviser that has experience in arranging shared equity mortgages and familiar with the Proportuity loans.
They will also not be suitable for everyone so taking independent financial advice from a mortgage adviser is highly recommended so you can work out whether this is the best route for you or not.
What will the lender be looking at when looking at a mortgage with a Proportunity loan?
First of all, not all lenders will consider this type of deposit but over time, the number of lenders that do may change.
Similar to any residential mortgage application, the lender will need the comfort that you are going to be able to pay your mortgage based on the financial details that they have. This will mean that they will be looking at your annual income, how your income is made up, your financial dependents, your other debts (loans, cards, car leases etc) and your age.
In addition to this, if you are using a Proportunity loan, as there is interest payable monthly, this will need to be factored into the affordability assessment to ensure all passes affordability.
To find out your borrowing potential for both Proportunity and the mortgage lender, it would be best to talk with an experienced mortgage adviser that can look into both and advise whether the route is suitable for you.
What are the downsides of taking a Proportunity loan?
Like any financial facility, there are often negative things to consider as well as positive.
In this case, with a Proportunity loan, having an equity loan on your property will mean that if it sells in the future for more money than what you paid, you would not get to keep as much of the money that you made.
For example, if you bought the house for £350,000 and borrowed 20% of the value as a Proportunity equity loan, this would mean they gave a loan of £70,000.
If in the future, the house was sold for £450,000, you would then pay back 20% of this figure so paying back £90,000.
In a standard situation, you would have kept the higher amount but in this case, your profit was less. On the other hand, though, the purchase may not have been possible at all without the facility.
Another downside of the loan is that you will be paying interest on the loan from day one along with the mortgage. This is never a good thing but borrowing money is rarely free and you may consider it worth the premium if it gets you the home that you want.
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Should I use a mortgage adviser when taking a mortgage with a Proportunity loan?
Yes, as Proportunity loans are arranged via mortgage brokers that are on the panel of Proportunity. They will be able to advise what the monthly payments are for both the Proportunity loan and the primary mortgage.
An experienced mortgage adviser will also be able to work out which lenders are best for you, the type of product that’s most suitable (for example, a fixed mortgage) and what the terms are for both the Proportunity loan and the main mortgage.
As the loans have early repayment charges on them (and the mortgage may too) your mortgage adviser will be able to advise what they are when considering which products are best for you.
A Proportunity loan may be the facility that enables you to buy the property that you need rather than settle for one that is less suitable.
You will however pay back a percentage based on the future value and interest will be payable from day one.
Financial advice should be taken with products like this so we would always recommend speaking with an experienced mortgage adviser who can advise your options or whether the products are suitable for your situation or not.
If you would like I NEED ADVICE to put you in touch with an experienced mortgage adviser that can give you options for both a mortgage and a Proportunity loan, please complete the contact form.