Nearly 25 percent of potential first-time buyers are counting on the aid of the bank of mum and dad to fund their mortgage deposit, based on a new survey.
Of those, over fifty percent (54%) will use their folks’ cash savings to get a foot on the property ladder, retail bank Aldermore has reported.
But how else can parents help their kids purchase a property, and what would be the biggest obstacles facing first-time buyers right now?
We examine the first-time buyer market and explain your options if you’re unable to rely on cash from your parents to purchase a home.
Saving a mortgage deposit biggest barrier for buyers
Just on the quarter (26%) of the wannabe homebuyers surveyed said that saving up enough deposit was their biggest obstacle, with 23% coping with their parents to save faster.
Another quarter (25%) asserted finding an affordable property was the best challenge, and others mentioned issues for example stamp duty/valuation fees (2%), getting a suitable home for sale (4%), rates of interest (5%) and fees related to purchasing a property (4%).
Mortgages proved a obstacle, too, with 11% citing affordability issues, 8% having difficulty securing one and 4% not understanding their mortgage options.
Damian Thompson, Aldermore’s director of mortgages, claimed high house prices, insufficient suitable homes and weak wage growth means ‘the bank of mum and dad has increasingly be a necessity, rather than just a helping hand’.
How are parents helping with mortgage deposits?
In total, 1,500 first-time buyers were surveyed by Aldermore in November last year, and 23% said that they'd need help using their parents in order to afford a mortgage deposit.
The table below shows the different ways in which those individuals said their parents will help:
|How will your parents/family enable you to fund your deposit?||% of these receiving help from parents|
|They will use their funds savings||54%|
|They will release equity within their property||24%|
|They will move and downsize||19%|
|They will remortgage their property||17%|
|They will take a cash lump sum payment from their pensions||6%|
|They will sell their second property||4%|
How else can parents help?
Not all parents are lucky enough to get have cash open to help their kids, but there are more options.
One might be a guarantor mortgage, in which the parent provides a guarantor on their child’s loan, using either their property or savings as security. It will help raise the mortgage applicant’s likelihood of being accepted, or give them use of better mortgage deals.
If the first-time buyer has struggled in order to save a deposit, they could even consider a 100% mortgage – financing for the full value of the property that also requires the parent acting as a guarantor.
The 100% mortgage market was severely restricted following a financial crash, but has started to see a resurgence in recent months with providers for example Barclays reducing the rate on its 100% Family Springboard mortgage.
You may also be thinking about a joint borrower, sole proprietor (JBSP) mortgage. With this kind of deal, the parent can act as a joint applicant for that mortgage – and therefore their income and financial circumstances are taken into account, as well as their child’s, but only the child is named around the property deeds.
JBSP mortgages generally make it easier for the first-time buyer to become accepted but, because the parent doesn’t actually own the property that’s being bought, they reach avoid paying the 2nd home stamp duty surcharge.
Other options for first-time buyers
If you’re saving for your first home and aren’t able (or don’t want) to inquire about your folks for help, there are more options, from schemes to larger mortgages.
Help to purchase equity loans
If you’ve had a 5% deposit, the government may lend you 15-40% from the property price (based on where you reside) through a Assistance to Buy equity loan.
These are just available on new-build homes but tend to assist you to to the property ladder if you’re struggling to buy with the normal routes.
This allows you to purchase a area of the property and pay rent around the remaining home.
Typically people buy a stake which is between 25% and 75% from the housing association (a not-for-profit organisation that supplies housing) and pay rent as high as 3% around the remaining share.
Buying with a friend
Many use with a partner or spouse, but that’s only some of the option. More and more first-time buyers are teaming up with friends to be able to cut the expense of a deposit, buying fees and home loan repayments.
Buying with another person also offers the functional benefit of enabling you to take out a larger mortgage.
Rates on 95% mortgages have fallen sharply in the last year, meaning that if you’ve in the bank a 5% deposit and are able to borrow enough, they are a more appealing option than in the past.