Using the Bank of Mum and Dad to get on the Property Ladder

The number of first-time buyers relying on the ‘Bank of Mum and Dad’ to help them onto the property ladder has risen to a record high, according to new research.

More than a third of first-time buyers now turn to their family for financial help when buying a property, a study by the Social Mobility Commission found, compared to one in five seven years ago. One in 10 relies on inherited wealth to fund their property purchase.

The Commission claims that this increasing reliance on financial support from our families will ultimately damage social mobility, with those on low incomes often finding it impossible to buy a property. For many people however, having this support is the only way they can afford to purchase a home.

If you are fortunate enough to have family who are prepared to give you a leg up, there are plenty of ways they can help without actually having to hand any money over.

For example, Nationwide Building Society recently introduced a ‘Family Deposit Mortgage’ which enables family members to borrow against part of the equity in their home and gift this to the homebuyer so it can make up their deposit. They must have their mortgage with Nationwide to do this, so if they’re with another lender, they’ll need to move their mortgage across to the building society.

Other options include Barclays ‘Springboard’ mortgage, which will provide up to 100% of the property value to first-time buyers who don’t have a deposit to put down, as long as their parents agree to keep 10% of the purchase price in a separate savings account. The buyer will then pay a three-year fixed rate, after which they’ll be moved onto a tracker mortgage. Parents will earn interest on their savings over this three-year period, but won’t be to make any withdrawals until it finishes.

The benefit to the parent is that the funds remain in their name rather than being given away, which could be helpful if, for example, they want to recycle the money for a sibling.

Various other lenders, including Family Building Society and Aldermore, also offer mortgages which enable family members to provide first-time buyers with financial support.

With the Family Building Society Family Mortgage, for example, the buyer must find a 5% deposit, but parents or other family members can then provide security for the buyer’s mortgage by putting savings into a savings account with the building society. This means the building society can offer a lower rate of interest than it otherwise would, because the risk it is taking on is reduced.

First-time buyers buying through Aldermore can take out a 100% mortgage, but the loan will be secured against a parent, step-parent or grandparent’s property, which means they won’t have to draw on any of their savings to be able to help.

There are lots of different options available for those who do need family support when buying a new home, so it’s worth checking out all the various mortgages designed specifically for this purpose.
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