Bank of Mum & Dad to the rescue

The Bank of Mum & Dad is coming to the rescue of a quarter of all first-time buyers by providing the cash needed to top up the deposit for the home.

Retail bank Aldermore conducted a survey among potential first-time buyers and found that parents’ cash savings are being used to help their children get their first foot on the property ladder.

Affordable

Finding an affordable home and saving up a big enough deposit to secure a mortgage are the two biggest hurdles for would be homeowners.

Just over a quarter of those surveyed said saving the deposit was the biggest hurdle with many of them continuing to live with their parents in order to raise the cash.

Another quarter said that finding an affordable property had been their greatest challenge. Others mentioned issues like stamp duty, valuation fees, interest rates and the fees associated with buying a property.

How else can parents help?

But what happens if parents aren’t lucky enough to have cash available to lend to their children?
Well, there are other options …

Guarantor

One would be for the parent to help with a guarantor mortgage using either property or savings to guarantee a 100% mortgage for the property.

This type of loan was severely restricted after the 2008 financial crisis, but has begun to see a resurgence in recent months.

Or they might consider a joint borrower/sole proprietor mortgage (JBSP) in which the parent acts as a joint applicant for the mortgage so their income and financial circumstances can be taken into account by the lender, but only the child’s name is listed on the property deeds.

Property ladder

Consumer champion Which? suggests yet more ways of trying to get on the property ladder.

If the consumer is able to raise a 5% deposit then a Help To Buy equity loan could provide between 15% and 40%of the property price depending on where you live. However, such loans are only available on new-build properties.

Option

Shared ownership is another option where the borrower buys part of the house and rents the rest, normally through a housing association.

The borrower’s stake usually goes up in quarters from 25% to 50% to 75% with the option of owning the property outright at a later stage.

Alternatively, you could buy with another person – not your partner or spouse – and split the cost of deposit, buying fees and mortgage repayments.

There is the added significant advantage of being able to take out a bigger mortgage.