The fact that many of us do our banking online mean banks are shutting high street branches up and down the country.
We may gain a few wine bars, but old familiar banks we thought we could rely on are going fast. But what about that favourite financial institution when it comes to buy a home – the bank of Mum and Dad?
The high cost of property means that almost a third of all first-time buyers need help from their family to reach the first rung of the housing ladder. The average amount gifted to a first-time buyer for their house deposit is £14,220, or £34,270 if they are buying in London.
It looks as though this generosity might have to change. But there could be a lifeline.
Why Is your favourite bank running dry?
Mums and Dads still want to help their children get on the property ladder but may be struggling to stay on it themselves. Unless they have paid off their own mortgage, they may be faced with rocketing interest rates. The once ample reserves may be running dry.
The traditional alternative for parents with no cash – releasing some of the equity built up in their home over the boom of the past decade – may no longer be viable either. Falling house prices, and not owning their home outright reduces their ability to withdraw equity from it. The number of homeowners aged 55 and older releasing equity is down 29 % year-on-year, figures from the Equity Release Council show.
The financial restrictions faced by many parents – and especially those with multiple children to help out – means that some first-time buyers are approaching other family members. Branches of the bank of Gran and Grandad are being asked to open up again. Grandparents, who are more likely to have paid off their mortgage commitments may be in a better position with cash, but have to be careful to avoid compromising their own pension reserves.
The bank of Brothers and Sisters is also open for business, and now accounts for 11 % of deposit donations, surpassing grandparents’ contributions of 8%. Unlike most branches of Mum and Dad, this bank may expect the favour to be returned in some form or another even if it is classed as a gift.
But parents are still the most likely to want to gift money for a deposit, with 72% of first-time buyers receiving some contribution from them.
Fortunately, there could be some new ways for them to do it.
When the cash isn’t there
As outright home ownership rates have declined and reserves of spare cash have dwindled, lenders have scrambled to develop creative new ways to allow relatives to act as guarantors on a mortgage. As a result, first-time buyers might include a relative’s income on their mortgage application with a joint borrower sole proprietor mortgage.
If Mum and Dad are still working, being able to take a larger income into consideration (and show multiple income streams). This could mean a larger loan is possible, reducing the need for a large deposit.
In the past, shared ownership would increase costs, but with a joint borrower sole proprietor mortgage, the first time buyer’s name can stand alone on the deeds so they can still take advantage of first-time buyers stamp-duty relief.
Finding out more
At Continuum we are experts in mortgage advice, and we know how to find solutions when the standard products don’t quite fit you needs. If you are finding the Bank of Mum and Dad is facing cashflow problems, or if you face other financial challenges, we can often find alternative ways to make your house buying plans come true. A joint borrower sole proprietor mortgage is just one of them.
To find out about them all, call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice, you should seek independent financial advice before embarking on any course of action.
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