Mums and Dads across the country can rejoice as they celebrate their new job - as one of the UK's Top 10 Mortgage Lenders! Yes, that's right, parents are now lending their children so much money to get onto the property ladder that they would sit at number 10 on the list of top lenders in the UK. The role is taken pro bono, of course...
According to the most recent report by Legal & General, parents have collectively lent £6.3bn in total to children, an incredible amount that is reflective of the issues of being a first-time buyer in the current economic climate. It has been well reported in the news of the difficulties that first-time buyers are facing when saving for a deposit, with thousands having to ask for financial assistance from their family.
As an estate agent in Wirral, we are well aware of the battles of saving for your first home. We even did a blog on The Ultimate First-Time Buyer Guide, make sure you check it out on some top tips for saving! However, we want to delve a little deeper into the first-time buyer market and learn exactly why so many are struggling to get their foot on the first step of the elusive property ladder.
The Struggle of Generation Rent
We're in the reigning age of the millennial with the world seemingly at our fingertips. The internet has given us endless possibilities to access pretty much anything faster than in any other era and yet, as we're about to enter the roaring twenties, we're defined as Generation Rent - the group in which one in three of us will never own our own home.
With the average deposit of first-time buyers being a colossal £43,433 and the average wage of full-time workers being £35,423, house deposits are sitting at more than a yearly wage. Eeek! Can we stop the world, we'd like to make a plea to the National Lottery...
Despite previous generations arguing otherwise, being a first-time buyer in 2019 is tough when it comes to affordability. In 1997, homes cost 3.55 times the earnings of their occupants in England and Wales, whereas now, it costs around 7.8 times their salary, that's less than half as expensive as it is today. Factor this in alongside the increasing debt of student loans and the rising cost of living and you can soon see why most of us are getting the keys to our first home a decade or so later than our parents, if at all.
Unlike other countries, we Brits are fixated on owning our own home and renting is seen as a temporary state of living, not financially sound or even astute. It is cemented deep within our culture to own our own property and so, let's not concentrate on being Generation Rent and instead, focus on the steps we can take to help us get onto the property ladder.
What Help is Available to First-Time Buyers?
Although owning a home may seem like a subject for the next Mission Impossible franchise, there is actually quite a bit of help out there for first-time buyers. Remember to always seek legal advice.
1. Help to Buy ISA
Set up back in 2013, the Help-to-Buy scheme aims to encourage first-time buyers by giving them a 25% boost on their savings, courtesy of the government. For every £200 you save, you will receive a bonus of £50 up to the maximum of £3,000. Bingo! So, if you are purchasing a property with someone else who also has a Help-to-Buy ISA, there's an extra £3,000 towards your deposit too!
There are, of course, terms and conditions but most first-time buyers tick the boxes. You can see all the conditions on the government's website but here are the main conditions to qualify for a government bonus:
It is worthwhile setting one of these ISAs up and you can add a maximum of £200.00 each month after the first. However, if this is not suitable for you there is another type of ISA which could help.
2. Lifetime ISA
A Lifetime ISA works slightly differently than the Help-to-Buy scheme and is not specific to first-time buyers. The government will still boost savings by 25% up to a maximum of £1,000 a year and you can boost the bonus if your partner also has a Lifetime ISA.
With this type of plan, you are able to save up to £4,000 each year - an extra £1,600 more than the Help-to-Buy and can do so until you are 50. As a first-time buyer, you can use a Lifetime ISA if,
You can find out more about Lifetime ISAs on the government's website.
3. Help from Mum and Dad
No matter how old we are, there are always times that we need the help and advice of those who are older, wiser and richer than us! However, don't fret, even if your parents may not be able to give you a small fortune towards your deposit, there are other ways in which they can help.
The Bank of Mum and Dad - Loan
Let's face it, most of our parents don't have thousands sat in the bank ready and waiting for the day we have to beg for cash. However, some may be willing to loan you the money needed to help give you a head start.
Regardless of the fact that they are your parents, any money lending must be written up in a loan agreement. We should have all learnt our lesson from binging on Judge Rinder shows, everything must be in writing!
However, one thing to be aware of is that a loan would need to be declared to the mortgage lender and will more than likely affect what is offered and not in a positive way, as your lender will consider that you have to repay that loan along with the mortgage itself.
The Bank of Mum and Dad - Gift
If you are lucky enough to have financial help from your parents, then asking them to gift you the money is the best option...but we all knew that anyway!
By increasing the sum of your deposit, more deals will be available to you and most likely with lower monthly payments. However, it must be made clear to the mortgage lender that it is indeed a gift and not a loan, this can be done in a written declaration.
We know how exciting it is to buy a house with a partner and we really do hate to be a killjoy, however, it's important that your parents seek legal advice on what happens to that money if you and your partner were to split. Because the exes and your doughs will haunt you if they were to leave with it!
Help from Mum and Dad - Guarantor
As Guarantors, what your parents would be doing is saying that they would be able to pay your mortgage repayments if you failed to do so, providing further security for your mortgage lender. Guarantors will have to be financially sound, with a property of their own or savings, a great credit score and be able to show proof that they are able to make the repayments. With this added security, some mortgage lenders will give a 100% mortgage, meaning no deposit is needed at all.
This helps those who are struggling to save for a deposit by allowing them to access a wider range of mortgage deals. However, this carries a great level of risk and commitment from the Guarantor, such as home repossession, and if they wanted to help in this way, your parents should seek legal advice prior.
Help from Mum and Dad - Co-Borrower
Yes, you can get a joint mortgage with your parents! Although this may sound like some people's version of hell, it actually could allow you to purchase a more expensive home after taking into consideration their wages too!
As with anything that seems too good to be true, this does come with some stricter rules from lenders including the age of your parents, employment status and property ownership status.
4. Expert Mortgage Advice
Here at Bradshaw Farnham & Lea Estate Agents, we work closely with Right Click Finance, an insurance and mortgage broker in Wirral. As first-time buyer mortgage specialists, they will be able to help advise and guide you on everything that we've discussed; providing expert advice on the best options for your particular circumstances.