Every year is a challenging year for first-time buyers, but 2020 really thwarted them as a collective. We don’t need to cover old ground – I think we’d all agree it was a figurative kick-in-the-teeth for many people who might have been hoping to get on the housing ladder for the first time. However, as I covered in an earlier blog this month, this month brought good news for those with little deposit to put down, with the launch of the Government-backed 95% mortgage. The scheme involves the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits, and you can find out more about it here. This suddenly opens doors to first-time buyers, or those with small savings or amounts of capital equity. This could be the opportunity to get onto the ladder, but it’s unlikely to mean the end of the ‘Bank of Mum and Dad’ just yet.
Legal and General research from October 2020, revealed that more than half (56%) of buyers aged 35 and under are getting financial support from parents to buy their first property. In total in 2020, the under 35s will receive £1.36bn in family contributions, helping them to purchase £18.11bn worth of property.
The report says that just under a third of buyers will repay at least part of their parental loan.
For now, at least, 100% loan to value mortgages are extremely rare in the UK – and even then, they are likely to require a parent or other person to act as a guarantor.
The reality is that 5% of the purchase price of a property is still a substantial deposit for most first-time buyers, and it can be hard to save for if you’re also having to pay rent for your current home.
With interest rates low and an energy about the housing market that seems to be ever-fizzing, it might feel like the ideal time to offer up some cash and assist in that first rung-grab.
The bank of Mum and Dad will most probably allow for compassionate negotiations, a good returns rate, or even gifting their ‘borrowers’ money outright. This seems like a fantastic option for the recipient of the gift, but there’s still a lot for the ‘lenders’ to consider.
Do you have more than one child? Will giving money to one offspring afford you to be fair with others? Is your child in a relationship? Should you get something in writing if that relationship were to break down? Are you 100% confident in your own circumstances – now and in the future?
Research carried out by the Family Building Society three years ago found that just 8% of parents and grandparents who gave money for a deposit sought advice from a financial adviser, and only 14% took legal advice.
Good financial advice will allow you to look at every possible outcome/impact of this gift or loan. Leaving you completely empowered with all the ‘t’s and ‘i’s crossed and dotted. And if you’ve answered the questions about your circumstance, affordability, and got comfortable talking about money, then it can lead to life changing moments for your children.
Seeking professional financial advice can offer you the opportunity to think through exactly what the future might hold for you. Will you be able to put aside money to invest in your own health and social care needs? And what if your relationship was the one to breakdown?
Professional advice from a mortgage adviser, IFA or solicitor may help you to consider different options, or different ways to make money available to your children in a tax-efficient way.
These are key reasons to carefully consider big decisions like this. It can offer additional protection to everyone involved. At the very least, it may just help you document what the intentions and financial repayment plan should be.
We can help first-time buyers select the right product for them by analysing all their criteria against the financial products available at the time.
At Oportfolio we take extra care of our first-time buyers, taking time to go through all application forms for them thoroughly to try to reduce the likelihood of unexpected problems that may threaten to scupper the start of this amazing adventure. Read our First-Time Home Buyer Questions To Ask A Mortgage Broker or contact our Putney mortgage team today to see how we can help you make your dream of home ownership a reality.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on your mortgage. Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.