First-time buyers turning to parents for help
The plight of the first-time buyer has not been a pleasant one over the last year.
Rising house prices throughout 2007 were coupled with increases in the typical deposit from five per cent of the property's value to ten per cent.
To make matters worse, the onset of economic instability and property market uncertainty saw a reduction in the number of lenders offering 100 per cent mortgages from 30 to just 22 according to Moneyfacts' January data.
But contrary to the downward trend, first-time buyers seem to have enjoyed a resurgence in the first month of 2008.
Whether in anticipation of the rate cut or the prospect of lower house prices, figures showed first-time buyers emerged as responsible for one third of all property purchases in January, according to a Spicerhaart survey.
Attention has since turned to another source of potential first-time buyer finance - parents.
An age-old problem
Underlining the worsening situation, a survey by Rightmove indicated that more than a third (36 per cent) of first-time buyers were still living with parents.
This was made even more shocking by the revelation that 22 per cent were over 35-year-olds.
But even for those whose finances were below the home buying threshold, the option of as guarantor mortgage provided an opportunity for graduates and trainee professionals such as doctors, accountants or dentists to spread the risk burden of mortgage costs with their parents.
Guaranteed
Guarantor mortgages work by allowing a parent or another relative to act as a guarantor for the remainder of the costs of mortgage repayments.
But while this provides the borrower with a greater chance of gaining a loan-to-value ratio of 100 per cent, there is the potential that parents could be liable for the entire mortgage rather than just the proportion.
Darren Cook, head of mortgages at Moneyfacts, told My Finances: "Lenders are often happy to accept a guarantee from a third party."
The guarantor mortgage is particularly appealing because it isn't necessarily reliant on an asset like property, but can also be guaranteed on something else, such as a pension.
"Whether that's supported by the parents' property or whatever, lenders are willing to take that into account," Mr Cook continued.
But as Paul Holmes, operations director of Firstrung, points out on his site, these handouts can end up resulting in lots of debt if the housing market takes a downward turn.
Paying the deposit
Another increasingly popular option among parents is to dish out a lump sum to children for a deposit.
This can be done either by dipping in to savings or, for the less prepared, remortgaging your home through an equity release product.
In either case, this reduces the long-term financial burden and risk, because the obligation stops with the provision of a lump sum.
Mortgage manager at Bestinvest, Peter O'Donovan, sees parental involvement with their offspring's mortgages as a choice.
"They put a big lump sum in to assist the child in borrowing the money; or they can use their income to assist the child in paying off the mortgage."
In terms of longer-term assistance, provision on an ad hoc rather than a guarantor basis is often preferable. The downside of course is that only the children's income is taken into account when calculating the mortgage.
As such, Mr O'Donovan notes that most parents opt for the "lump sum" option.
Favouritism
However, research by Abbey serves to add yet another factor.
While 17 per cent of first-born first-time buyers are likely to receive help with their mortgage from parents compared to 12 per cent of siblings, if the second-born are lucky enough to receive help it will be nearly double the amount given to their older siblings.
But this draws attention to the recently introduced Child Trust Fund (CTF) facility, launched in 2005.
Uptake has been poor according to Nationwide, with only 40 per cent of CFTs having seen further deposits since the launch.
But nonetheless, the potential benefits of the £1,200 worth of tax-free savings per year could provide the financial assistance necessary to boost a child's purchasing power in the future.
The benefit of forward thinking in this regard also makes it unnecessary to revert to guarantor or equity release options so readily, but also means that funds can be utilised in conjunction with them to provide the best support possible.
Mortgages for Professionals is a specialist mortgage broker offering a whole-of-market choice of all UK lenders. We provide a service dedicated to individuals with professional qualifications and high projected earnings – from doctors and dentists, to accountants and engineers.
Rising house prices throughout 2007 were coupled with increases in the typical deposit from five per cent of the property's value to ten per cent.
To make matters worse, the onset of economic instability and property market uncertainty saw a reduction in the number of lenders offering 100 per cent mortgages from 30 to just 22 according to Moneyfacts' January data.
But contrary to the downward trend, first-time buyers seem to have enjoyed a resurgence in the first month of 2008.
Whether in anticipation of the rate cut or the prospect of lower house prices, figures showed first-time buyers emerged as responsible for one third of all property purchases in January, according to a Spicerhaart survey.
Attention has since turned to another source of potential first-time buyer finance - parents.
An age-old problem
Underlining the worsening situation, a survey by Rightmove indicated that more than a third (36 per cent) of first-time buyers were still living with parents.
This was made even more shocking by the revelation that 22 per cent were over 35-year-olds.
But even for those whose finances were below the home buying threshold, the option of as guarantor mortgage provided an opportunity for graduates and trainee professionals such as doctors, accountants or dentists to spread the risk burden of mortgage costs with their parents.
Guaranteed
Guarantor mortgages work by allowing a parent or another relative to act as a guarantor for the remainder of the costs of mortgage repayments.
But while this provides the borrower with a greater chance of gaining a loan-to-value ratio of 100 per cent, there is the potential that parents could be liable for the entire mortgage rather than just the proportion.
Darren Cook, head of mortgages at Moneyfacts, told My Finances: "Lenders are often happy to accept a guarantee from a third party."
The guarantor mortgage is particularly appealing because it isn't necessarily reliant on an asset like property, but can also be guaranteed on something else, such as a pension.
"Whether that's supported by the parents' property or whatever, lenders are willing to take that into account," Mr Cook continued.
But as Paul Holmes, operations director of Firstrung, points out on his site, these handouts can end up resulting in lots of debt if the housing market takes a downward turn.
Paying the deposit
Another increasingly popular option among parents is to dish out a lump sum to children for a deposit.
This can be done either by dipping in to savings or, for the less prepared, remortgaging your home through an equity release product.
In either case, this reduces the long-term financial burden and risk, because the obligation stops with the provision of a lump sum.
Mortgage manager at Bestinvest, Peter O'Donovan, sees parental involvement with their offspring's mortgages as a choice.
"They put a big lump sum in to assist the child in borrowing the money; or they can use their income to assist the child in paying off the mortgage."
In terms of longer-term assistance, provision on an ad hoc rather than a guarantor basis is often preferable. The downside of course is that only the children's income is taken into account when calculating the mortgage.
As such, Mr O'Donovan notes that most parents opt for the "lump sum" option.
Favouritism
However, research by Abbey serves to add yet another factor.
While 17 per cent of first-born first-time buyers are likely to receive help with their mortgage from parents compared to 12 per cent of siblings, if the second-born are lucky enough to receive help it will be nearly double the amount given to their older siblings.
But this draws attention to the recently introduced Child Trust Fund (CTF) facility, launched in 2005.
Uptake has been poor according to Nationwide, with only 40 per cent of CFTs having seen further deposits since the launch.
But nonetheless, the potential benefits of the £1,200 worth of tax-free savings per year could provide the financial assistance necessary to boost a child's purchasing power in the future.
The benefit of forward thinking in this regard also makes it unnecessary to revert to guarantor or equity release options so readily, but also means that funds can be utilised in conjunction with them to provide the best support possible.
Mortgages for Professionals is a specialist mortgage broker offering a whole-of-market choice of all UK lenders. We provide a service dedicated to individuals with professional qualifications and high projected earnings – from doctors and dentists, to accountants and engineers.
