With the number of loan options rapidly shrinking, record numbers of first time buyers have no choice but to turn to the bank of Mum and Dad in order to take that first step towards buying their own property…
Getting onto the property ladder has always been a challenge for the first time buyer (FTB).
Struggling to keep their heads above water, many resort to moving back home and becoming Kippers, (Kids in parent’s pockets eroding retirement savings) whilst they save for their own home.
Parental help is also being sought when it comes to stumping up the cash for that all important first property purchase. Recent research has shown that eight out of every ten first time buyers in London are being forced to go cap in hand to their parents for help with deposits.
As the level of deposit needed to buy has risen dramatically thanks to the current economic climate and lack of loans available, it is now a far harder process for FTB’s.
There are now only two deals for those wanting to borrow 95 per cent of the value of their property, compared to hundreds on offer two years ago.
Estate agent Douglas & Gordon revealed that 78 per cent of its first-time buyers received financial help from their parents in November and December last year, compared with 35 per cent in the same period of 2007.
Gone are the glory days of the tracker mortgage – those who snapped one up a few years back are now paying as little as 0.5 per cent following a series of interest rate cuts.
Now, trackers no longer exist for those with less than a 20 per cent deposit and those who do have seen their rates shoot up over the past few months.
Those trying to secure a mortgage now could be paying a whopping 14 times more than those on the original tracker mortgages.
Standard variable rate mortgages, which have become more attractive with the succession of base rate cuts, are virtually unavailable to new customers and restricted to those with heftier deposits.
Most lenders are rationing deals to all but those with the biggest deposits, who are at the lowest risk of defaulting on their repayments.
Last Friday, one of the last, highly-popular first-time buyer deals disappeared. The Bank of Ireland’s 1st Start three-year fixed 6.35 per cent mortgage, which allowed parents to part-guarantor the loan, has been scrapped in light of the credit crunch.
Ed Mead, Director at Douglas & Gordon, said, “It has become increasingly difficult for first-time buyers to get on the property ladder as lenders are asking for a 20 to 40 per cent deposit.
“This means people buying for the first time at an average of £250,000 in central London will require a £50,000 deposit – at least,” added Mr Mead.
Legal eagles
Whilst most parents would be keen to assist their children if they were able, the Law Society is warning parents to seek advice from a solicitor before lending their children money, in order to protect their own interests.
Law Society President Paul Marsh said, “Parents should use a solicitor to draw up a loan agreement with their child before lending this kind of money.
“While their family members are unlikely to run away with the money, life can get more complicated when children look to set up home with their partners or decide to get married.
“If things go wrong and the couple decides to separate, the parents could lose out. There are several issues to consider in these circumstances.
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