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19 Mar 2019

Quarter of first-time buyer mortgage deposits boosted by parents

Saving a mortgage deposit and finding an affordable home biggest barriers for first-timers

Nearly one in four potential first-time buyers are relying on help from the bank of mum and dad to fund their mortgage deposit, according to a new survey.

Of those, more than half (54%)will use their folks' cash savings to get a foot on the property ladder, retail bank Aldermore has reported.

But how else canparents help their children buy a property, and what are the biggest obstacles facing first-time buyers at the moment?

We examine the first-time buyer market and explain your options if you're not able to rely on cash from your parents to buy a home.

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Saving a mortgage deposit biggest barrier for buyers

Just over a quarter (26%) of the wannabe homebuyers surveyed said that saving up enough deposit was their biggest obstacle, with 23% living with their parents in order to save more quickly.

Another quarter (25%) said that finding an affordable property was the greatest challenge, and others mentioned issues such as stamp duty/valuation fees (2%), finding a suitable home for sale (4%), interest rates (5%) andfees associated with buying a property (4%).

Mortgages proved a stumbling block, too, with 11% citing affordability issues, 8% having difficulty securing one and 4% simply not understanding their mortgage options.

Damian Thompson, Aldermore's director of mortgages, claimed high house prices, not enough suitable homes and weak wage growth means 'the bank of mum and dad has increasingly become a necessity, rather than just a helping hand'.

How are parents helping with mortgage deposits?

In total, 1,500 first-time buyers were surveyed by Aldermore in November last year, and 23% said that they had need help from their parents in order to afford a mortgage deposit.

The table below shows the different ways in which those people said their parents will help:

How will your parents/family assist you to fund your deposit?% of those receiving help from parents
They will use their cash savings54%
They will release equity in their property24%
They will move and downsize19%
They will remortgage their property17%
They will take a cash lump sum from their pensions6%
They will sell their second property4%

Source: Aldermore First-Time Buyer Index

How else can parents help?

Not all parents are lucky enough to have cash available to help their children, but there are other options.

One could be a guarantor mortgage, where the parent acts as a guarantor on their child's loan, using either their property or savings as security. This can help boost the mortgage applicant's chances of being accepted, or give them access to better mortgage deals.

If the first-time buyer has struggled to save a deposit, they could even consider a100% mortgage- a loan for the full value of the property which also involves the parent acting as a guarantor.

The 100% mortgage market was severely restricted following the financial crash, but has begun to see a resurgence in recent months with providers such as Barclays reducing the rate on its 100% Family Springboard mortgage.

You might also want to consider a joint borrower, sole proprietor (JBSP) mortgage. With this kind of deal, the parent can act as a joint applicant for the mortgage - meaning that their income and financial circumstances are taken into account, as well as their child's, but only the child is named on the property deeds.

JBSP mortgages generally make it easier for the first-time buyer to be accepted but, as the parent doesn't actually own the property that's being bought, they get to avoid paying the second home stamp duty surcharge.

Other options for first-time buyers

If you're saving for your first home and aren't able (or don't want) to ask your parents for help, there are other options, from schemes to larger mortgages.

Help to Buy equity loans

If you've got a 5% deposit, the government may lend you 15-40% of the property price (depending on where you live) through aHelp to Buy equity loan.

These are only available on new-build homes but could help you on to the property ladder if you're struggling to buy through the normal routes.

Shared ownership

This allows you to buy a part of the property and pay rent on the rest of the home.

Typically people buy a stake of between 25% and 75% from a housing association (a not-for-profit organisation that supplies housing) and pay rentof up to 3% on the remaining share.

Buying with a friend

Many people buy with a partner or spouse, but that's not the only option. Increasing numbers of first-time buyers are teaming up with friends in order to cut the costs of a deposit, buying fees and mortgage repayments.

Buying with another person also has the significant benefit of enabling you to take out a bigger mortgage.

95% mortgages

Rates on 95% mortgages have fallen sharply over the past year, meaning that if you've saved up a 5% deposit and are able to borrow enough, they are a more appealing option than in the past.