The big news this week has focussed attention on a top 10 lender; the Bank of Mum & Dad. Apparently, it has become more of an important factor than ever before, with reports that 1 in 4 transactions this year will depend on it.
In money terms, this equates to a whopping £5.7 billion given to kids by parents to fund around 315,000 transactions. That is some number.
Interestingly, however, the average contribution is expected to drop from £21,600 last year to £18,000 this year, according to Legal & General.
We know how important parental contributions are, often making the difference between First Time Buyers getting a place to call their own or not. It is worth knowing, however, that where First Time Buyers are concerned there are now more lenders not only lending at 90% or 95% Loan-to-Value but also looking at more innovative ways of helping parents rather than just forking out their hard-saved cash which may never be seen again.
Of course, where new-build is concerned, we have the Help to Buy Scheme. This is something we at Coreco are doing more and more of with our New Development Team who specialises in this area. Help to Buy enables buyers to access up to a 20% loan from the Government (40% loan in London) towards the cost of a new property up to the value of £600,000. The loan is interest-free for 5 years after which there is interest to pay and you do lose some of the growth in the equity of the property on sale. Even so, on certain developments, this is proving extremely helpful, although it should be noted that there is a pretty strict process to go through before the mortgage can be applied for which can take time.
Once that is done there is now much more choice from lenders offering competitive Help to Buy products, but we urge you to get proper advice on this before you jump in.
For others, however, there is now a full range of Parental help schemes including Family Offsets where rather than giving the cash to their kids this money is put in an account under the stewardship of the lender in case of need. This means interest can still be earned and it is returned at some stage.
Alternatively, the Post Office has come up with their Family Link product. Under this scheme, the main borrower obtains a 90% loan whilst the parent can take a 10% loan on their existing property, which is interest-free for 5 years. Hence no cash changes hands and up to 100% can effectively be borrowed.
Halifax, Barclays, Family Building Society and others all have various different products to try to help and the point is that there are options available for First Time Buyers and their parents, so it is worth speaking to a professional adviser about all the options out there before just giving your son or daughter (and potentially their associated boyfriend/girlfriend you don’t quite trust) your cash.
Elsewhere, mortgage rates generally are still competitive, especially after the Bank of England decided not to raise Bank Base Rate this time around. With a change in the near future looking less likely now, 2-year fixes are available at 1.39%, (3.58% APRC) and 5-year fixes from 1.83%, (3.72% APRC) whilst variable discounted rates are around from 0.97%, (4.40% APRC).
Those looking at a Buy-To-Let can still obtain products from just 1.37%, (4.43% APRC) for a 2-year fix.