More than 65 per cent of brokers who voted in the poll said gifting savings was the most common way they had seen parents help their first-time buyer children since Covid-19 wiped out the majority of high loan to value (LTV) lending.
Joining a mortgage application under a joint borrower, sole proprietor arrangement was the next most common way parents had chosen to offer help. Some 12 per cent of brokers said they had seen this option used the most.
Freeing up cash through equity release and downsizing accounted for seven per cent and five per cent of the votes, respectively.
Gifting savings
With almost all 95 per cent LTV lending gone from the market, unless borrowers choose a family support mortgage, those with less than a ten per cent deposit face another barrier to home ownership during the pandemic, on top of more stringent checks on affordability and employment stability.
However the Scottish government’s support package is proving popular.
George Williamson, mortgage adviser at Mortgage Advice Brokerage, said: “Gifting money from savings is the most common way that parents are helping their children, but at the moment the First Home Fund is negating the reason for that.
“Borrowers are saying they can go to the Bank of Mum and Dad for help with their deposit and I say why bother when you can go to the Bank of the Scottish Government. Once they understand how it works they would rather take the grant. But generally gifting from savings is most the popular form of parental help we see.”
The First Home Fund is a shared equity scheme available to first-time buyers in Scotland. The scheme provides borrowers with up to £25,000 to buy their first new build or second hand home while they are required to put in a five per cent deposit.
There is no cap on the price of the property you can purchase using the scheme. No payments need to be made on the equity stake and there is no interest charged.
Lenders are becoming cautious of gifted deposits with Nationwide recently adding restrictions to its criteria. The society now insists that, at 90 per cent loan to value, buyers prove that at least 75 per cent of their deposit has come from their own savings.
Joining the mortgage
Theo Makris, mortgage adviser at PIA Financial Solutions, said he has found parents are looking for other ways to gift their wealth to support their children’s first property purchase.
“Gifting savings has always been popular, not just because of the pandemic,” he said.
“But we have also seen a general rise in joint borrower sole proprietor applications (JBSP), especially since the start of January.”
As house prices outstrip incomes, affordability is once again becoming difficult for first-time buyers, said Makris.
He says the flexibility that had returned to banks’ lending policies before Covid-19 has now swung back again, and bank’s have tightened their criteria.
Makris added: “Enquiries about joint borrower sole proprietor, where the parents are added to the mortgage so their income can support the application, are cropping up more and more since the coronavirus pandemic though.
“When I’m talking to young buyers they are asking, ‘can my mum and dad be guarantor?’ So that’s when we ask what their parents do for a living, their ages and what debts they have to see if they will fit on a JBSP basis.”
Makris said the main lenders he uses for JBSP are Metro Bank, Barclays, Skipton Building Society and Bank of Ireland.
Releasing equity
Stuart Powell, managing director of Ocean Mortgages, has seen a rise in parents who want to take an equity release mortgage to gift a living inheritance to their children.
He said: “The volume of enquiries we received from parents helping their children has more than doubled during the Covid-19 period of March to July. Parents have mainly been interested in gifting money to their children via releasing money from their own property.
“With lower amounts released compared to the value of the property, for example between £25,000 to £100,000, the interest rates are often under three per cent fixed for life. With many lenders not lending above 85 per cent loan to value, this has often topped up their children’s deposit to enable them to access a wider range of lender deals.”
“We have had several examples of parents looking to buy their children a property using cash by releasing £200,000 to £300,000 from their own property. This is a new trend that we have only started to see this year.”
