Private Finance says its team has seen a 200 per cent rise in applications for family-assisted mortgages between quarter one and two this year.
As borrowers are forced to raise larger deposits and need help to pass lenders’ affordability assessments to secure bigger mortgages, family or friends are being called on to lend a hand. Brokers are also reporting that some first-time buyers are using the guarantor option to “leap frog the property ladder”.
According to Nationwide the average first home costs 5.6 times income, much higher than the long-run average of 3.7 time earnings.
A report published by the mutual, Future of Home, revealed that a 20 per cent deposit for a starter home was the equivalent of 104 per cent of a first-time buyer’s pre-tax income and would take between six and 16 years to save.
Thanks to low interest rates, those first-time buyers who can get on the property ladder will spend 28 per cent of their take-home pay on mortgage payments, which is just below the long-term average.
However, the affordability of a mortgage varies by occupation. Carers, labourers, salespeople, couriers and other low earners will find their mortgage payments swallowing over 40 per cent of take-home pay.
Chris Sykes, associate director and mortgage consultant, Private Finance, said: “While a low interest rate environment is good for borrowers, it has contributed significantly in driving up property prices – nearly 10 per cent higher than year ago, especially in combination with the stamp duty holiday and changing tastes and needs off the back of the pandemic.
“This has led to us notice a rise in guarantor and joint borrower sole proprietor (JBSP) mortgages in recent weeks as borrowers need to take advantage of friends or family members’ higher income to get the house they want.”
First-time buyers are also opting to skip the first rung of the housing ladder by relying on a guarantor.
“Over the past few years we have noticed many first-time buyers looking to leap frog the property ladder, rather than buying a flat first and then building up equity to buy a new house every few years. Deterred by the cost of stamp duty, people have often turned to parents to try and maximise their affordability and buy a longer-term home straight off the bat.
“But these products don’t come without complication, the older the parents generally the shorter the term so the higher the monthly payments. However we can often use things like interest only to make the loan achievable.”
Big name banks offering JBSP mortgages include, Barclays, Skipton, Clydesdale, Bank of Ireland and Metro Bank. But specialist lenders such as Family Building Society, the Market Harborough, Newbury and Furness Building Societies also play an important part in the guarantor mortgage market, said Sykes.
He added that borrowers who have taken out a JBSP with a specialist lender may have paid a higher interest rate. However, if their circumstances have improved since taking out the mortgage it is worth looking at remortgage options to remove parents from the mortgage and switch to a high street bank.