New research out this week from The Mortgage Lender found that around half of homeowners with a mortgage had benefited from some form of support when purchasing their home, ranging from government schemes to financial assistance from loved ones.
Brokers told Mortgage Solutions that borrowers who need to tap into the ‘Bank of Mum and Dad’ have a range of decent options, though some suggested further innovation was needed to ensure aspiring buyers are still able to get onto the ladder.
Finding the right lender
Rohit Kohli, operations director at The Mortgage Stop, pinpointed Generation Home (Gen H) as a lender that has gone a step further in offering products specifically for first-time buyers who are getting support from loved ones.
He continued: “Lenders tailor their products to suit the market that they are aiming at, so I don’t think it’s a case of being too stringent; it’s about finding the right lender to meet your circumstances.
“Lenders will always undertake their due diligence checks and look to see if buyers are trying things like ‘back door buy-to-lets’ or other such ways to purchase to circumvent their criteria.”
Help doesn’t just come from family
It’s becoming ever more common for homebuyers to need some financial assistance in order to get that first purchase over the line, noted Samuel Bull, senior mortgage broker at JB Mortgages.
He pinpointed Natwest as being particularly helpful in these cases, as they allow gifted deposits from close friends as well as immediate family members.
“With higher interest rates and the high cost of living, we can see this trend of family assistance being ever more prevalent in the dream of home ownership,” he continued.
Different approaches
Family help does not necessarily end with a first-time buyer’s deposit, noted Sebastian Riemann, director of Virtus Private Finance, who pointed out that it’s common for support to continue as the buyer takes further steps up the ladder.
He continued: “In terms of lenders, there is little disparity on how they treat gifts. Most want these to be from close family members but a few lenders offer slightly more flexibility around this. These are very much designed to ensure below market value and vendor gifted deposits are kept at bay.”
Riemann pointed to the development of joint borrower sole proprietor (JBSP) mortgages, with up to 20 lenders now offering this sort of arrangement.
Jane King, mortgage adviser at Ash Ridge Private Finance, noted that while most lenders allow family gifts as part or all of a buyer’s deposit, the likes of Barclays go further by allowing families to earmark funds in their own accounts to be used as the deposit by their children.
However, she also pointed out that Barclays can be very stringent on money coming from abroad when it’s being used to support a loved one’s purchase, noting that it sometimes insists on official translations of bank accounts from certain countries.
Is there a need for innovation?
Given how tough it is for first-time buyers to get onto the ladder, Kohli suggested more innovative solutions “would always be welcome,” though he added: “There are options out there that we can work with.”
Michelle Lawson, director of Lawson Financial, said that there were limitations to the products on offer currently.
She said: “The biggest restriction with these offerings is parental earnings and age which then restricts the term for the borrower and can make it more costly monthly due to a shorter term.”
As a result, innovation is needed, for example by allowing different terms to be applied on the loan for the proportion of the loan tied to the parent.
However, some brokers suggested that there is no great need for innovative new options.
Riemann said that he believed there were already “more than enough options” available for buyers who need support from family or friends.
He continued: ”There could be vast improvements in the communication and understanding of these products for the market as a whole. On the flip side, if this could further underpin the extremely high property prices so may actually be detrimental on the market as a whole.”
King added: “I don’t think special schemes are particularly necessary and most families are happy to just give their children the cash and let them purchase using the normal route.”
Take a bit longer
Austyn Johnson, founder of Mortgages For Actors, picked out the likes of Nationwide, Accord, Family Building Society and Generation Home for having special products which can make a difference for first-time buyers.
“Sometimes though, you need to consider if it’s the right thing to do or if you should suggest waiting a bit longer,” he continued.
