Saving a deposit has long been the biggest barrier standing between prospective first time buyers and their own home.
Nearly a quarter of first time buyers are relying on help from their parents in order to buy their own home, according to a new survey from Aldermore Bank.
Of those, more than half (54%) will use their parents’ savings to make their first steps on the property ladder.
The study revealed that just over a quarter (26%) of wannabe homebuyers said that saving enough money for a deposit was the biggest obstacle, with 23% living with their parents in an effort to save money more quickly.
Here are other common obstacles:
- 25% said finding an affordable property was the most significant struggle
- 11% said mortgage affordability issues stand in the way
- 8% had difficulties securing a mortgage
- 4% didn’t understand their mortgage options
- 5% cited high interest rates
- 4% condemned the fees associated with buying a property
- 2% said stamp duty and valuation fees stood in the way
When issues such as rising house prices, a lack of suitable homes, and weak wage growth are compounded, parents are under increasing pressure to help their sons and daughters take their first steps onto the property ladder.
Here’s how parents have helped their children buy homes:
- Using cash savings for the deposit
- Releasing equity from their property
- Moving and downsizing
- Remortgaging their home
- Taking a cash lump sum from their pension
- Selling a second property
Of course, not all parents are in a position to take the above steps. For those without the financial means to make the move above, there are other options.
Guarantor mortgages
Many homebuyers are turning to guarantor mortgages. This type of mortgage allows the parent to act as a guarantor on the loan, whether they’re offering property or savings as security. If the borrower were to default on the mortgage, the lender would pursue the parent for the funds.
100% mortgages
If a first time buyer has struggled to save a deposit, they could consider a 100% mortgage. This will give them a loan for the full value of the property and eliminate the need for a deposit altogether.
The number of 100% mortgages dropped significantly following the financial crash as a result of tightened lending criteria. However, in recent months an increasing number of 100% mortgage products have entered the market, making it easier for first time buyers to start pouring their money into a home they own as opposed to a rented property.
