THE ‘BANK OF MUM AND DAD’
Last week we saw an arrival of new mortgages to the market, with Halifax and Barclays both offering new terms. Halifax have increased the age limit for borrowing whereas Barclays have reintroduced the 100% mortgages for the first time since the recession. The changes have been made as a result of an aging demographic and a need to readjust the mortgage deals on the market to suit the current borrowers. In addition to this, Legal and General have issued a report stating, the ‘Bank of Mum and Dad’ will contribute to 25% of all UK mortgage purchases this year, making them a ‘top ten’ lender. So what do these changes mean for the property industry?
In general, London, has the highest and fastest growing house prices, this year 51% of buyers will get assistance with their mortgage and in the south-east the 50% mark is expected to be reached in 2025. More specifically, parental support is at an all-time high, with a total of 256,400 mortgages receiving the support. On top of this 27,500 mortgages receive help from friends, whilst grandparents help fund 22,500. This amount of support from family is set to rise.
“Family and friends are expected to provide deposits of £5bn, averaging £17,500 or 7% of the purchase price for 300,000 mortgages towards homes worth £77bn this year.”
The report has made the conclusion that the lack of housing and the impact of low annual wage growth, along with rising house prices, have been the main factors into the rise of ‘The Bank of Mum and Dad’.
As families increase their lending, the new mortgage offered by Barclays matches this pattern. The ‘Family’ Springboard Mortgage focuses around the help of others. So whilst there is no deposit required from the borrower, there needs to be a helper contribution which is 10% of the purchase price. This ‘contribution’ is held in a deposit account and after three years the money in the account is returned to the family helper with interest. Previously a five per cent traditional-style deposit would have been required from the first-time buyer to secure a Family Springboard mortgage. Barclays is also raising income multiples for this kind of mortgage if the customer has a salary of over £50,000 – the multiple rises from 4.4 times annual income to 5.5 times.
It seems that with the changing mortgages on the market and the rise of lending from family and friends, the house building market also needs to make some changes and adapt to the modern way of life. Supply and demand needs to increase with the possibility to provide a variety of incomes and ages. While ‘The Bank of Mum and Dad’ is a clear option for some, families need to be cautious when considering this as there’s the disadvantage of putting their own financial stability at risk. With lenders, such as Barclays, recognising the need for 100% mortgages and the fact that these are possible with family help, which already contributes to a quarter of mortgage purchases, the mortgage and property industry are moving in the right direction.
If you are looking to purchase a home in Cardiff or the surrounding area, please contact one of our Estate Agents. If you are a parent who would like to make an investment in property for your children, we suggest you seek professional advice from a financial adviser.
Published: May 9, 2016BACK TO NEWS LIST