This week, the Resolution Foundation thinktank released a prediction regarding the future of young buyers. One third of young people could spend their entire life renting and may never own a house. A decade of low interest rates and rising house prices have led to a surge in the number of long-term renters.
Although mortgage rates are certainly cheaper, young buyers are still finding it difficult to enter the property ladder, as they struggle to save enough money for a deposit. Many mortgage deals require a deposit of at least 10%. Given that the average UK house price is £226,000, an upfront saving of almost £23,000 is needed. Furthermore, there are also the additional costs for legal fees and surveys.
There is an increasing amount of mortgage deals available to specifically help young buyers, who can afford the mortgage repayments but are struggling to save for the initial deposit. There are the following options to consider:
The Post Office
The Family Link mortgage issued by the Post Office allows buyers to raise the 10% deposit as a mortgage secured against their parents’ home. For the first five years, buyers will have two payments to uphold: one to pay off the interest-free loan against the family home, and the other will go towards paying off their own mortgage.
However, the parents’ house must be mortgage free and they must be earning at least £20,000 per year. As a result, a limited amount of people can qualify for the mortgage.
Another option from the Post Office is the First Start Mortgage. This allows the buyer to apply for a mortgage with a close relative. This family member will act as co-borrower and will also have the option to be on the title of the property. Buyers can apply for this mortgage with a 5% deposit, but they could be liable to pay stamp duty if their relative is also on the title of the property.
Barclays Family Mortgage
The Family Springboard Mortgage from Barclays is rather popular with parents. They are happy to help their children enter the property ladder but want an assured and easy way to get their money back. The bank will lend 100% of the property value, providing that the borrower’s parents put 10% of the home’s value into a Barclays Helpful Start savings account.
Parents will earn annual interest of 2% from the money in the savings account. The money is then returned to them after three years, but only if their child keeps up the repayments. If any repayments are missed, Barclays may keep some of the money for longer. The mortgage rate is 2.75% for a three-year fixed deal, with no product fee.
An Alternative Mortgage from Family Building Society
The Family Mortgage from Family Building Society requires first-time buyers to have a 5% deposit. Up to 12 relatives can band together to raise an additional 20% of the property value. This can either be paid as a charge over their own property or deposited as cash within a savings account with the building society.
The mortgage rates are 2.89% for a three-year fix and 2.99% for five years. Both rates also have a product fee of £599. The family members involved can earn interest on their savings. Furthermore, they can also choose to offset the interest payments against the loan, thus reducing the borrower’s payments each month.
Family Building Society also offer a payment waiver. This covers the borrower if they were to lose their job because the building society pays the mortgage for up to six months. The downside to this mortgage option is that family members won’t get their money back for 10 years.
