Money Insider: Bank of mum and dad vital to first-time buyers
Saturday 29 September 2012
Two separate reports published this week have highlighted the level of financial assistance family members have provided to help their nearest and dearest take their first step on the property ladder.
The situation for first time buyers has been extremely difficult since the banking crisis first took hold over four years ago, but it has gradually started to get a little easier.
Back in 2008 and for much of 2009 it was nigh on impossible to find a mortgage unless you had at least a 25 per cent stake to put down, which was simply not achievable for most would-be borrowers.Even if you somehow managed to overcome the high deposit requirement, the interest rates and product fees at the time made the deal too expensive.
The situation today is much improved with many lenders now offering more affordable 90 per cent loan-to-value deals and one or two even prepared to consider borrowers with just a 5 per cent deposit.
Many people have probably forgotten just how expensive mortgages were for new buyers four years ago when compared with today.
For example a two-year fixed rate in September 2008 for a 90 per cent LTV mortgage from C&G was 6.25 per cent plus a £1,000 fee, whereas today Yorkshire Building Society is offering 4.95 per cent and £495 fee for a 90 per cent two-year fix.
Similarly an 85 per cent LTV three- year fix would have cost you 6.39 per cent and a 1 per cent product fee from Principality Building Society four years ago, but today First Direct is offering a 90 per cent LTV rate of just 4.89 per cent and no fee. The difference in cost is staggering with the First Direct mortgage (25 years) cheaper by £5,095 over the three-year fix period compared with the best deal available in September 2008.
It's no surprise therefore that research released today reveals that in the last five years 100,000 first time buyers (FTB) have turned to the bank of mum and dad to help them get a mortgage for a home of their own.
The value of family-assisted FTB purchases in this period totalled £23bn – or £5.6bn a year. Without help, the report estimates, in the last 12 months alone, 20 per cent of FTB property purchases would not have taken place.
The report, carried out for HSBC by the Centre for Economics and Business Research, was backed up by a separate piece of research published this week by Saga, which states that one in eight over-50s already give their children or grandchildren money for a deposit to buy their first home.
It reveals that 10 per cent give young family members between £5,000 and £20,000 while a further 7 per cent give more than £20,000.
There may be less reliance on family finance as a source of funding than in 2008 but for those who don't want to rent and line the pockets of a landlord, it may be their only route to home ownership.
Andrew Hagger is an independent personal finance analyst from
Lenders offer lower rates – some with no fees attached
There was more good news for mortgage borrowers this week as the battle for best-buy supremacy continues to drive down rates.
If you've got at least 35 per cent equity in your home and you're looking to remortgage, Clydesdale and Yorkshire Bank is now offering a two-year fixed rate of 2.99 per cent and has temporarily scrapped the usual £999 arrangement fee.
With some lenders already announcing increases to their standard variable rates, there are likely to be many borrowers considering their next move, but if you like the sound of this 2.99 per cent deal, you'll need to act quickly as it's only available until 11 November.
If you're looking to fix your repayments for longer than two years, you can currently get 2.74 per cent with a £1,499 fee for a three-year fix to 65 per cent LTV with First Direct.
For five years take a look at Post Office where at the moment you can lock in at 3.59 per cent to 75 per cent LTV with no product fee.
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