The Bank of Mum & Dad

What to do if the Bank of Mum and Dad has Run Dry…

daughter-with-elderly-parents

daughter-with-elderly-parentsIt seems that more and more parents are now helping their children out when it comes to stumping up the cash to pay for a deposit for a home. New analysis by NatCen Social Research has revealed that the percentage of parents involved with assisting in the purchase of a house has increased from 17% to 27% in the last four years >>

According to UK housing charity Shelter, the ‘Bank of Mum and Dad’ contributes around £17,000 to help first time buyers raise the £28,000 typically needed for a deposit on a property, equating to £2 billion added to the UK housing market each year from parents.

The upward trend for requiring financial support from parents has surprised some. With the introduction of Help to Buy, the new government-backed purchasing scheme, many had predicted that the amount of help required from the Bank of Mum and Dad would decrease. With housebuilders like Barratt Developments reporting an uplift in sales thanks to the 5% deposit scheme, they expect to see more homebuyers requiring less financial assistance.

Gary Ennis, Regional Managing Director for Barratt Developments, comments: “The uptake of Help to Buy has been very high, and the scheme has helped thousands of purchasers buy a brand-new property of their own. Only requiring a lower deposit of 5%, we would expect to see more and more purchasers buy a property without financial support from parents or relatives.”

The current Help to Buy scheme is available for new build homes only, but there are now plans in place to launch the second part of the scheme in January 2014. This will open up government funding for those looking for help to buy an older property.

HELP TO BUY – A VIABLE ALTERNATIVE TO THE BANK OF MUM AND DAD
In April, the government announced its new Help to Buy scheme. This is designed to help those with a lower deposit saved buy a property costing a maximum of £600,000.

Released in two stages, the first part has enabled homebuyers to buy a brand-new home with only a 5% deposit. In addition, homebuyers receive a 20% loan for five years, allowing them access to much more affordable 75% loan-to-value (LTV) mortgage rates.

The second part of Help to Buy was announced in July, with a view to commencing in January 2014. From then, under the Help to Buy programme, the government will remove some of the risks of mortgage lending and allow homebuyers to buy an older property with just a 5% deposit.

OTHER WAYS TO BENEFIT FROM THE BANK OF MUM AND DAD
Further research by Shelter suggests the Bank of Mum and Dad is close to breaking point. On top of the rising day-to-day costs of bringing up a family, one in five (22%) parents say they are eating into their retirement pot to help fund children’s deposits, and a quarter are cutting back on their own spending.

Consequently, many less fortunate first time buyers may find themselves in a situation where they rely on a different sort of help from the Bank of Mum and Dad. Instead of just asking for a transfer of funds between bank accounts, as many parents are not in a position to do, some aspiring homebuyers are packing their bags and heading back home. Enabling them to reduce their outgoings, moving back to the family home allows them to save for a deposit in a much quicker timeframe than had they been paying monthly bills in a rental property.

Tas Corbi bought an apartment at Barratt Homes’ New Central development in Woking, Surrey. After renting for a few years in London, Tas decided to move home in order to buy her first property.

Tas comments: “I had to make a decision whether I was going to stay in London and spend all my money on rent or move home and save hard to get on to the property ladder. I was in the fortunate position that I could move home, and luckily Woking is only a 20-minute train journey into central London, so the solution was quite obvious. Initially, it felt like taking a bit of a step backwards, but I was able to save an enormous deposit and, together with a small contribution from my mum, I was able to buy an amazing two bedroom apartment at New Central with nearly a 60% deposit.”

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GOING IT ALONE
If you’re looking to buy a home without parental assistance or a government loan, unfortunately you may have to save for much longer than you would have done five years ago. 95% mortgages still face some of the highest interest rates around. By saving a higher deposit amount, first time buyers will be able to benefit from much lower monthly repayments. By saving for a 10% deposit, you could save over £100 a month based on a property worth approximately £200,000.

We have pulled together a few tips to help you reduce your outgoings and save for that all-important deposit:

Treat saving for a deposit like paying for a bill – Set up monthly installments in a separate bank account so you are not tempted to spend it.

Make your savings work for you – Although interest rates on savings are generally very low at present, there are still some savings accounts that provide slightly better returns. Let’s face it, every penny counts.

Learn to give up little luxuries – Do you really need a takeaway coffee on the way to work? Making little savings here or there could really add up. Wait until you get into the office for your caffeine fix, start taking a packed lunch and knock out your Friday night takeaway – you’ll be surprised at how much extra you can save.

When considering your first property, be prepared to be flexible – Your first property doesn’t need to be your forever home. By considering a property in a different area or one that doesn’t have the view you desire, you can get on the property ladder and start paying your mortgage – instead of your landlord.

Want to find out how long it could take you to save for a deposit without any help or assisting schemes? Visit england.shelter.org.uk/campaigns and look for the online calculator.

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HELP TO BUY PART 1

  • New build property only
  • 5% deposit required
  • 20% loan from government
  • Access to 75% loan-to-value mortgages
  • On properties up to the value of £600,000

HELP TO BUY PART 2

  • Available on all second-hand properties
  • 5% deposit required
  • 15% mortgage guarantee from government
  • Access to lower mortgage rates (to be confirmed)
  • On properties up to the value of £600,000

 

 

 

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