Mortgage Deposit – The Bank of Mum and Dad to the Rescue!

Monday, May 30th, 2022

With rising inflation, fuel costs, household costs, and comparatively stagnant wages, it is no surprise that many first-time buyers are struggling to buy their first home.

One of the most difficult barriers to home ownership that first-time buyers face is the ability to save a large enough house deposit. The other main challenge is then to obtain a mortgage of sufficient size to buy a property with increasing value, which is why many may turn to a mortgage broker who will be able to explore their mortgage options from a comprehensive panel of mortgage lenders.

Plugging the Mortgage Affordability Gap

With many mortgage lenders only lending between four- and five-times earnings there is a huge affordability gap for many potential homebuyers given the mortgage requirements are significantly higher.

In the main, due to increases in house prices, inheritance from previous generations, and good employer pension schemes, the current ‘older generations’ appear to have accumulated a significant proportion of the UK’s wealth. In contrast, the younger generation (18-34) is struggling more than ever to accumulate any of their own.

It is this discrepancy that has led to the Bank of Mum and Dad (BOMAD) becoming an increasing factor, and in fact, it was reported to have supported almost half of the first-time buyers in 2021. **

Unfortunately, unless they can access cash to contribute towards the deposit, the BOMAD remains a non-starter for many potential homebuyers, despite the willingness of the family to help. However, through innovation from a small number of mortgage lenders who have identified this as an issue, products are now being introduced to the market that will allow greater accessibility and thus help more first-time buyers.

Identifying the Right Mortgage Lender and Product When Liquidity is a Barrier

Identifying these lenders and products is not always easy and that is why some homebuyers will use the knowledge and expertise of a professional mortgage broker to help them find the most suitable product based on their circumstances and requirements.

A couple of examples of the type of products available where families can assist without using their ‘liquid cash’ are:

• Joint borrower sole proprietor mortgage – The homebuyer can add a family member to their mortgage application to be able to include their income in the affordability assessment. This will then increase the amount that the homebuyer can borrow. The family member who is being included on the mortgage as a joint borrower does not have any ownership over the property, but they are liable for the mortgage payments if the buyer does not pay.
• Retirement interest-only mortgage – Mostly restricted to older family members, they can release some of the equity in their property which they can then gift to the homebuyer to help provide a bigger deposit to buy a property.

Other schemes are also available for those with or without family assistance, so why not have a no-obligation discussion with one of the mortgage advisers who will help you understand the various market options in more depth.

Just call our friendly team here at Caboodle Financial Services of Sutton Coldfield, Birmingham on 0121 308 9114 today to discuss your individual circumstances and requirements with one of our expert mortgage advisers. Alternatively, you can contact us via our online form HERE and one of our specialists will be back in touch.

We look forward to hearing from you.

_{**Source – Tembo: Financial Reporter 03/2022}