Can You Rely On Your Family To Help You Buy Your First Home?

At no time in its history has the UK housing market since such a marked increase in the average value of its housing than in the last 20 years. Today, regardless of whether you come from the North-east or South-east, more and more young Britons are having to stay at home much longer and also to look more ingenious ways to try and raise the large deposits they’ll need in order to help them purchase that first home. The big question is, can you rely on your family to help you buy your first home?

Unlike in other cultures, such as in Asia, traditionally young Britons have not relied on a close network of family and friends to help them get up on the first rung of the ladder of life. Evidence, however, seems to show that the spiraling cost of buying a new home in the UK may well be changing this cultural norm. According to research undertaken by the Bradford & Bingley, 40% of first time house buyers in the UK today need to rely on their parents to help them purchase their first home. At first glance this may not sound that alarming, but closer at the statistics and you’ll see that less than half of those parents who agree to help their children purchase their first home stop at helping out with the deposit. More than half of young new homeowners in the UK today rely on their parents to help them make the monthly repayments, as well as helping them with deposit. This does seem to indicate a radical shift away from our cultural norms to help our young.

Re-mortgaging

You may be wondering how all of these parents can afford to help their children – and it wouldn’t be an unreasonable question. The simple fact is that most parents who agree to help their children buy a new home are re-mortgaging the existing equity in their homes to assist in the financing of their child’s new home.

Because most of our parents bought their homes in the 1970s or 1980s, many have the good fortune to have either completely repaid their mortgage or have a large equity investment in their home. With a re-mortgage, the parents agree to ask the bank to lend them a sum of money against this equity, which they then repay to the bank on a monthly repayment basis. The sum of money borrowed against the equity in their homes can then be used by their child to put down a deposit on their first home. If the parents are fortunate enough to have a large equity value in their homes, which they can affordably repay under a re-mortgaging scheme, then the child can put down enough of a deposit so that they can afford the monthly repayments by themselves.

• The Dangers of Negative Equity
  The great thing about buying a property is that it’s a guaranteed investment, prices just keep going up, right? Wrong. We look at what happens when the bubble bursts and prices drop.

Relaxed bank financing

In addition to having to ask their parents to help them purchase their first home, new home buyers also having to rely on the generosity of banks to lend money in circumstances where traditional loan financing would have decreed that the lender not lend. For example, a majority of first home buyer acknowledge that their mortgage repayments eat up over 40% of their monthly income. Previously, without significant security, banks would not have agreed to such a high level of debt-to-income ratio. Amazingly, this level of debt financing is also been done on commercial rates.

To sum up then, if you are a potential first time home buyer, increasingly it appears that to be able to afford to purchase your new home you are going to have to rely on more modern forms of financing the transaction than was previously the case; namely a supportive family and an understanding bank manager.

More Information

• Different Types Of Mortgage
  Rather like a full house in poker there seems to be a wide selection of mortgages on the market, but aren’t many of them the same kind of product?
• Variable Mortgages
  Variable mortgages are for those whose incomes are not particularly stretched. What are the ups and downs of entering into a standard variable mortgage?
• Don’t Forget The Extra Hidden Costs Of Getting A UK Mortgage
  For most of us, buying a new home is both one of the most exciting and stressful times of our lives. It goes without saying then that this is not a particularly good time to find out that you may be facing a bill of thousands of pounds in extra hidden costs for getting the mortgage to buy the UK property.
• Mortgage information - FSA's free information for consumers site
• Mortgages : Directgov - Money tax and benefits - Direct Gov information on mortgages