Recently, Barclays announced that it will provide 100% mortgages but a family member must provide a cash contribution of 10%.
This made me think more about the fact that the ‘Bank of Mum and Dad’ is playing an increasingly vital role in funding the younger generations’ first steps on the housing ladder. It has recently been reported that the ‘Bank of Mum and Dad’ will contribute £5bn towards house purchases in 2016, making it the equivalent of a top 10 mortgage lender in the UK.
The research from Legal & General found that family and friends will be involved in 25% of all property transactions that take place in the UK market this year, providing deposits for over 300,000 mortgages. The average financial contribution is £17,500 or 7% of the average purchase price. Over 50% of these contributions are actually gifts without reservation, showing the ‘Bank of Mum and Dad’ is far more generous than other mainstream lenders.
Lenders, in most instances, are quite happy with a gift from a family member. However, if there is a repayment plan in place with the donor this could be factored in to the lenders affordability assessment, potentially reducing the borrower’s mortgage borrowing capacity.
Barclays has launched a new version of its Family Springboard mortgage. Three years ago, it launched the original version of the deal where buyers were required to provide a 5 per cent deposit, with a family member providing the cash equivalent of 10 per cent of the purchase price of the property. The cash was returned, with interest added, to the family member after three years.