One of the big challenges for first time buyers has been in pulling together a deposit, especially when facing rising house prices in many areas.
The credit crunch led to significant tightening in lending and as a result the number of deals on offer to those with a small deposit dropped dramatically. There was barely a handful available at one stage but that has improved in recent years, especially after the introduction of the Help to Buy guarantee.
As a result the range of options for those with a deposit of only 5% has improved but lenders have shown little appetite to offer 100% mortgages again.
Barclays caught the headlines recently with the launch of its new version of the Family Springboard mortgage. This extended the potential borrowing to as much as 100% of the purchase price but carries a crucial difference to the 100% mortgages (and even beyond 100%) of the peak of 2007.
The Barclays rate requires the parent or family member of the person buying the property to put 10% of the purchase price away in a separate savings account.
The savings will earn interest and importantly remain in the parent’s name rather than having to be gifted to the child. That could be of benefit to those that want to use the cash again at a later stage, perhaps to help a second child buy their first property.
However the savings act as additional security for the lender and the parents cannot draw on the funds for at least 3 years. In a worst case scenario the lender could use the parental savings to cover any loss it suffered, so there is a risk to the cash.
Other deals work in a similar way but can use spare equity in the parental property as the added security that the lender requires. That’s helpful where there isn’t a cash lump sum but does ultimately put the parental property at risk if things did go badly wrong.
Talk of a return to 100% lending is perhaps not quite the full story but these products do certainly show that lenders are trying to innovate in a competitive market. That can result in useful mortgage options as long as everyone understands the potential implications for them.
Guild Mortgage Service, Provided by London & Country Mortgages