More Help Needed For " Generation Rent"

Issue 36

Director of Mortgages and Financial Services for Bradley Hall, Lewis Chambers discusses how first-time buyers can take their first step onto the property ladder. .

On average, four in 10 millennials are living in rented private accommodation at the age of 30, with home ownership feeling out of reach for many.

According to a report by think tank, the Resolution Foundation, that’s double the number of those born between 1965 and 1980, known as Generation X’.

Stricter lending criteria, steep house prices and large deposit requirements are usually the main obstacles faced by those hoping to get on the property ladder. However, as many as 65% of those renting still aspire to own their own home.

Despite these aspirations, up to 16% of millennials are set to rent their whole lives, the Foundation said. The number of households with children renting privately has tripled in recent years to 1.8m in 2016.

The Foundation wants to see action on tenancy reform, providing greater protection for those living in rental properties, and is calling for more affordable homes for first-time buyers.

The government’s target is to build 300,000 more homes a year, although there have only been six years since 1946 in which this number of homes or more were built.

Options for first-time buyers

Although first-time buyers face many challenges, there is help available. For example, recent years have seen an increase in the number of mortgage deals available to those with only a small deposit to put down. Many lenders now offer mortgages to those looking to borrow up to 95% of the property value.

There are also government schemes designed to boost the amount first-time buyers save for a deposit. The Help to Buy Individual Savings Account (ISA), for example, enables buyers to initially pay in up to £1,200, followed by up to £200 a month, and the government will add another 25% to any contributions you make with maximum bonus of £3,000.

If you’re purchasing a new build property, you may also be eligible for the Help to Buy equity loan scheme. Under this scheme, you need to put down a 5% deposit. The government will then lend you a further 20% of the property price interest-free for the first five years, or 40% if you’re buying in London.

Under changes announced in last November’s Budget, first-time buyers no longer pay Stamp Duty on property purchases up to £300,000, which has reduced the cost of buying a home. First-time buyers of properties up to £500,000 don’t have to pay Stamp Duty on the first £300,000.

Parents can help first time buys in new ways:

The Post Office says the average millennial has £3,359 in accessible savings, meaning first-time buyers often ask their parents for help with a deposit. Gifting cash towards a deposit is often the simplest option. But, of course, that’s not possible for everyone, so various mortgage products have been developed to help with this.

Joint or First Start’ mortgage

A parent can apply for a joint mortgage together with their child, meaning both incomes are considered, and the first-time buyer is potentially more likely to be accepted and loaned a higher amount. Traditionally, the parent’s name also would also go on the property deeds, but First Start’ mortgages allow you to choose whether this happens. Guarantor mortgage

With a guarantor mortgage, a parent or close family member guarantees the mortgage debt. If the buyer misses their mortgage repayments, the guarantor will have to cover them and loans of up to 100% are available via guarantor mortgages.

Family offset mortgage

With family offset mortgages, a relative puts their savings into an account linked to the first-time buyer’s mortgage. The money in this account is then deducted from the mortgage, making the child’s repayments cheaper. But there is a downside: while the relative can get their money back in full, they may have to lock it away until 75-80% of the mortgage has been paid off.

Family deposit mortgage

Here, a family member deposits cash in a savings account where the money is held as security against the mortgage. This cash is held for a fixed period, during which, if the mortgage borrower defaults, the money will be taken from this account. The family member earns interest on their savings, although the rate might not be as good as with other accounts. And if the borrower meets all their repayments, it won’t cost their family anything.

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