Parents lend £23.05 million a month for mortgages

mortgage ideal home©iStock.com/BartekSzewczyk

COMING up with the money for a deposit on a house is no mean feat.

The average buyer now has to stump up around £66,000, ten times the average twenty years ago.

Many first time buyers rely on their parents for help saving. In fact, according to research from The Equity Release Council, UK parents lend £23.05 million a month to help their children on to the housing ladder.

With the new generation of 'family' mortgage schemes, parents can even lend out their credit worthiness. Many do.

Kick starting mortgages

According to The Equity Release Council research, 30% of first time buyers get financial help from their parents.

The average 'helping hand' gives them 20% of their first home's deposit.

A previous survey from Halifax reports that approximately a third of parents had made a financial contribution to try and get their children on to the first rung of the property ladder.

This amount has risen by 31% in the last five years and now stands at £12,846.

But even this seemingly large sum isn't enough for increasingly choosy lenders.

Although mortgage lenders may advertise a minimum deposit of 10%, for example, those who manage to scrape together the average £16,000 needed to meet this criterion often find that they are still turned away.

The reason is simple enough - lenders consider a 10% deposit as high risk and something to be avoided if at all possible.

David Hollingworth of the London & Country brokers points out that, "just because a lender says it offers a 90% mortgage, doesn't mean it has to give it to you. There are still very few deals available at that borrowing level which means criteria are especially tight."

That's why many parents are taking a second step: getting their involvement down on paper with a new generation of 'family mortgages'.

Keeping mortgages in the family

[The plan] allows parent and child to pool resources and secure a larger loan... helping generate much greater wealth and security for the child stepping on or up the property ladder.
Andy Gray, Barclays' Head of Mortgages

The Barclays family affordability plan, released this week and available to applicants in England and Wales, takes parental income into account when securing a loan.

Many parents will no doubt be keen to take up the offer for selfish as well as altruistic reasons.

They're contributing more to their kids' deposits than ever before and, often, bearing the cost of having their children move back in too.

Analysts such as Stuart Gregory from Lentune Mortgage Consultancy welcome the move.

Useful Links
Family lending here
Barclays scheme details

"There has been a reduction in the number of guarantor type products in the market over the past few years," he said, "so to have this is very positive. I would be surprised if other lenders did not come out with similar features in the future."

Full nest syndrome

Thanks to ever growing deposit requirements more twenty somethings than ever have been choosing to stay at home rather than spend their hard won wages on trying to buy their own property.

The Office for National Statistics recently reported that record numbers of 20-34 year olds still live with their parents - a whopping three million adults.

That's an increase of 20% since 1997.

Those that do strike out on their own are up against ever increasing rents, making saving a near impossibility.

According to Homelet, the average UK rent was 4.7% higher than the same time last year in December.

The same source reports that the average age of a rental tenant increased by 1.7% over the same 12 months to 34.2 years.

The proportion of young adults who are financially unable to leave the parental home is estimated to increase to 3.7 million by 2020, according to research from the Joseph Rowntree Foundation.

Its report states that by 2020, "young people will be further marginalised within a badly functioning housing system."

That's especially unfortunate since, according to The Equity Release Council, lending money for housing is also putting a real strain on families.

54% of households the group surveyed said parental financial support was having a negative impact on their family.

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