There is an alternative to the ‘Bank of Mum and Dad’


Wednesday 3rd October 2012

There are now plenty of options for first time buyers.

With mortgage lenders continuing to make it hard for homebuyers to take out a home loan to purchase property, a growing number of first time buyers are turning to the 'bank of mum and dad' to help finance a property purchase. But with a wide range of initiatives now available to help people gain a foot on the housing ladder, there are plenty of alternative options.

Fresh research by the Centre for Economics and Business Research (Cebr), on behalf of HSBC, reveals that the ‘bank of mum and dad' helped to finance over 100,000 first time buyer borrowers between 2008 and 2011.

This ‘family financing' from the bank of mum and dad has also made a significant contribution to the first time buyer market during this period, enabling approximately £23bn worth of property purchases, or £5.6bn a year.

"It's obvious that the ‘bank of mum and dad' has stepped in to plug the gap left by those banks and building societies who have constricted their lending in recent years, which means that family support has become an important element of the post-crisis financing mix," said Peter Dockar, head of Mortgages at HSBC.

However, there are a growing number of options for homebuyers seeking to buy a new home, including a wide range of affordable homes schemes on the market which allow people who would otherwise be unable to buy a property to enjoy all the benefits of living in a brand new home for a price that fits their means.

Shared equity, Shared Ownership, Part-rent/part-buy, Intermediate rent and Social HomeBuy are a few of the options available to those purchasers who qualify.

The government-backed NewBuy scheme is also growing increasingly popular in England, while the newly introduced MI New Home is sure to prove popular for those seeking to buy a new home in Scotland.

NewBuy, launched by the UK government earlier this year, has already attracted over 1,500 reservations. The scheme allows lenders to supply 90-95% loan-to-value (LTV) mortgages for homebuyers purchasing a brand new home.

Commenting on the initiative, Steve Morgan of Redrow Homes said: "I applaud the Government for the New Buy scheme - it is exactly the kind of mortgage indemnity guarantee (MIG)... the government should also introduce a similar MIG scheme for the second hand market, especially for first time buyers. When a first time buyer purchases a second hand home, it then frees up someone in the chain to buy a new home."

MI New Home
The MI New Home initiative, which is expected to help up to 6,000 homebuyers purchase a new build home, aims to assist homebuyers by providing underwritten 95% LTV mortgages on properties valued up to £250,000 from approved lenders, enabling buyers to purchase a property with a deposit of just five per cent.

So far 12 residential property developers have signed up to the scheme; Bancon Homes, Barratt Homes, Chap Homes, Charles Church Developments, David Wilson Homes, Lovell, Merchant Homes, Taylor Wimpey, Persimmon Homes, Springfield Properties, Stewart Milne Homes and Miller Homes.

The Scottish government-backed initiative, created by Homes for Scotland, has only attracted two mortgage lenders to-date; Nationwide and Royal Bank of Scotland, but Halifax/Bank of Scotland is preparing to also join the scheme.

Paul Smee, the director general of the Council of Mortgage Lenders, commented: "MI New Home offers a way for homeowners in Scotland to enter the market or move house with a lower deposit than they would otherwise need. It increases the options for households who may have been feeling constrained and offers lenders additional assurance by offsetting some of the risk they would otherwise face."

New Homes in Affordable Homes

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