After a rapid decline of first time buyers during 2008, the number returning to the market is gradually beginning to increase. In January 2009 there were 8,600 first time buyers compared to 19,200 in August. In the second quarter of 2009, first time buyers accounted for two in every five (38 per cent) house purchases.
Parents said they were keen to help their adult children take advantage of the current market conditions but just 8 per cent felt they already had a savings pot large enough to help each of their children. One in seven parents (14 per cent) admitted they will need to keep on saving and one in five (20 per cent) said that, while they were willing to provide financial assistance, their children also had to contribute to the deposit themselves.
Helping each of their children equally is very important to parents, with 93 per cent intending to provide the same financial assistance to all of their children. Of those who don’t intend to help their children equally, 60 per cent said it was because their children earned different salaries while 24 per cent said their other children didn’t need help because they were buying with partners.
Stephen Noakes, commercial director of mortgages, Lloyds TSB, said: “The current housing market presents a real opportunity for first time buyers, as long as they are ready to buy with a deposit. Housing affordability is back to the level it was in 2003, so many parents with grown-up children want to help them take advantage by using their savings.”
Lloyds TSB has designed a mortgage to bring the housing ladder within reach for first time buyers with the help of their parents. The three year product, called ‘Lend a Hand’, offers first time buyers a 95 per cent loan to value mortgage, at 4.99 per cent, by taking a legal charge on a savings account belonging to their parents. Parents retain ownership of their savings while earning a competitive fixed interest rate of 4.00 per cent and, at the end of three years, their savings are returned.
Nearly half (49 per cent) of parents surveyed said they were more likely to provide financial assistance if their children could secure a mortgage that allowed their savings to be returned with interest. And of these, 50 per cent said such a mortgage would let them recycle their savings to help their other children.
Stephen Noakes continued, “Lloyds TSB’s Lend a Hand mortgage lets parents use their savings without actually having to write their children the cheque. Their deposit is held in a savings account paying a competitive rate of interest and, after three years, they are free to use their savings again as they wish, maybe to help their next child buy their first home.”
Top tips for parents to get their children on the ladder
1. Look at the different mortgages available for first time buyers and how your financial assistance can best be used. Some, such as Lloyds TSB’s Lend a Hand or offset mortgages, are designed specifically for parents to help.
2. Work out how much money you can afford to use to assist your child with purchasing their property and decide whether it is a gift or a loan to your children.
3. Review all of your savings and investments to establish where is most cost effective to take your money from
4. If possible, access lower interest paying accounts and those where you won’t have to pay a fee to access money.
5. Try to avoid emptying your ISA, so not to lose the tax free benefit, or other longer term investments which you have locked up.
6. Sit down as a family and be clear how much you are providing for your child and under what terms. For example, if you are providing a loan, agree over what period you would like it to be returned and agree up front if any interest will be charged.
7. If your savings will be linked to your child’s mortgage, make sure you seek independent legal advice. For example, what will happen to your savings if your child falls behind on their mortgage payments.
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