Barclays has launched a 0% deposit mortgage for homebuyers, as research suggests that 25% of all first time buyers need help from the bank of mum and dad to purchase a property.
According to data from Legal & General, family and friends are expected to provide deposits worth a total of £5 billion, averaging £17,500 per property, for 300,000 mortgages this year.
A total of 256,400 mortgage borrowers will receive parental support, 27,500 will get help from friends, while 22,500 will accept funding from grandparents.
Legal & General believes that a lack of housebuilding and the impact of low annual wage growth (2%) against rising house prices (currently increasing at 7.6% per year) are the main reasons that first time buyers are struggling to get onto the property ladder.
Barclays Launches 0% Deposit Mortgage for Homebuyers
The CEO of Legal & General, Nigel Wilson, comments: “If we are ever to end or reduce our reliance on the bank of mum and dad, we need a new innovative approach to housing. Helping first time buyers is necessary, but not the whole solution.
“We need to modernise housebuilding and make it more efficient so that we can increase supply and quality for all forms of tenure, and all income and age groups, from students to pensioners.”
He adds: “Families clearly cannot continue to use all of their net wealth to help their offspring onto the housing ladder without putting their own financial stability at risk.”1
In London – which has the highest and fastest house price growth in the UK – this year, 51% of buyers will receive assistance with their mortgages.
However, Barclays has now announced that the 0% deposit mortgage has returned. With its family springboard mortgage, buyers will no longer need to put down a deposit.
This deal previously allowed those with a 5% deposit to get onto the property ladder, as long as someone else – often the homebuyer’s parents – put cash equating to 10% of the property price into a savings account linked to the mortgage.
Under the new deal, only the 10% contribution is needed. This cash will be returned to the borrower’s parents after three years, with interest added, provided the borrowers have kept up with their mortgage repayments.
The lender has also raised the maximum amount that homebuyers can potentially borrow as a multiple of their income under the deal. Those with an income of more than £50,000 per year will now be able to borrow up to 5.5 times their income, as opposed to 4.4.
A buyer with a 0% deposit could get a three-year fixed rate of 2.99% under the family springboard mortgage, while someone with a 5% deposit could get a rate of 2.79%.
Parents putting cash into the savings account will receive an interest rate of 2%.
The need to raise the huge deposits required is often named the main barrier to getting onto the property ladder by first time buyers. Recent research by Barclays found that 35% of prospective buyers are forced into asking their parents for help.
A separate study by Experian shows that 27% of Britons aged 55 and over have given financial support to someone to help them buy a house, despite 15% saying they are not financially comfortable themselves.
1 http://www.propertyindustryeye.com/bank-of-mum-and-dad-is-a-top-ten-lender/