24 Jan 2011
Leaping onto the housing ladder
People have always talked about “climbing the housing ladder”. This would be simple enough if it were a gradual climb, rung to rung, all the way to the top. These days however, one of the biggest hurdles is getting onto “the ladder” at all! It’s as if the first three rungs are missing and a gargantuan leap (and sizeable deposit) is required to even get a foothold.
Metaphors aside, the simple truth is that financing the purchase of a house for first time buyers can be pretty tricky. It probably comes as no surprise that many first time buyers look to their parents for help when buying a new home. According to the Council of Mortgage Lenders the actual figure is a whopping 84% of buyers under 30 who now need financial assistance when buying their first home.
Where’s the silver lining? Well housebuilders are always on the look out for new ways to help first time buyers make that jump onto the housing ladder. The latest proposal to be trialled taps into the bountiful “Bank of Mum and Dad”. Financial services group Hitachi Capital have joined forces with homebuilders to allow parents to borrow up to £50,000 on behalf of their children to help them buy their first home.
It works like this: buyers have a 5% cash deposit and must secure a normal mortgage for the majority of the purchase price. Hitachi Capital will then lend up to 15% (to a maximum of £50,000) to the buyer’s parents to fund the rest of the purchase. The loan is unsecured and repayable over a 12 year period at a fixed interest rate of 5.4%.
What’s great about this deal? Under most other parent subsidised schemes, the parents don’t have to repay a monthly loan however the lender will pursue them if their child defaults on their monthly mortgage payments. Under the Hitachi scheme parents don’t have to remortgage their home to take out the loan, nor are they expected to act as guarantor for the entire mortgage. There are no early repayment charges and unlimited overpayments are allowed at any time during the agreement.
And the downside? Well obviously the bottom line is that you need parents who can afford to service the loan repayments. The other issue is that with this type of deal you are limited to buying a property with the particular housebuilders who are offering it.
So if you’re itching to get your feet onto the housing ladder, what else is out there for first time buyers? Many housebuilders offer shared equity schemes, where a purchaser gets a normal mortgage plus an additional loan from the housebuilder. Individual housebuilders may also offer more specific benefits on different schemes. For example at the Oaks Hamlet development (www.oakshamlet.com) by the country park at Kings Hill, there is a range of initiatives available to help buyers: Stamp Duty is paid on selected plots and help with a deposit or deferred payment options are available if needed. As an extra incentive solid wood flooring and carpets are included in the asking prices and selected plots also have high quality shutters and landscaped gardens.
With a leg up from a housebuilder, getting onto that ladder needn’t be such a struggle!
