1. Home
  2. Blog
  3. December 2018
  4. Not just deposits – how else can the Bank of Mum and Dad help first-time buyers?

Not just deposits – how else can the Bank of Mum and Dad help first-time buyers?

  1. 07 December 2018
  2. By Andi Michael

The rise in the number of first-time buyers relying on assistance from the so-called Bank of Mum and Dad has been well-documented in recent years, with it almost becoming the norm for people buying a home to turn to their parents for financial support.

In many cases, parents provide money towards a deposit or help out with other associated costs of buying a home. Sometimes, parents may even stump up the entire deposit to help their offspring get on the property ladder. Most of the time this money is provided as a gift (in other words, parents don’t expect the money to be repaid to them), with the Bank of Mum and Dad eager to use their greater financial clout or equity from their often mortgage-free homes to help their children out.

With research from the Resolution Foundation this week finding that children of parents who are home owners are much more likely to get on the property ladder, there is some concern about the necessity of parental help.

Gifting a deposit isn’t always feasible, but it also isn’t the only way in which parents can support first-time buyers into their first home. There are a variety of different options – from guarantor mortgages to rent-free arrangements – which can help.

Family Springboard Mortgage

In May 2016, Barclays launched its Family Springboard Mortgage to help first-time buyers onto the ladder without a deposit.
It was the first 100% mortgage to be offered by a major lender since before the financial crisis took hold in 2008, but it came with a pretty big caveat – namely that parents had to pay a 10% deposit into a related savings account (known as the Helpful Start Account) and leave it there for three years to secure the home loan.
The mortgage is suitable for anyone aged 18 or older and buying a home worth up to £500,000, but isn’t the right product for those who are purchasing a new-build property. Buyers don’t need a borrower deposit because a family member or ‘helper’ provides security to the mortgage by opening a Helpful Start Account with 10% of the property purchase price.
Parents or loved ones can also get their money back with interest, assuming the owner keeps up with all their mortgage repayments on time. If this is the case, Barclays returns the holding deposit – with interest – after three years.
The owner also has full rights to the property – parents or loved ones are not considered guarantors in this case – but some of their money may be held back for longer than three years if payments are missed. So, to ensure their loved ones don’t miss out, there is an incentive for buyers to keep up with their mortgage repayments. 
There is a fixed rate of interest for three years, after which owners are placed on to Barclays’ lifetime tracker rate.  

Rent-free living

First-time buyers looking to save up enough money for a deposit are likely to find this task much more achievable if they are paying only a small amount of rent to cover living costs – or no rent at all.
Of course, this isn’t possible in every situation and depends on a family’s individual circumstances, but for those parents who can afford to subsidise their children and allow them to live at home rent-free, the chances of them putting together a decent-sized deposit in a shorter period of time is upped.
With the average member of Generation Y said to have only £3,359 in accessible savings, and the average first-time buyer deposit currently standing at more than £51,000 (according to the Office for National Statistics), the appeal of not having to pay rent for those looking to purchase a home is obvious.
While many will still require financial help from parents, even after years of saving, this amount is likely to be reduced if they have been able to live rent-free and save a larger pot of money more quickly.

Guarantor mortgages

Similar to the above, guarantor mortgages – which are offered by a number of lenders – allow people to buy a home even if they have a low (or no) deposit, limited income or financial circumstances that might put lenders off.
In these cases, someone is named on the mortgage as a guarantor – a person who can cover repayments if the borrower, for one reason or another, can’t. The guarantor does not own a share of the property and is not named on the deeds, but they sign a legal agreement to say that they will make repayments if a borrower falls behind on what they owe.
The lender will use one of two things from the guarantor as security – their own home, which means the lender could repossess the guarantor’s property if the borrower misses too many repayments; or their savings, which sees a guarantor put a lump sum into a savings account held by the borrower’s lender.
The Family and Springboard mortgages above are effectively guarantor mortgages, but other, more niche lenders such as Leeds Building Society, Cambridge Building Society and Newbury Building Society also offer them.
With fears that the Bank of Mum and Dad risks ‘going out of business’ or ‘running dry’ as more first-time buyers rely on parental support – the most recent Bank of Mum and Dad research by Legal & General, for example, found that lending from this source dropped in monetary terms as parents feel the squeeze – alternative solutions, where people get their money back with interest, or act as a sponsor or guarantor, could be the way forward for those who can’t afford a lump sum.
Either way, the Bank of Mum and Dad will continue to be a vital lender in the coming years – one in four housing transactions are dependent on it, while the number of people relying on this funding source is set to reach more than 316,000 by the end of 2018, up from 298,300 in 2017.

Related blogs

Ready to get quotes?

We've already helped over 2,650,005 movers

12,311 user reviews

I filled in the quick online form one evening and the next morning received various detailed quotes from local firms. I was very pleased with the service.

J Curtis on 01/03/2021

As featured in