First time buyers increasingly relying on two generations to buy a home

Posted on Thursday, February 16, 2017

New independent research for equity release referral service, Key Partnerships, has revealed that in order for some first time buyers to get their foot on the property ladder they need help form two generations of their family.

Its nationwide study among estate agents found nearly half (47%) have seen a rise in first-time buyers relying on financial support from their parents and their grandparents. The study shows just 18% of estate agents have not seen any increase in first-time buyers needing financial help in the past year.

Parents are slightly more likely than grandparents to be the sole financial backer for first-time buyers, the research found.  Around 35% of estate agents have seen a rise in parental help while 32% report an increase in grandparents providing financial support.

However just 36% of estate agents are aware that equity release plans, which enable over-55s homeowners to access property wealth without paying interest and repay the loan when they go into care or die, can be used to help first-time buyers raise deposits.

There is also the additional benefit that access to a larger deposit can have and that is typically a lower interest rate on the first time buyers’ mortgage due to a reduced LTV.

Bank of England data shows the average 95% LTV two-year fixed rate is 3.66% while borrowers with a 25% deposit will pay less than half that at 1.42% for a 75% LTV two-year fixed rate. Monthly repayments at 3.66% on £100,000 would be £509 compared with £396 at 1.42% over 25 years.

Will Hale, director at Key Partnerships, said: “Increasingly it is taking two generations to help first-time buyers on to the housing ladder with Bank of Mum and Dad having to work with the Bank of Gran and Grandad.

Very few first-time buyers are able to raise the money for a deposit without financial support which is putting financial pressure on parents and grandparents. That is fine if they can afford it but there must be a concern that many are risking their own financial futures to help their family.

Estate agents are valued as a source of financial guidance and it is clear that those who can discuss equity release as a potential alternative fund-raising solution will be able to benefit from an additional revenue stream by referring potential clients to a specialist as well as securing more house sales.”

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