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‘An unassisted first time buyer in England will typically spend £81,321 on rent over a period of 16 years by the time they buy their first home at the age of 37’ (source: findaproperty.com)
The above statement is the frightening reality that many first time buyers are facing and whilst the statistics for the North West are slightly better, they are still a cause for concern and present their own challenges - ‘those in the North West spend 14 years and £34,703 on rent before buying their first home’ (source: findaproperty.com)
The obvious issue for first time buyers is that as they are paying out hard earned money on rent, there is the added pressure on their finances as they try to save up funds for a deposit as well.
A solution for some is a financial gift from parents or grandparents to assist with the deposit, but for those who don’t have such a luxury there are some other solutions that may be of benefit, and will perhaps assist them in getting on the property ladder sooner rather than later.
Firstly, parents (or other close relatives/friends, or anyone else who wants to assist) could look to their own properties in order to release additional funds to bolster any deposit monies already raised. This could work for anyone who owns their own property currently, either with or without a mortgage secured against it.
Secondly, parents or grandparents (or in some instances close blood relatives) can stand as guarantor for mortgages up to 90% of the value of a property, which would assist with meeting lender’s comfort levels when assessing the risk profile of the applicant. This would consist of the guarantor providing proof of income, plus proof that all their own personal monthly expenditure is adequately covered, with a specific amount of disposable income available thereafter.
Thirdly, a recent innovation to the market is a partial guarantor mortgage, whereby if the applicant’s income is sufficient to secure them a mortgage for £50,000, but they need a mortgage for £70,000, then a person who has known the applicant for five years or more can stand as a partial guarantor for the remainder of the loan. The specific benefit to the partial guarantor is that their credit rating will only show that they are guarantor for the additional £20,000 and are not carrying any credit liability for the full mortgage amount.
Finally, if standing as a guarantor is not sufficient for a mortgage lender, then there is always the option for a joint, two, three or four way application to be used, thus utilising the highest incomes available, which may hopefully result in securing the mortgage.
For first time buyers there really are options for deposit and mortgage raising and for the guarantors there are other benefits. In some cases, if they are to be named on the mortgage and, therefore, on the property deeds, there may be a positive impact upon their estate for inheritance tax planning purposes.
All options should be explored and carefully considered by all parties, with the appropriate independent advice taken as a matter of course.
Property Finance Consultant
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