Parent-guarantor mortgages on the rise for first-time buyers

Remember how you used to be able to get a lone or a mortgage, by having a guarantor, well results from a recent survey suggests that almost one-quarter of all parents planning to help their children buy their first property would act as guarantors for their children in order to get them onto the housing ladder.

The survey was conducted by Family Investments, they found that 24 per cent of parents plan to help their children get onto the housing ladder by acting as guarantor, compared to two-thirds of those who plan to just give their children the money outright.

Earlier research from Lloyds TSB has indicated how the so-called Bank of Mum and Dad is evolving.

It is no longer simply a case of parents chipping in with a cash loan to help their first-time-buyer children – now two-fifths of those taking their second step on the property ladder are turning back to their parents for financial assistance. The Family Investments survey shows that this evolution also includes parents putting the equity in their own homes on the line too, rather than simply handing over the cash.

The report also found that more detailed knowledge of guarantor mortgages was low among the 53 per cent who had heard of them – when asked a series of true or false questions about the characteristics, just under half of respondents were able to correctly identify the right answer every time.

Of the 529 parents who responded, only four noted that they had received support in the form of a guarantor mortgage from their own parents. This is especially significant and highlights the change happening in today’s mortgage market, where first time buyers can only get high LTV mortgages with some form of additional guarantee.

The Family Investments research also highlighted just how important the Bank of Mum and Dad is as a lender in the current climate. Of the non-homeowners questioned over a third are planning to buy and nearly a third of these expect their own parents to help in securing a mortgage.

The head of Savings and Investments at Family Investments, Kate Moore, commented: “It’s obviously becoming increasingly difficult for young adults to get onto the property ladder. As it becomes harder for young people to save enough for a deposit on their first home, parents have to consider other ways of supporting their children into the future.

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CML announce: Lending to first-time buyers increased in February

First-time buyers increased

The number of first-time buyers increased by 3 per cent in February, marking the best start to a year since 2008, according to the Council of Mortgage Lenders (CML). Activity in the first-time buyer sector was 17 per cent stronger in February than in February last year, and combined with January reached the largest number of first-time buyers in the first two months of the year since 2008. Lending to home movers fell – contributing to an overall dip in house purchase lending – while remortgage lending also eased.

First-time buyers

A total of 16,400 loans were advanced to first-time buyers in February, up on 15,900 in January and 14,000 at the same time last year. By value, loans to first-time buyers totaled £2 billion, the same amount as the previous month, but 18 per cent higher than in February 2012 (1.7 billion). First-time buyers accounted for 43 per cent of all house purchase loans in February. This was the sixth consecutive month that this indicator has been at or above 40 per cent, suggesting that market conditions continue to improve for first-time buyers. Indicators of loan affordability also suggest that the market was marginally more favourable for first-time buyers in February.First-time buyers typically borrowed a smaller amount in February than in January, both in absolute terms and relative to their income. First-time buyers typically borrowed 3.19 times their income in February, down from 3.2 times in January, while the average loan-to-value ratio remained at 80 per cent. This is likely to be associated with a shift towards the purchase of less expensive properties by first-time buyers, with a small increase in the proportion of properties bought for less than £125,000.

Home movers
Lending to home movers fell in February for the third consecutive month. A total of 21,500 loans were advanced to borrowers who moved in February, down by 4 per cent compared to January and a fall of 3 per cent on February last year. By value, home movers were advanced 3.5 billion in February, a 5 per cent fall compared to January.

House purchase lending
The underlying trend for resilient house purchase lending continued in February, with lending stronger than a year earlier. A total of 37,900 loans (worth £5.5 billion) were advanced in February, up by 5 per cent on the same time last year (36,400 loans). Month on month, house purchase lending dipped in February compared to January when 38,200 loans were advanced.

Remortgage lending

Remortgage lending remained subdued in February, down compared to both the previous month and February 2012. In February, £2.6 billion was advanced to borrowers remortgaging, a 13 per cent fall compared to January (3 billion), and 28 per cent lower than February last year (£3.9 billion).

Director General of CML, Paul Smee, Commenting on the data, saying: “First-time buyers are continuing to take advantage of more favourable market conditions, helping to drive the underlying trend for resilient house purchase lending. We hope that the new initiatives announced by the government in the 2013 Budget will further stimulate first-time buyer activity but also help those ‘second steppers’ looking to move into a new or existing home.”

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First-time buyers in Scotland hits post-crunch high

The number of first-time buyers in Scotland rose to the largest annual total in four years, according to new data released today by the Council of Mortgage Lenders in Scotland.

A total of 19,000 first-time buyers purchased a property in Scotland in 2012, an increase of 13 per cent on the previous year.

Meanwhile, in the fourth quarter of last year lending to first-time buyers rose to 5,200, up by 18 per cent on the same period in 2011.

By value, loans to first-time buyers totalled £490 million in the fourth quarter, up from £460 million in the previous quarter and £400 million in the fourth quarter of 2011.

In the fourth quarter 62 per cent of first-time buyers bought a property for less than £125,000 compared to 39 per cent in the UK as a whole.

First-time buyers also borrowed less relative to their income than in the UK overall, and spent a smaller proportion of their income on mortgage payments. First-time buyers in Scotland typically borrowed 2.88 times their income, considerably lower than the 3.26 times borrowed by their counterparts in the rest of the UK.

While there was an increase in lending to first-time buyers in Scotland, there was a fall in lending to home movers in the fourth quarter for the second consecutive quarter. A total of 7,100 loans were advanced to home movers, compared to 7,300 in the third quarter and 7,200 in the same period in 2011.

Despite the slight easing in the second half of the year, there was a small increase in lending to home movers for 2012 overall. A total of 27,600 loans were advanced to home movers (worth £3.66 billion) up marginally from 27, 500 loans (worth £3.6 billion) in 2011.

As a result of the increase in first-time buyer activity but slight fall in loans to home movers, overall house purchase lending rose slightly in the fourth quarter.

Following a similar pattern to the UK overall, remortgage lending increased in the fourth quarter when £700 million was advanced – a 6 per cent increase compared to the third quarter but still 20 per cent lower than the fourth quarter in 2011.

Overall, a year-on-year fall in each quarter resulted in a 19 per cent fall in remortgage lending in 2012 compared to 2011.

Chair of CML Scotland, Iain Malloch, was reported to have commented,: “The Scottish housing market showed positive signs of recovery in 2012, broadly following the pattern seen in the rest of the UK. The availability of mortgages at more than 90 per cent loan-to-value has more than doubled in the last two years and lenders expect to offer more, high loan-to-value mortgages this year. This, and the fact that the number of first-time buyers is at a post-crunch high, suggests that lenders really are open for business.”