Are new borrowers too reliant on the Bank of Mum and Dad?

A first time buyers report from the ‘Yorkshire Building Society’ has revealed that 59% of 18-40year olds expect to rely on additional financial help from their parents or family members to get onto the property ladder.  31% expect help towards a deposit, so it seems the bank of ‘Mum and Dad’ is well and truly open for business.

However it isn’t without guilt or worry that this borrowing happens with 66% of those surveyed saying they felt ‘guilty’. So perhaps an unsecured loan with a faceless company is the easier option after-all.

82% of those trying to get onto the property ladder believe that nowadays it is much harder to get onto the property ladder than it was for their parents.  With 59% of those using the bank of mum and dad concerned about the negative impact that borrowing a significant amount of money could have on their parents’ future finances. So just how much is too much?

According to figures from the Department for Communities and Local Government, the average house price paid by first time buyers is now £198,325. Therefore a 10% deposit, which is usually now the minimum requirement by a lender for a 90% loan to value mortgage, would be just shy of £20,000. Some 80% of those surveyed do not expect the full deposit amount, yet 14% expect much more support totalling around £40,000. Simon Broadley, Senior Manager at Yorkshire Bank commented that; “In what is a tough environment for young aspiring homeowners, the ‘Bank of Mum and Dad’ continues to support young people’s dream of buying their first home. But while it’s clear that parents are willing, where they can, to help their children get on to the property ladder, the burden of how it could negatively impact their family’s finances is leading many young adults to feel guilty about accepting help. Our survey shows how the financial and moral dilemmas facing first-time buyers remain acute regardless of whether they are fortunate enough to have parental support available.”

Despite the above concerns many young people still strive to buy their own home, with 65% believing that it is very likely they will become homeowners, with 56% of those already saving money towards that elusive deposit. Indeed the survey shows that 56% believe that buying your own home is essential if you are to achieve in life, with 20% even claiming it to be the single most important life event, above marriage and having children. A whopping 83% also see it as a sound financial investment that is important for future security.

“Despite the challenges facing potential first-time buyers, our results paint an optimistic picture and show how young adults in the UK still value owning their home, even going as far as to suggest it would be the most important milestone in their life,” said Simon.

So it’s obviously an important, if not the most important milestone to achieve, so how is the best way to do it?  Firstly make sure your credit file is healthy and that your score is as high as it can be. Try and save as much money as you can. Even if the bank of mum and dad is helping you, there are lots of costs involved with setting up a new home so every penny will help.  It may be worth investing into a savings account, just to help boost whatever amount you can pay into it.

But the biggest amount of your time should be spent researching current first-time buyer mortgage deals. There are now a number of 95% loan to value deals available, and who knows perhaps we will even see the return of 100% mortgages, but even if it means less deposit they are usually more expensive in the long term. Thus saving more so you can obtain a 90% loan to value mortgage will offer more competitive rates and a greater choice. Indeed a lot of borrowers use unsecured loans to ‘top up’ their deposit, as the additional cash injection means that you save in the long term as you have a greater choice of mortgage products. So if you can withdraw all you need from the bank of mum and dad that’s great, but even if not then there are other options that will help you realise your dream home.