Compared with a decade ago, today’s first-time buyers are older, more likely to buy with a partner and more likely to have dependent children. This highlights how getting on the property ladder is becoming increasingly hard for younger borrowers. However, lenders are always introducing new propositions to ensure solutions are in place to help prospective homeowners buy their first property. It could be you who helps them!
The 1980s, perhaps best known for its music and the invention of Super Mario, was a time when the average house price was £22,676 and the average deposit was £3,000. Fast forward to 2018, and we see a completely different picture: the average house price is £224,353, and the average deposit costs you £34,000. This shows a whopping growth of around 890% in house prices! However, wage growth hasn’t seen the same hike, so it is no surprise that borrowers are continuously finding it harder.
For many, the Bank of Mum and Dad seems like the only option. According to the Social Mobility Commission, over 30% of UK households with dependent children hold assets that could be used towards a deposit to purchase a home. This could lead to an increase in the number of first-time buyers turning to help from their family. The Social Mobility Commission’s research suggests this could rise to nearly 40% by 2039/40. Do you hold assets that could give your loved ones the gift of a lifetime?
Joint borrower, sole proprietor mortgages (JBSP)
JBSP mortgages are one solution that may help. They’re aimed at bridging the gap between salaries and house prices and are geared towards helping close family members get onto the property ladder or move home. Lend a helping hand to your children’s plans of purchasing their first home!
Joint borrower, sole proprietor mortgages allow you to support your family by adding your name to the mortgage, increasing income and increasing the maximum loan available. A JBSP mortgage is a financial arrangement where up to four individuals can jointly secure a mortgage, but only one person legally owns the property.
This type of mortgage is commonly chosen by parents who wish to help their children step onto the property ladder, but it’s also used by siblings or friends combining their incomes to buy a house with only one residing in it.
A key aspect of JBSP mortgages is that while all borrowers are jointly responsible for the mortgage repayments, reducing the risk for the lender, there’s also a collective liability. If one borrower fails to pay, the others must compensate for the shortfall. It’s, therefore, essential to enter into a JBSP mortgage with trusted individuals and clearly understand each other’s financial situations.
Only the sole owner of the property, the proprietor, is listed on the title deeds. This means other borrowers have no legal rights to the property or any increase in its value. Lenders usually stipulate that this individual must reside in the property. This arrangement is ideal for those who want to assist with a property purchase without retaining a long-term interest in it, allowing for an easy exit when the proprietor can take on the mortgage independently.
In terms of operation, JBSP mortgages are similar to standard mortgages. To evaluate affordability, lenders assess all borrowers’ financial circumstances, including income and outgoings. Borrowers must also meet the lender’s specific criteria, such as age limits and creditworthiness. The age limit for a JBSP mortgage typically caps at 70 or 80 years at the end of the mortgage term. When the initial fixed-rate or discount period ends, the sole owner has the option to remortgage solely in their name.
One of the advantages of a JBSP mortgage is its potential impact on Stamp Duty. Generally, purchasing a property with someone who already owns a home attracts a higher Stamp Duty rate. However, under a JBSP mortgage, the non-owning parties don’t trigger this additional charge.
Planning for unexpected scenarios, such as illness or unemployment, is prudent, like any mortgage. Income protection insurance can effectively ensure mortgage repayments and other bills are covered during such times.
This type of mortgage is commonly chosen by parents who wish to help their children step onto the property ladder, but it’s also used by siblings or friends combining their incomes to buy a house with only one residing in it.
A key aspect of JBSP mortgages is that while all borrowers are jointly responsible for the mortgage repayments, reducing the risk for the lender, there’s also a collective liability. If one borrower fails to pay, the others must compensate for the shortfall. It’s, therefore, essential to enter into a JBSP mortgage with trusted individuals and clearly understand each other’s financial situations.
Only the sole owner of the property, the proprietor, is listed on the title deeds. This means other borrowers have no legal rights to the property or any increase in its value. Lenders usually stipulate that this individual must reside in the property. This arrangement is ideal for those who want to assist with a property purchase without retaining a long-term interest in it, allowing for an easy exit when the proprietor can take on the mortgage independently.
In terms of operation, JBSP mortgages are similar to standard mortgages. To evaluate affordability, lenders assess all borrowers’ financial circumstances, including income and outgoings. Borrowers must also meet the lender’s specific criteria, such as age limits and creditworthiness. The age limit for a JBSP mortgage typically caps at 70 or 80 years at the end of the mortgage term. When the initial fixed-rate or discount period ends, the sole owner has the option to remortgage solely in their name.
One of the advantages of a JBSP mortgage is its potential impact on Stamp Duty. Generally, purchasing a property with someone who already owns a home attracts a higher Stamp Duty rate. However, under a JBSP mortgage, the non-owning parties don’t trigger this additional charge.
Planning for unexpected scenarios, such as illness or unemployment, is prudent, like any mortgage. Income protection insurance can effectively ensure mortgage repayments and other bills are covered during such times.
First Time Buyers less reliant on parents for raising deposits
New research indicates that the Bank of Mum and Dad may not be as prevalent as it once was, with the percentage of first-time buyers planning to buy with their own savings skyrocketing in the last year by 57%.
In a survey of 1,000 would-be homeowners, 76% said they plan to buy their first home with their own savings. Just 20% expect to receive financial support from their family to help them raise a deposit. 20% of respondents hope to benefit from inheritance.
Saving a suitable deposit remains one of the biggest challenges many FTBs face. Last year, Moneybox Mortgages customers paid £66,000 on average (mean) on their first home deposit (median deposit; £35k) indicating that even those who may be fortunate enough to benefit from some familial financial support are still having to save significant amounts to make their dream of buying their own home a reality.
However, in the last six months, aspiring homeowners have had to reduce how much they save towards their deposit each month by 18%. In May 2023, FTB hopefuls were saving on average £344 per month. This figure has since decreased to £287 a month, and one-third of respondents have had to save for longer than planned to raise a larger deposit.
Despite persistent cost of living pressures, it is encouraging to see that many have continued to make steady progress towards their home ownership goals. Half of those surveyed feel they are closer to buying a property now than six months ago and 17% were even able to increase the amount they save towards their deposit in the last six months.
Brian Byrnes, Head of Personal Finance at Moneybox - which commissioned the research says "while owning a home is still a top financial goal for most people, it appears that Bank of Mum and Dad could be starting to struggle to support their children’s property ambitions to the same extent as in previous years. As the cost of living puts pressure on household finances the obstacles facing prospective homeowners have only increased in the last year. Affordability and saving a suitable deposit are among the biggest concerns and it is clear that more support is needed to help the next generation of home buyers navigate the changing market conditions.”
Among those surveyed, the most popular savings products used to build a first home deposit were Easy Access Savings Accounts (43%), Cash ISAs (37%) and the Lifetime ISA (17%).
With interest rates peaking in the last year, many FTBs will have benefitted from higher savings rates to fuel their first home deposit. However, the reliance on easy-access savings accounts is potentially cause for concern as many of these accounts do not keep pace with the competitive rates at the top of the market.
Additionally, Moneybok contends that many first-time buyers are potentially missing out on free money by not making the most of the right saving vehicles to boost their deposits.
Last year, Moneybox analysis found that Britons eligible for a Lifetime ISA (LISA) - those aged between 18 and 39 years old - could be missing out on up to £18 billion of ‘free money’ each year by not making the most of the 25% government bonus on offer.
Number of older first-time buyers trending up, data shows
Broker identifies why an increasing number of people choose to buy their first home later in life
The number of first-time buyers aged 50 and older has significantly increased in recent years, data analysis from mortgage broker Tembo has shown.
The family mortgage specialist reported that there were around 12,000 first-time buyers over the age of 50 in the UK in 2022 and that this number has increased by 30% over the past five years, making it one of the fastest growing segments of the first-time buyer market.
Meanwhile, according to the Financial Conduct Authority’s product sales data, the number of younger first-time buyers, particularly those under 30, has been dwindling, while the group of older first-time buyers aged over 40 has been steadily increasing by over 7% annually since 2018.
Regional analysis revealed a considerable discrepancy in the prevalence of first-time buyers aged over 50 across the UK. London exhibits the lowest proportion, with 2.4% of first-time buyers falling into this age bracket, while the South West boasts the highest at 3.5%. Despite its lower current proportion, London is experiencing the most rapid growth in this demographic, with a 64% increase in over-50 first-time buyers from 2018 to 2022.
In Scotland and the West Midlands, although the total number of first-time buyers declined from 2018 to 2022, there was a notable rise in first-time buyers over the age of 51, with an 8% increase in Scotland and a 22% increase in the West Midlands. Across all UK regions, the growth in over-50 first-time buyers has surpassed the growth in total first-time buyers.
Projections by Tembo suggest that by 2030, based on current growth trends, individuals over 40 years old will constitute a quarter of all first-time buyer transactions, totalling 89,000 buyers. Additionally, the number of first-time buyers aged over 50 is anticipated to rise from 12,000 in 2022 to 19,000 by 2030, comprising 5% of all first-time buyers. Why are first-time buyers buying later? Tembo has identified four key factors driving the trend of purchasing first homes later in life, namely extended duration for saving deposits; escalating housing affordability challenges; dependence on support from schemes like Help to Buy, shared ownership, or family and friends; and the increasing availability of mortgages extending into retirement.
“A perfect storm of factors impacting first-time buyer affordability means we’re now seeing a sharp rise in the number of people waiting until they’re aged 50 or over before they buy their first home,” Richard Dana, founder and chief executive at Tembo, commented. “This is presenting a challenge to both the financial services industry and would-be home buyers, with many traditional high street lenders not offering extended mortgage loan terms beyond the age of 75.”