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May 192017
 

The Bank of mum and dad is often relied upon by first-time buyers to give them a leg up onto the property ladder, but increasingly grandparents are helping out financially too.

Nearly one in 10 (8%) of first-time buyers now turn to their grandma and grandpa for financial support, recent research by Santander Mortgages found, up from 2% just five years ago. Separate research from insurer Legal & General found that around 22,000 grandparents last year provided financial support for first-time buyer grandchildren.

It’s hardly surprising that many first-time buyers need help from the bank of gran and grandad, given that soaring property prices in recent years have pushed up the amount needed as a deposit. Most mortgages lenders require buyers to put down at least 5% of the property value, but even this often isn’t enough to ensure that their property purchase goes through.

According to a survey by Nottingham Building Society, 35% of would-be first-time buyers saw their property deals collapse in the past year because they didn’t have a big enough deposit.

Property website Rightmove’s latest property index shows that the average price of a first-time property – one with up to two bedrooms – is at a record high of £194,881. That means a 5% would amount to £9,744, while a 10% deposit would be £19,488.

Grandparents who are keen to help their grandchildren buy their first home often find most of their wealth is tied up in their own property.

One option that might be worth considering is Equity Release, whereby you unlock wealth from your home, without the upheaval of having to move. Drawdown lifetime mortgage schemes are usually the most popular type of equity release plan, as they enable you to release equity as and when you need. Interest rolls up over time and is only repaid along with the amount released either when you and your partner move pass away or go into long-term care.

Latest figures from equity release specialists Responsible Equity Release found that 4% of those who took out equity release plans last year gave the money as early inheritance. The most popular reason for older people to unlock wealth from their homes was to clear their own mortgages (36%), while 28% wanted the funds as a cash cushion in retirement.
Nigel Waterson, chairman of the Equity Release Council, the trade body for the equity release sector, said:

“Older homeowners are increasingly realising that there are a number of potential uses for their housing wealth beyond supplementing their retirement income, including re-investing in their homes and helping younger family members by providing a living inheritance.”

However, equity release should never be undertaken lightly, or without seeking professional financial advice, as it can affect your entitlement to state benefits and will also reduce the value of your estate.

It’s also important to understand that equity release rates are higher than standard mortgage rates, although they have fallen in recent years. According to Moneyfacts.co.uk, the average fixed rate for equity release deals has fallen to a record low of 5.63%. There are also far more options to choose from, with the number of fixed equity release products having increased from 52 options in 2015 to 82 today, the highest recorded figure in eight years.

Steve Wilkie, managing director at Responsible Equity Release, said:

“The equity release industry has also been far more receptive to innovation, recognising the importance of meeting the changing demands of customers who are more aware of equity release but want more choice and flexibility.

“The greater variety of products, such as interest-only lifetime mortgages and flexible repayment, has attracted a whole new market to the benefits of equity release.”

Aug 122016
 

What about getting a mortgage certificate?

The very first thing you must do before even looking at a property to buy, you must obtain a mortgage certificate, otherwise known as a mortgage promise or an agreement in principle. This is a document from a lender showing how much they will be willing to pay you. These statements only last for a short period of time, usually 3 months, so make you know how long yours lasts for.

It has many advantages being that it demonstrates to the seller that you are a serious and determined buyer, and that you have enough money behind you to purchase the property. It will also speed up the mortgage process later on when you make a formal application because it will already have some of your information on record. You must remember that a mortgage certificate is not a guarantee that the lender will actually give you the money for the property you want to buy. It depends on details such exact details of the property, the outcome of credit checks and the correctness of information you supplied about yourself.

In order to get a mortgage certificate you will need to complete a form, giving details of your income and financial commitments, and your employment records. At this stage it is likely the lender will run credit checks on you, and might even ask your employer for references. The lender will then use this information to calculate how much they are willing to lend you. If you intend to keep your options open, there is no reason why you can’t obtain a mortgage certificate from more than one lender. However, if you feel problems with a lender agreeing to the amount you want to borrow, then there is no point in doing this, also, if each lender you go to carries out a credit check, it could harm your credit rating.