First-time buyers turn to family

Thursday, 24, Apr 2008 11:16

An increasing number of first-time buyers are turning to their families for financial assistance.

As the mortgage climate continues to deteriorate, borrowing for a house purchase has grown increasingly difficult for potential buyers, leaving many with no choice but to ask parents for help.

There are now zero 100 per cent mortgages available on the market - following the withdrawal of a product from Abbey - meaning potential first-time buyers will have to raise ever increasing amounts for a deposit.

"Family is increasingly the main option for first-time buyers. It is another option, but it's only open to those who are able to call upon that help, and whose relatives are able to provide it," said Bernard Clarke, spokesperson for the Council of Mortgage Lenders (CML).

"But we have seen parents who have enjoyed equity growth in their own property over a period, being able to draw on that to help relatives who are first-time buyers with a deposit."

According to the CML, first-time buyers represented 37 per cent of all house purchasers in February 2008, and borrowed an average of 88 per cent of the value of properties - down from 90 per cent throughout 2007.

However, as prices begin to fall in the wider market - with Halifax finding prices fell 2.5 per cent in March - first-time buyers may find it harder to secure the requisite funds from their families.

"Going forward, perhaps parents will be a little bit more reluctant," continued Mr Clarke.

"But, if you were a homeowner through the 1980s and 90s - if you've held property over a long period of time - you're likely to have seen a significant equity growth. And if you have any mortgage left on your property, it will only be a very small one."

House prices have increased by an average of 170 per cent since the Labour party came to power in 1997.

"Parents would need to look at their individual circumstances and see whether that's an appropriate option or not. Clearly, they would then have two debts to service," explained Mr Clarke.

"That may be an option for those who have a large income, whose problem is that they simply haven't got the immediate liquidity to provide a deposit. But there's likely to be a pretty small number of first-time buyers in that category," he concluded.

Chris O'Toole