It’s not unusual these days to see children staying with their parents into their late twenties or even up to their thirties and beyond. The cost of buying a home these days is far too high for a single young adult to manage and they need to rely on their parents in order to be able to afford the deposit for a new home. In fact, it’s getting so bad that it’s been given a name; the bank of Mum and Dad. When millennials see their friends brandishing keys to a new house, the only question on their mind is “how much money did their parents give them?”
In the past, it was actually quite common for people to purchase their own homes between the ages of 20 and 24. The Social Mobility Commission reports that around 40% of young adults in this age bracket during the 1990s were able to purchase their own homes. By 2010, a full two decades later, this percentage dropped to just 13%. Older age brackets were slightly more successful, but the percentage of people buying their own homes still dropped a considerable amount over the past two decades.
Unfortunately, not every parent can just offer their children tens of thousands for a home deposit. Many parents are still working and paying off their own mortgage, so unless they’re wealthy or have managed to clear their financial obligations, not everyone can rely on their parents for the money. Millennials without wealthy parents will likely need to rely on their own financial ability in order to pay for both the deposit to their home and the ongoing mortgage, meaning it can get very expensive and they’ll need to live frugally for close to a decade in order to afford their own home.
Luckily, there are options for these budding homeowners with parents that are willing to help out even if they aren’t wealthy and have thousands to spare for a deposit. With products like guarantor mortgages and family springboard mortgages, there’s still hope even for those that don’t come from wealthy backgrounds and don’t have financially secure parents that can provide a substantial chunk of money for their first property.
A guarantor mortgage, for instance, is a way of securing a mortgage that doesn’t actually require a deposit comments Dave Beard from mortgage comparison website Lending Expert. Instead, it relies on using a guarantor, often a parent that helps to cover the repayments should the buyer fail for financial reasons. It’s often called a family assisted mortgage and is often used when the parents can provide some support on a monthly basis in case the buyer can’t cover the payments themselves. This guide goes into the role of the guarantor in further detail.
The second option is a family springboard loan. Again, it doesn’t require a deposit but does need 10% of the property’s price up front by parents or loved ones. This is used as security and the buyer will be given full rights to the property since the parents don’t count as guarantors. Another added benefit is that the parents will receive their money back with interest once the home has been purchased.
These parent-centric mortgage opportunities are great for millennials, even if their loved ones can only provide a bit of support. However, it does further cement the idea of “the bank of Mum & Dad” which millennials might not be too pleased about. Sadly, there’s no denying that parents are a major source of financial support for any millennial that wants to get on the property ladder.
