Page last updated at 00:01 GMT, Friday, 15 January 2010

Home alone: Buying without the Bank of Mum and Dad

By Joanne Babbage
Business reporter, BBC News

Graham Saunders
Graham Saunders is applying for TV game shows to win deposit money

Property is now affordable for first-time buyers in nearly four out of 10 areas of the UK.

Cold comfort for Graham Saunders, 28, and his girlfriend Carlie Shaw, 30, who are would-be first-time buyers from Crewe.

They have a combined annual income of £48,000.

"According to an online mortgage calculator, we could afford, if we stretched ourselves, repayments on a mortgage of up to £180,000," says Mr Saunders.

"We can more than afford to pay a mortgage, but we can't get together a deposit. The lowest amount we've been quoted is 20% and the highest 35%.

My parents have no savings and they are paying their own mortgage so they can't help me out. I wouldn't expect them to offer to help either
Graham Saunders, would-be first-time buyer

"Even if we were thinking of buying a £100,000 property that's still a minimum of £25,000 we're expected to save. It's impossible."

The couple cannot make any permanent plans for the future.

"We've just signed another 12 months rental agreement but we're looking at all other possible angles to buy our own place," says Mr Saunders.

"We tried getting onto a council waiting list but it's difficult because, quite rightly, we're not a priority. I'm even applying for TV game shows to raise enough money for a deposit."

Bank of Mum and Dad

While the average price of a property bought by a first-time buyer in 2009 was 10% lower than in 2008, at £133,794, the average deposit paid was a whopping £29,439.

Sold and for sale signs lining a street
The average deposit paid by a first-time buyer in 2009 was 29,439

Many first-time buyers are expected to come up with these deposits by themselves.

Some do it with the help of mum and dad, or any other relative. But this is not an option for Graham Saunders.

"My dad is a bus driver and my mum works in a book shop," he says.

"They have no savings of their own and they are paying their own mortgage so they can't help me out. And I wouldn't expect them to offer to help either."

Mr Saunders says he knows "a lot of other people in the same situation".

While the average age of first-time buyers has stayed at around 31 over the last few years, the average age of those doing it without financial backing from relatives has risen from 33 to 37 in the past two years.

"Lending criteria have been scaled back to such an extent in the credit crunch that it has become exceptionally difficult for young people to get a mortgage without external help for a deposit," says the Council of Mortgage Lenders.

Saving for deposit

The proportion of home buyers who are purchasing a house for the first time has dropped to its lowest level since November 2008.

According to latest available figures from the National Association of Estate Agents, (NAEA), 19% of house buyers were first-time buyers in November 2009. To put that into context, in May 2009, first-time buyers accounted for a total of 45% of agreed sales.

Only prime candidates will get mortgages at the very best rates so those with small deposits will need to have a better credit score"
David Hollingsworth, London & Country

"Parental help is still a key feature and it's clearly easier than if you're trying to save a deposit out of your own income and paying rent at the same time," says David Hollingsworth of mortgage brokers London & Country.

The mortgage market has changed immeasurably in the last couple of years. First time buyers are watching house prices fall, but sadly for them the nature of the products on offer pose a problem.

"Mortgage deals continue to be tiered by the amount of deposit available," says Mr Hollingsworth, who does not "see that changing in the near future".

"If you can get a 35% or 40% deposit together you'll get the best rates," he says. "But if you haven't got that sort of money it doesn't mean you can't get a mortgage. But you'll have to pay."

For example, Yorkshire Bank are offering a 95% loan to value, three year fixed rate mortgage, but the interest rate is 6.99%

"Only prime candidates will get mortgages at the very best rates," explains Mr Hollingsworth.

"Those with less than perfect credit scores will find it hard to get a decent deal. So those with small deposits will need to have a better score."

Shared equity

If mum and dad cannot lend you any money, but have a decent amount of equity in their property, they can use that equity to help you secure a high loan to value, or possibly even a 100% mortgage, according to Ray Boulger of mortgage brokers John Charcol.

How to buy your first home

"This won't cost the parents anything, although they need to understand that their property is at risk if their child defaults on the mortgage," he explains.

However, only a small number of building societies offer mortgages on this basis, and some only lend within a limited local region.

"First time buyers who can't get any parental help could think about applying for the government's HomeBuy scheme," says Mr Boulger.

HomeBuy Direct is open to households in England earning less than £60,000 a year who would otherwise be unable to buy a home.

Under the scheme, first-time buyers could get an equity loan of between 15% and 30% on the cost of a newly built property, repaying the loan when the property is sold.

This loan is co-funded by the government and the developer.

Similar equity loan schemes are not available in Wales, Scotland or Northern Ireland.

Shared equity schemes, where purchasers deal directly with developers, are available across the UK, but throughout the recession these deals have become more and more scarce.

"There were 60,000 new build completions last year compared with 175,000 in 2007. That's a huge drop," says Mr Boulger.

"And that won't change much this year. Shared equity deals with developers were widely available at the beginning of 2009, but not so much now."

Plan ahead

So, if the average age of first-time buyers who buy without the Bank of Mum and Dad is approaching 40, what does that mean for repayment terms on any mortgage?

"Most lenders will want you to have repaid before retirement age, so those getting on the ladder before 40 still have until 65," says David Hollingsworth.

"But after that, lenders will want to know how you will be able to pay, so a lot of people in that older age group will have to put in a lot of thought."

But whatever happens, having a plan is vital.

"Some will say 'I'll just get on the ladder now somehow, whilst interest rates are lower, and make overpayments later. My career might take off or I could inherit money'," he says.

"But like those who opted to do this in the boom years, by getting interest only mortgages with no plan on how to pay the rest off, they will see tougher times ahead."

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