Second time buyers struggle without help from the Bank of Mum and Dad
PUBLISHED: 15:23 27 June 2017 | UPDATED: 15:23 27 June 2017
Parents and grandparents face years of lending as second steppers borrow almost as much as first time buyers
One in three people looking to move on from their first home will rely on the Bank of Mum and Dad in order to afford a mortgage on their second home according to new figures from Lloyds Bank.
On average 32 per cent of those intending to move up the ladder intend to borrow £21,231 from friends and family, with 35 per cent saying they would be unable to move without the help.
At the same time, one in four couples refrain from starting a family until they have sold their first property as mortgages extend into the third age.
Reliance on BOMAD to stump up the cash for a deposit and mortgage is nothing new, with half of respondents to Lloyds survey requiring financial help of on average £21,512 to afford the deposit on their first home.
However, with a price difference of £126,000 between first and second homes, the average equity of £105,068 made from the sale leaves so-called second steppers with a deficit of 17 per cent. Therefore, in order to climb the rungs of the ladder and afford a mortgage, second steppers have to borrow £21,231, almost as much again to move upwards, with one in four looking to borrow over £20,000.
Grandparents are not exempt from handout requests, with 9 per cent lending money to their grandchildren, 17 per cent being sourced from BOMAD, and 6 per cent loaned from friends. A
lmost half of those borrowing believed that their parents had made financial sacrifices to help them.
Andy Mason, mortgage director at Lloyds Bank, commented: “Parental support continues to play a vital role in helping young people to get on the property ladder. However, it is clear that despite improved conditions for this part of the housing market, Second Steppers will still rely on the ‘Bank of Mum and Dad’, with hard-pressed parents being once again called on for financial help. Without this extra financial support, Second Steppers believe that they wouldn’t be able to make the next move on the property ladder for some time.
“However, it is encouraging to see many Second Steppers planning ahead by overpaying their mortgage and making bigger contributions into savings accounts to prepare for when the perfect home becomes available.”
41 per cent of second steppers have been overpaying their mortgage to build up more equity and reducing the overall interest payable, with 34 per cent increasing savings.
Three fifths are actively saving since moving into their first home. When it comes to deposits, 63 per cent will use the money made from the sale of their current home, whilst one in five will turn to their savings.
The financial burden of climbing the property ladder is putting homeowners off starting a family until later in life, with 23 per cent saying they will have children later than they thought and over one in ten likely to have fewer children than planned. Over half of respondents said climbing the ladder had no impact on their personal circumstances, but one in ten said they will or have already changed career as a result.
With major life decisions being left until later in life and average first time buyers clocking in at 32 years old according to Lloyds, mortgages are likely to extend long into later life. Many aspiring homeowners are taking out longer mortgages in order to pay less per month.
However, with more interest payable over time, those with mortgages of thirty years plus are left vulnerable to interest rate fluctuation, and reliant on pension savings to pay it off. Low interest rates have aimed to woo first time buyers to the market as house prices have stalled and many younger people prefer to rent.
What’s stopping you?
Second steppers were asked what proved the biggest bollard in delaying the sale of their home:
Not finding the right property: 32%
Lack of affordable properties: 24%
Stamp duty: 24%
Interest rates 22%
For first time sellers, the main issues were:
Size of deposit needed: 29%
Tighter lending criteria: 28%
Potential interest rate changes: 28%
Low supply of family sized properties on the market: 27%
Concerns over the economy: 26%
Cost of moving: 25%
Will you have to borrow from friends or famlily to buy your second step on the property ladder? Or are you a parent having to help your children out? We want to hear your side of the story. Get in touch via firstname.lastname@example.org or tweet us @HamHighProperty