Using seconds to access the Bank of Mum and Dad

The average deposit put down by a first-time buyer has soared by 54% over the last 10 years, according to the professional services platform Stipendium.

The analysis found that the typical person taking their first step onto the property ladder now puts down an average of £45,569, compared with £23,625 10 years ago – and the size of deposit has increased by 40% in the past five years alone.

According to the research, this increase in the size of first-time buyer deposits is not just a consequence of increasing house prices, but also a result of buyers raising the deposit they put down from 17% of the property’s value to 20%.

The ONS says that, in 2021, the average UK salary was £38,131 for a full-time role, so how are so many first-time buyers able to put down a deposit that is more than the average annual salary before tax?

The answer for many is that they are being helped by the Bank of Mum and Dad.

A survey by YouGov carried out this March found just 41% of homebuyers say they did not receive any help from their parents.

The average age of a first-time buyer is now 34, which means the parents of first-time buyers are likely to be in their late 50s or 60s. Many people in this age group have benefitted from years of property price increases and are likely to have significant equity in their homes.

Some may choose to downsize as they approach retirement, providing their children with a lump sum from the sale proceeds, but many decide to stay in their home and provide a helping hand onto the property ladder by releasing equity.

Remortgaging the whole balance may prove a challenge for some older borrowers, if it means extending the term of the entire balance, and a growing number of parents are choosing to give their children access to the Bank of Mum of Dad with a second charge mortgage.

There are many advantages to this approach. Releasing equity with a second charge mortgage is fast, flexible and it means homeowners can keep their current mortgage in place.

It’s an option that’s worth discussing with your customers who want to help their offspring onto the property ladder.

So, if you are working with first-time buyers who need to raise a deposit and are lucky enough to receive help from their parents, think about using seconds to access the Bank of Mum and Dad.

Caroline Mirakian is sales director, second charge mortgages, Pepper Money

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