There is a lender in Epson called “The Family Building Society”. They offer a series of options for a someone looking to get a mortgage for the first time. The idea being that younger people are struggling to afford the deposit for a mortgage. This was a lender that really pushed this idea of not being able to put together a deposit for a home and used it as a unique selling point. And unfortunately it is not a niche market anymore. Particularly in London and the South-East, where even 10% deposits can be close to £50,000. With the rates of pay for the average person this sum of money is just unimaginable. What has become common is that the Bank of Mum and Dad has come into play. They will lend a young person or couple the money for deposit with the angle that they will get the money back.
A lot of lenders have jumped on this bandwagon and realised there is an opportunity here. They will offer a scheme for the bank of mum and dad (BOMAD). This offer goes like this: They will hold the “deposit” for the BOMAD and after a certain set period of paid mortgage payments will get their money back. So as long as the people who get the mortgage pay each month, the BOMAD will get their money back. It is a great system, and for those who want to help their family with a deposit can ensure that the money will be safe. It also helps those Mums and Dads, that cannot possible afford to lose that money, that money might be for their retirement, so a sort of safe box, where they are guaranteed their money.
Some lenders have now taken this a step further and it is being referred to as the family mortgage. It maybe that BOMAD cannot front up that initial hit of £50,000 or whatever the deposit may be. There is a solution for this, and that is to offer the scheme up to multiple donations , the family mortgage. This means that many people can contribute to the deposit to accumulate to what is needed. For example if you are a young couple looking to raise £50,000 for a deposit, you could ask your Mum and Dad, Granny and Grandpa, Auntie and Uncles all to contribute. The lender will set up multiple accounts for each of the contributions and hold them just as they would a single amount.
It really is just another opportunity for people to be able to get a little bit of their foot onto the ladder. What is worrying is that a lender has seen this opportunity in the market. That a generation of people are having to rely on the wealth of those before them. What does this mean for the economic impact. And it is always to do with house prices and wages. Both need to increase mutually and evenly. Though wages are increasing it has not been enough and with the housing market recovering it means that they are at the moment affordable for a lot of couples. Meaning different ways for people to own houses need to arise. And maybe the family mortgage is a good step forward?
Please make sure you speak to someone you trust and understands, when using one of these schemes. The point of a deposit is that it is a down payment on the house. If the lender is holding that money until a certain period of time. It needs to be questioned, how much of the home you actually own!