Parent-guarantor mortgages on the rise

The Bank of Mum and Dad is shifting its priorities and evolving with the mortgage market. Almost one-quarter of all parents planning to help their children buy their first property would act as guarantors for their children in order to get them onto the housing ladder, a new survey has revealed.
The survey, which was conducted by Family Investments, found that 24 per cent of parents plan to help their children get onto the housing ladder by acting as guarantor, compared to two-thirds of those who plan to just give their children the money outright.

Earlier research from Lloyds TSB has indicated how the so-called Bank of Mum and Dad is evolving. It is no longer simply a case of parents chipping in with a cash loan to help their first-time-buyer children – now two-fifths of those taking their second step on the property ladder are turning back to their parents for financial assistance. The Family Investments survey shows that this evolution also includes parents putting the equity in their own homes on the line too, rather than simply handing over the cash.

The report also found that more detailed knowledge of guarantor mortgages was low among the 53 per cent who had heard of them – when asked a series of true or false questions about the characteristics, just under half of respondents were able to correctly identify the right answer every time.

Of the 529 parents who responded, only four noted that they had received support in the form of a guarantor mortgage from their own parents. This is especially significant and highlights the change happening in today’s mortgage market, where first time buyers can only get high LTV mortgages with some form of additional guarantee.

The Family Investments research also highlighted just how important the Bank of Mum and Dad is as a lender in the current climate. Of the non-homeowners questioned over a third are planning to buy, and nearly a third of these expect their own parents to help in securing a mortgage.

Kate Moore, Head of Savings and Investments at Family Investments, commented: “It’s obviously becoming increasingly difficult for young adults to get onto the property ladder.  As it becomes harder for young people to save enough for a deposit on their first home, parents are having to consider other ways of supporting their children into the future.