Since the global financial crisis hit in 2008, 100% mortgages have been very much off the menu. Now, however, Barclays has become the first major bank to bring them back.
While this will give hope to first-time buyers across the UK, who will be able to acquire a three-year fixed rate deal at 2.99% without stumping up any of their own money, the new 100% mortgage isn’t quite all that it seems. Buyers will still need help from the Bank of Mum and Dad to get onto the property ladder.
Barclays has revamped its Family Springboard Mortgage, taking away the need for first-time buyers or those moving home to put down any cash in advance.
Up until now, buyers have been required to give the bank at least a 5% cash deposit based on the purchase price of the home they are looking to buy.
Although the mortgage is being advertised as deposit-free, buyers will still need a “helper” to place money into a Barclays savings account equalling 10% of the house purchase price. This will need to be held there for three years.
Parents will receive their money back, as well as any interest accumulated, assuming that their child has kept up with mortgage repayments in the time in between.
100% mortgages were shelved in the wake of the 2008 crash, with Barclays and other lenders criticised for irresponsible lending. In fact, Barclays was very close to having to be bailed out by the government at this time.
But now, with the economy more stable and some people struggling to cobble together a deposit, Barclays has taken a step that others may soon follow.
It is, though, a 100% mortgage with a caveat, which should help to swerve any of the dangerous and irresponsible lending that helped lead to global financial meltdown eight years ago.
It’s not the same as the old 100% mortgages because of the money parents or 'helpers' must place into the savings account as a security measure.
The risk is much less because of the financial security provided by the Bank of Mum and Dad.
All of this comes at a time when it’s been revealed that the Bank of Mum and Dad is now the UK’s tenth biggest mortgage lender.
Research by Legal & General has shown that the Bank of Mum and Dad will be involved in a quarter of all property transactions taking place in 2016.
Parents eager to help their adult children onto the property ladder are now equivalent to a £5 billion mortgage lender, with 300,000 deposits this year relying on support from the Bank of Mum and Dad.
Throughout the whole of this year, parents and family are predicted to be part of approximately £77 billion worth of property transactions.
The average contribution, the findings revealed, will be £17,500, while more than three-quarters of property purchases will reach completion thanks to assistance from the Bank of Mum and Dad.
It’s not just parents helping their offspring, though. Grandparents are increasingly getting in on the act, too, with 22,500 house purchases relying on financial support from Nan and Grandad’s up and down the country, while a further 27,000 mortgages will be part-funded by other relatives, friends or loved ones.
Legal & General’s research said that, of the donations given by the Bank of Mum and Dad, 57% are gifts, 18% are loans with no interest and 5% are loans with interest.
With the Bank of Mum and Dad now becoming one of the UK’s biggest lenders, and the new 100% Barclays mortgage also relying on parental help, it looks likely that the trend for parents helping their offspring to fly the nest will be around for a little while yet.