Across the board mortgage product rates have continued to nudge lower. The trend seems to have stopped in the past few weeks – is this the lowest they will reach? Weaker than expected growth in the UK economy and projections that inflation will remain lower for longer have once again pushed back the prospects of a rate rise, with many economists ruling out a change this year, and some predicting that there may be no move until the end of 2017, or beyond.
The Bank of Mum and Dad has been featuring in the UK news recently and we have witnessed the same trend in Jersey – parents have always helped their children with a contribution towards a deposit, or to cover the cost of legal fees etc. During the past three years this trend has increased significantly, with over 30% of First Time Buyer transactions being supported by some form of family gift.
The source of these “gifted” funds is varied and we have seen them come from savings accounts; by way of equity release from family-owned property; from pension plans, where up to 30% of a pension may be withdrawn before normal maturity; from the sale of a car or a work of art; from a personal loan. In some cases the gifts have been provided at great sacrifice, so keen are the donors to help.
Sadly this is creating a large gap between well-heeled buyers and those having to stand on their own feet without any help, or preferring not to take any handouts from family. In these cases the creation of a fund to cover the minimum 10% deposit and also the fees to cover the cost of purchase is a daunting prospect, with many sacrifices having to be made.
100% mortgages are available, although the take up on these has been surprisingly slow since their introduction over six years ago. Perhaps the need to have a property-owning parent or close relative acting as a guarantor is a disincentive, or possibly the high interest rates that start at 5.24%.
Before the recession, borrowers had access to more lenders than we now have and several of these offered a keenly priced 95% mortgage, which really helped the market. We will only see a return to this type of mortgage when prices start to rise again, so giving lenders the comfort that they need before releasing such a product.
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