11 September 2017
The Cambridge have provided us with a market update on Guarantor Mortgages and some research behind why these are important for not only first time buyers but home movers too.
“BoMad” is the ninth biggest lender in the UK
The Bank of Mum and Dad “BoMad” helps to finance 26% of all UK property transactions(1), equivalent to being the ninth biggest lender. This year 62% of prospective buyers under the age of 35 have sought help through the form of loans and gifts from family and friends to purchase a home - a considerable 30% increase from last year(2).
A split in fortunes between the so called Generation Y, Z and Millennials in comparison to the baby boomers has increased rapidly since the recession in 2008. Younger generations have seen economic challenges impacting life stages, from starting a family(3) to the need to save up to 18% of income for a satisfactory retirement(4). This has resulted in a falling rate of home ownership, largely embodied by the difficulties of saving for a deposit to purchase a home. With two thirds of UK wealth sitting in property, it’s easy to see the potential upside of utilising the assets accumulated by BoMad and the baby boomer generation.
The future for our younger borrowers
Research suggests home ownership could fall 7% between 2015 and 2025 impacting mostly people aged 18-34 years. The proportion of the funds released from equity in property to provide financial support to family is insignificant in comparison to the approximately 60% of equity released for use in property renovations(5).
There are high barriers to entry for prospective home buyers into the UK property market and there have been attempts from the Government to curtail falling home ownership. However these can only go some way to assist the issues caused by the investment attractiveness of property, the short supply in the housing market and the growing UK population.
What can we do about it?
Guarantor mortgages provide a practical solution. In a nutshell a guarantor mortgage can transfer the credit obligation of the mortgage liability onto a guarantor, making them contractually obligated to meet any shortfall should the borrower fall behind on their monthly payments.
The core type of Guarantor mortgage is a servicing guarantor. This is where the guarantor’s income is used to support a lending decision and the guarantor will be liable to pay if the borrower defaults.
At The Cambridge, they feel passionate about helping their customers finance the purchase of a home. They understand the pressures exerted on first time buyers and home movers and that’s why they offer a great guarantor mortgage proposition. Unlike most lenders their proposition is supported by not excluding by age or employment status (employed or self-employed) and they have also recently increased their lending term to improve affordability.
So give their intermediary team a call to find out more about their guarantor mortgage range or visit them online.
The Cambridge Building Society is a regional lender – products are available for lending within the following counties: Cambridgeshire, Norfolk, Suffolk, Essex, Hertfordshire, Buckinghamshire, Bedfordshire and Northamptonshire
In addition to this Cambridge have also improved their lending criteria as follows:
Simplified their affordability calculation as follow:
And in case you missed it last week they have increased the maximum loan to £525,000 on their new 90% LTV mortgages.