Broadening access to family support
Broadening access to family support
It’s no secret; first-time buyers with family support are at a huge advantage when trying to get onto the property ladder. According to Savills, 46% of first-time buyers in 2022 had support getting onto the property ladder. In 2023, this figure is predicted to be 63%.
There is a well-established divide between those who have family support and those who do not. But how pronounced is this difference, and what are its implications?
By the numbers
Family support isn’t just helping them onto the ladder earlier than those without – 4 years earlier to be exact2 – but it’s enabling them to borrow more money, buy bigger homes and keep their own costs lower.
On average, aspiring owners with family support have two and a half times the deposit of a first-time buyer without support, which helps them afford more because they don’t need to borrow as much to get to their desired property price. Typically they buy properties worth £15,000 more and borrow 30% less.
And the benefits don’t stop there. Because they are borrowing less from their mortgage lender, they usually have lower monthly payments and shorter mortgage terms, which means they can pay off their mortgages sooner and pay less in interest overall.
The advantage isn’t just for the initial step onto the property ladder, it continues with them throughout their entire homeownership journey.
The housing market is in desperate need of reform
It’s easy to feel negatively about buyers with family support. It can seem like they’re benefiting unfairly from an advantage reserved for the privileged few. But this divide is no one’s fault – it exists out of necessity, and developed in response to the housing crisis itself.
The housing market is deeply broken. Over the past 30 years, house prices can seem to have grown exponentially in certain parts of the country, whilst wages have remained relatively stagnant, making it very difficult for buyers to afford to buy.
There are several reasons for this massive growth in house prices.
For a long time, the demand for housing has massively outweighed supply, putting upwards pressure on house prices. This pressure has been sustained because of the availability of cheap credit, numerous cash buyers and buyers with family support.
So, house prices are so high that most people need family support to buy. But family support, in part, also keeps prices high.
A similarly dysfunctional rental market has compounded the problem. Rental prices have soared over the past 10 years because of the low availability of (affordable) housing. Londoners spend, on average, 35% of their monthly net income on rent.
This has made it much harder for people to save for a deposit, making it even more difficult to buy.
The problems in the housing market are bigger than the first-time buyers using family support to cope with a broken system.
Yet that doesn’t stop the injustice and inequality that arises from the fact that homeownership is becoming less of a possibility for people whose family can’t give large amounts of money towards their deposit.
Short of systemic and sweeping governmental intervention to both reform the rental market, create hundreds of thousands of new housing units, and manage the economic transition to more affordable house prices, we need a new way to make homeownership accessible to more people – today.
Everyone should have the opportunity to own a home
There are a few schemes, like Help to Buy loans, Help to Buy ISAs and Shared Ownership setups that the government has implemented to help support first-time buyers – but the positive impact of these programs is debatable.
And we don’t think they go far enough to fundamentally challenge how people can purchase and own homes.
As a result, we’re constantly looking for ways to solve the three main hurdles buyers face in getting onto the property ladder: affordability, deposit and bad credit.
The challenges of affordability and deposit are related; sometimes you can solve one by increasing the other. For example, if your income is not enough to allow you to borrow the amount you need, increasing your deposit can help. Or if you have a higher income which allows you to borrow more, you may not need as large a deposit to afford the home you want (though you’ll still need some deposit – most lenders require at least 5% of the property price).
Family support has entered the market to solve the deposit challenge, but in its current form, it’s a solution limited to people with well-off family members. So we worked out a way for family members to provide support which doesn’t require a big up-front lump sum to gift or any monthly contributions, solving for affordability (and thus deposit) challenges.
They’re called income boosters. They’re a bit like another kind of mortgage currently in the market called Joint Borrower Sole Proprietor (JBSP) mortgages. But they have a few important features that can mean they work better for more people.
Access to family support doesn’t need to require a lump sum of cash
What if family didn’t have to contribute to the monthly payments?
An income booster is a close family member (parent, grandparent, uncle, step-sibling, etc.) who goes onto the mortgage with you to boost what you can borrow. They’re subject to all the same affordability and eligibility checks as you would be as an owner.
By adding their salary to your application, we can include them in our full income and expenditure assessments. This typically means that the overall income on the mortgage application is higher, which allows you to responsibly borrow more and potentially afford a home sooner.
But boosters don’t go on the property deeds, so there’s no added stamp duty penalty, and they can choose to make monthly contributions to the mortgage payments – or not. They’re liable for the mortgage payments if the owners are unable to pay, but as long as your payments are up to date, boosters don’t have to contribute a penny.
Broadening access to family support helps more people on the ladder
Why does this matter? Because now, access to family support doesn’t need to require a lump sum of cash like has long been the norm.
It’s not a panacea, but one of many solutions that could help aspiring buyers onto the property ladder.
At Gen H, we’re not (yet) in a position to make house prices cheaper and increase supply. But we’re taking the steps we can today to help as many people buy as possible.
*subject to affordability and eligibility criteria
**our minimum mortgage term is 5 years
Disclaimer: Income boosters are jointly and severally liable for the mortgage. The mortgage will appear on their credit file and could affect their ability to get other credit. All income boosters are required to have independent legal advice to discuss the risks involved. If you stop paying your mortgage, you could lose your home. Your broker or your Gen H mortgage advisor will talk through all of the important details with you if you apply.
