First Time Buyers: How To Boost Your Mortgage Deposit and Borrowing Power

Buying a first home in the UK is more challenging than ever. House prices have rocketed while the average income among 25-34 year-olds has stagnated by comparison. 

The considerable mortgage affordability gap means an entire generation of young adults are quite simply finding themselves priced out of the market, with a whopping 71 per cent of millennials worrying that they may never be able to afford their own home.

But there are some exciting new first-time buyer mortgage products available in 2022 that enable family members or friends to give their loved ones a helping hand onto the property ladder. 

The problems first time buyers face in 2022

The most recent figures show that the average house price in England stands at £349,234 with a much lower rise in income, which is comparatively stagnant.

• Accounting for inflation, house prices have risen by close to 160% since the mid-90s
• Young peoples' incomes have only increased by 23% 
• The average age of a first time buyer in the UK is 34 years old - 6 years older than the average age in 2007, which was 28

When the average house price is 7.5x a first time buyer's income and you can only typically borrow 4.5x your income, young people are turning to their parents to bridge the gap.

Help For First Time Buyers

If you're a would-be first time buyer or a loved one looking to help out, two new options should be considered.

Most families face a problem when trying to help their loved ones with a house deposit because they're asset rich but cash poor. 

This means that their wealth is tied up in their property or other assets, and they don't have large sums of cash readily available in savings accounts that they can gift to their children towards a deposit.

But, instead of downsizing to free up equity, drawing down from your taxable pension or selling investments to raise cash, the following options make for great alternatives:

• A Mortgage Deposit Boost -  A way for a family member or friends to unlock money from their property to help their loved one get on the property ladder with a gifted deposit.

• A Mortgage Income Boost - A way for a family member or friend to allocate some of their income to their loved one’s mortgage application to increase the buyer’s borrowing potential.

In this guide:

What is a Deposit Boost loan?
Eligibility
Pros and cons

What is an Income Boost loan?
Eligibility 
Pros and cons 

How are these mortgage products different from other first time buyer options?
Help To Buy Equity Loan
Shared Ownership Scheme
Guarantor Mortgage

How a specialist mortgage broker can help you find the right first time buyer mortgage

What is a mortgage deposit boost loan for first time buyers?

It's a way to help first time buyers raise a deposit from scratch or increase the deposit they have already saved.

A parent or a family friend can arrange a small mortgage on their home and gift it as a deposit which doesn’t need to be repaid until the property is sold, the homeowner dies or goes into care.

A specialist mortgage broker will work with you to oversee the whole process, from applying on behalf of the gifter to then helping the first time borrower to access the cheapest mortgage deal.

As the parent or person gifting the deposit, it’s important to note that the Deposit Boost loan will be in your name, so the legal obligation to make monthly payments sits with you.

However, for many first time buyers, their rent is more expensive than their new mortgage payments and the Deposit Boost payments combined, so some families will come to an arrangement whereby the buyer pays the Booster back each month.

Eligibility for a Deposit Boost Loan 

Deposit boost loans are a great way to help a loved one raise the deposit they need on a first time buyer's mortgage. However, there are eligibility criteria you’ll need to meet. 

• You own your own home and have paid off at least 50% of your mortgage
• Your property is in the UK (excluding the Channel Islands or the Isle of Man)
• You want to unlock at least £10,000
• You have a good credit history
• You have sufficient income through pension, investments or employment to show a Deposit Boost is affordable for

The Pros of a Deposit Boost loan

• Having a larger deposit can unlock the most affordable mortgage deal for a first time buyer. This could save thousands of pounds on interest payments vs the alternative - the average Deposit Boost customer saves £14,000 in interest charges alone.

• The Deposit Boost is a flexible solution for those wishing to help a loved one with three options to choose from. You can opt for low interest only payments or capital and interest depending on your situation. Terms can stretch from 2 years to a lifetime, and the variety of options provides flexibility to do what’s suitable for your situation.

• Gifting a loved one a sum of money to get on the property ladder not only helps them but it could also have inheritance tax benefits for the gifter. You can seek advice from a tax advisor to consider this benefit further.

Things to bear in mind with a Deposit Boost loan:

• As the Deposit Boost loan is a mortgage product, the 'booster' will need to pass a credit check and prove affordability when applying. If the Booster is overcommitted with existing borrowing and outgoings, or their income isn’t sufficient, they may not be eligible for a Deposit Boost loan.

• To be eligible for a Deposit Boost loan, you need to have either paid off your mortgage or have less than 60% remaining. Lenders won't offer second or third charge mortgages, so the best option would be a standard remortgage if you have an existing mortgage.

• There is a risk of repossession if monthly payments are not paid as with any loan. However, your mortgage broker is there to ensure the Deposit Boost loan is affordable for you according to stringent affordability checks.

What is an Income Boost loan for first time buyers?

It’s common for lenders to offer in the region of 4-5x a buyer’s household income. But when the average house price in the UK equates to around 7.5x a first time buyer's income, there is a considerable affordability gap. The Income Boost loan is a way for a parent or close friend to allocate some or all of their income to a first time buyer's mortgage application without any ownership.

It's important to understand that you’ll be named a joint borrower, meaning you’re liable for the mortgage repayments, but you will have no ownership of the property. This means there’s no stamp duty implication for you.

Everyone on the mortgage agrees with the mortgage lender that:

• It can take their income into account when deciding how big a mortgage to offer

• They all share the responsibility to pay the mortgage if the homeowner can’t

A specialist mortgage broker can advise you on how much of your income needs to be applied to a buyer's mortgage and on the right product to create the Income Boost needed. As part of the service, your mortgage broker can then go on to arrange an affordable mortgage for the first time buyer you're helping.

They can also access a wide range of specialist lenders and will be able to source the most competitive first time buyer mortgage deal for your loved one.

Eligibility for an Income Boost Loan

Income Boost mortgage loans are an excellent option for people looking to help their loved ones and have a steady income. As with all mortgage products, there are eligibility criteria you’ll need to meet to qualify:

• You are a family member (in some circumstances, a lender will consider a friend as eligible)
• You have a UK income and bank account
• You have a good credit history
• You have sufficient income through pension, investments or employment to show an Income Boost loan is affordable for you. 

The pros of an Income Boost Loan

• Boosting your homebuyer’s mortgage income could mean they can afford to buy a property sooner and with less deposit.

• Unlike a Deposit Boost loan, where there is a separate mortgage against the Booster’s property, with an Income Boost loan, the lender doesn’t take security against the Booster’s home.

• The booster doesn’t own the homebuyer’s property as a joint borrower, and their names aren’t on the deeds. This could be beneficial concerning stamp duty or capital gains tax in particular.

• An Income Boost is intended to temporarily support buyers as they are getting onto the property ladder. The Booster could come off the mortgage when the buyer's circumstances change (i.e. they get a salary increase).

Things to bear in mind with an Income Boost Loan

• All those named on an Income Boost mortgage application are jointly liable for the monthly mortgage payments. If monthly mortgage payments are missed, this will affect the credit history of all those named on the mortgage application.

• The upper age limit for when an Income Boost mortgage needs to be repaid is 75 years old, with a few lenders extending to 80 years in some instances. If the mortgage is to be repaid over 25 years, the Booster needs to be 50-55 or younger.

• Because no funds are being gifted, there is no inheritance tax benefit to using an Income Boost loan.

How are Deposit Boost and Income Boost mortgages different from other first time buyer options?

Suppose you're looking for an affordable mortgage as a first time buyer, or you're a parent wanting to help a loved one get their foot on the property ladder. In that case, you may be considering several products and schemes that are available:

The government Help to Buy scheme

Help to Buy is a government-backed scheme that aims to help first-time buyers by providing a loan of up to 20% (40% within Greater London) of the home, so the purchaser only needs to raise a 5% deposit, with a 75% mortgage (55% within Greater London) making up the rest.

It sounds attractive, but there are some significant downsides. The scheme is only available on the purchase of a new build property, and you have to be able to afford the mortgage repayments for the value of the entire property. However, the biggest sting in the tail is that after the initial five year period, you will be charged an annual fee of 1.75% on the amount of the outstanding loan, a fee that will increase each year with inflation. And the amount you have to repay is not fixed to the original amount you borrow. If the house you buy value increases (which is very likely), the size of the loan you have to repay will reflect this.

Shared Ownership scheme

Shared ownership, also known as 'part-buy part-rent, gives first time buyers an option to buy a share of a new build property. A mortgage is offered on the share you can afford to own (usually between 25-75%), with rent paid on the rest. The deposit required for this type of mortgage is much lower than a standard mortgage as it is based on the share you are buying, not the whole value of the property.

You can be eligible for this scheme if your household income is less than £80,000, and you can choose to increase your share in the property over time if your income increases, known as 'staircasing'.

The limitations of this scheme include having to ask permission if you ever want to make changes or improvements to the property, sometimes being liable for communal maintenance charges, and a stamp duty charge on the full value of the property if your share reaches or exceeds 80%. And if you ever decide you want to sell the property, there are often limitations on who is allowed to buy it so a quick sale can be complex.

Guarantor Mortgage

A guarantor mortgage or 'family assisted mortgage' is where a parent or family member puts up cash or property as security. The guarantor does not own a share in the property but will sign a legal agreement to cover the mortgage repayments should the borrower fail to keep up with them.

This can be a risky option for the guarantor, liable for the first-time buyer’s entire mortgage. But of more concern is that interest rates on this type of mortgage tend to ve very high.

How a specialist mortgage broker can help you find the right first time buyer mortgage

There is a wide range of mortgage products available to both first time buyers and those who want to help them. That's why it is best to seek the advice of a specialist mortgage broker who has extensive knowledge and understanding of all the options which are most likely to suit your circumstances.

Here at Clifton Private Finance, our professional team of brokers will be happy to discuss your situation and talk you through the range of products we have access to, including Deposit Boost and Income Boost loans.

And for more FTB mortgage options, as well as other ways to get a bigger mortgage, read this: What Mortgage Can I Get - Our Top 7 Ways of Borrowing More

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