Barratt offers loans to parents of FTBs
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Barratt Developments has teamed up with Hitachi Capital (UK) to offer parents’ of first-time buyers unsecured loans of up to £50,000 to use as a deposit for an 80% LTV mortgage.
Under the Hitachi Capital loan scheme, the typical buyer will only need to raise a deposit of 5%.
The remaining 15% of the purchase price can be met through an unsecured loan from Hitachi Capital (UK) to the buyer’s parents or legal guardian.
The unsecured loans of up to £50,000 are for 12 years at a fixed rate of 5.4%.
There are no early repayment charges and unlimited overpayments are allowed at any time without penalty.
Mark Clare, chief executive of Barratt Developments, says: “We are excited about this tie-up with Hitachi Capital (UK) because it gives parents a low-risk way to reduce the size of the deposit their children have to raise to buy a home.
“This product is ideal for parents who have sufficient income to service a loan but no available capital. Or people who have capital which is tied up and which they do not want to access in the short term.
He adds: “We know that there is enormous demand for home ownership among people under the age of 40 who are currently renting and this product will make it easier for them to take that all-important first step on the ladder.”
Parents or guardians who wish to assist their children with a home purchase from any of the three Barratt Developments brands – Barratt Homes, David Wilson Homes and Ward Homes - will be eligible for the loans. Applicants must be UK residents, home owners and have a good credit history.
Gerald Grimes, managing director of Hitachi Capital (UK), says: “For 28 years we have been funding purchases on the high street and it is fantastic to be able to partner with Barratt to drive the UK housing market and provide a solution for buyers.
“Ten years ago first-time buyers had to raise around £10,000 for a deposit. Today that figure is closer to £30,000 and in some parts of the country £50,000, and therefore it is no great surprise that this vital aspect of the housing market is weak. Barratt loan gives parents an affordable option to support families getting on the housing ladder without dipping into hard earned savings.”
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Readers' comments (40)
Ketan - Avenue & Co Private Finance | 12 Jan 2011 11:46 am
..surely this is a dangerous strategy for all borrowers in transaction? its effectively 100% lending and in a falling market, the risks are very high, as are the loan rates.
In addition, we are not certain lenders will be happy with a loan as a source of deposit, especially in current market with tighter lending crietria all round. This offer may be a simple non starter for all lenders.
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Dan | 12 Jan 2011 11:53 am
Oh sweet baby Jesus and all the orphans!!! Whatever next?
How did the FSA screw up the mortgage market so badly that this is the only viable option for first time buyers?
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Rob Roberts | 12 Jan 2011 12:00 pm
It's not 100% lending at all, as the loan will be for the parents to provide the deposit for the child, the actual mortgage and liability for the child will only be 80% (or whatever).
The source of deposit will not be a loan, it will be parental gift, which is acceptable to virtually all lenders with the caveat that it is non-refundable and the parents have no claim of the property.
It sounds like an excellent idea and an innovation that the FTB sector is crying out for. Obviously the loan to the parents will need to be underwritten carefully, but that's not really our concern. It should enable more FTB's to get a foot on the ladder and I applaud the approach of the Barratt Group and Hitachi for at least trying to do something instead of just moaning about the state of the industry. Kudos to you.
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Ben | 12 Jan 2011 12:01 pm
but as long as it is a non-refundable gift from parent to child it is the same as parents gifting from capital they already have - so lenders shouldn't have an issue with it
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Slicker | 12 Jan 2011 12:10 pm
OMGG!!!!!! It will all end in tears i think!!!
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Anonymous | 12 Jan 2011 12:18 pm
How about cutting your overinflated prices Barratt then we wouldn't need your rip off loans!
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Steven Balmer | 12 Jan 2011 12:19 pm
Any parent willing to borrow £50k for their child to get on the property ladder will undoubtedly be happy to sign a letter saying the deposit is coming as a gift. This is why it is not in the Childs name, to ensure lenders are in a tricky position to refuse. Can't really say the app's are having to repay the loan if the parents say otherwise. Well done, great product to re-test and stress the integrity of applicants and anyone willing to support them. Cant blame the loan company from trying to be innovative and cant even blame Barratts for trying to stay in business. FSA has led us down this path and with MMR most will continue to spiral downwards.
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Anonymous | 12 Jan 2011 12:20 pm
What a great idea, it is my view that any parent or guardian would love to be able to help their children get on the property ladder, but have been unable to release equity from their own homes as a deposit due to housing prices, as would of been previously done, and 5.4% is far more competitive than any personal loan deals available currently. It is thinking like this that will re-generate our stagnent property market. keep it coming.
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Steve | 12 Jan 2011 12:24 pm
Where there's a problem, there's nearly always a solution. Hats off to you for at least trying to come up with something different. We have to move the housing market some how.
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Anonymous | 12 Jan 2011 12:25 pm
Ketan read it again and try to understand it.
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