Barclays New Bank of Mum Dad Mortgage

Barclays New Bank of Mum Dad Mortgage.

Barclays Bank has launched a new 100% loan to value mortgage deal for first time buyers.

Given that 100% loan to value mortgages were thought to be a thing of the past and part of the proximate cause for ‘toxic’ lending and the credit crunch, how is this possible?  Even the Financial Conduct Authority is not keen on lenders dealing on the 100% LTV market.

Solution

Barclays is playing on the old ‘guarantor’ mortgage idea with a twist.  Before, parents or others could act as guarantors on the mortgage of indeed make the property purchase deposit as a gift.

Today, this has now changed.

This new 100% LTV mortgage will involve parents becoming mortgage ‘helpers’ by parents investing the equivalent of 10% of the value of the house i.e. the 100% mortgage amount in a Barclays deposit account and your child gets a 100% LTV mortgage.

Instead of becoming a guarantor to the mortgage where you are liable for your child’s mortgage if they do not pay it and indeed, your income is checked for suitability and affordability, the new approach means you can get your savings back.

The positive side:  provided your child keeps up their mortgage payments, you will receive 10% “deposit” back in 3 years with interest.  Your child will have secured a mortgage in their own right and demonstrated that they could afford it.

The downside?  If they do not pay, of course your savings are at risk.

Comment

Many parents are pained to see their children paying high rents when a mortgage could be much cheaper. i.e. they are already paying those household bills already but have no deposit and parents may be reluctant to make a gift.  So this innovation is a good thing, although of course there is still some risk and indeed tax to pay on interest received.  Barclays also suggest that the usual mortgage affordability stress tests will be made on children taking on a mortgage as normal to ensure they can afford to meet repayments, not just today, but also if interest rates increase.