Mates Mortgages: Get “buy” with a little help from your friends?
Priced out of the market and unable to find the funds for large deposits, first time buyers are being encouraged to pool their resources with friends to get themselves on the first rung of the property ladder.
At the second first time buyer summit, Housing Minister, Grant Shapp unveiled his latest plans to help this struggling market. Group, or “mates”, mortgages will allow individuals to make a joint mortgage application. The proposal, however, has been met with scepticism from industry experts.
Shapp has been criticised for the scheme’s lack of ingenuity and it is being described as an “old idea recycled”¹. NatWest Intermediary Solutions has “accepted mortgage applications from up to four applicants for many years […] this is not a new phenomenon.”²
But the proposal’s unoriginality is not the only reason for industry scorn: others point out the pitfalls of entering into such a financial commitment with friends. After all, living with friends is not the bed of roses the famous 1990’s sitcom of the same name comically depicts.
Melanie Bien, Director at Private Finance, voices her doubts over the plans:
“There are so many potential pitfalls, such as people falling out or someone wanting to go off and get married, so I am not convinced that this is the answer to the first-time buyer problem. Mortgages should be taken with a long term view.”²
Perhaps if house prices were rising the scheme could have legs; friends buy together with the aim to sell a year or so later at a notable profit thus giving them the finances to fund a solo property venture. However, while house prices increased by 1.2 per cent in June, experts are still expecting house prices to fall again (around 5 per cent by mid-2012).
The biggest problem facing first time buyers is the sizable deposit required. The FirstBuy scheme, where first time buyers require only a 5 per cent deposit (the rest is covered by a 20 per cent equity loan), whilst facing other criticisms would appear a much more tangible option.
Content correct at time of publication