This blog post was written by the mortgage experts at Tembo.

Tembo is an award-winning, digital broker whose mission is to help first time buyers, movers and remortgagers bridge the mortgage affordability gap. So they can discover their true buying budget and make home happen.

If you are thinking about buying a place of your own and you’ve used a Mortgage Calculator, you might have been disappointed by how much you can afford with a standard mortgage. Today, the reality for a lot of first time buyers is that they cannot afford to get on the property ladder.

This is because over the last five decades, house prices have skyrocketed, while wages have stayed stagnant. In March 2021, the average UK house cost 65 times more than in January 1970. While over the same time period, average weekly wages are only 35 times higher than in 1970. And house price growth hasn’t slowed in recent years; prices rose by almost 10% over the last year alone.

What this means is that young adults today are facing an affordability crisis, as the gap between what they can afford to borrow for a mortgage, and what a house would cost them grows.

This is where family support comes in.

The state of play of family wealth in the UK

In the UK a lot of wealth, particularly property wealth, is held predominantly in the hands of older generations. Over 55s own 63% of property wealth in the UK, despite only representing 31% of the population. In contrast, 16-34 year olds only own 3%, but represent 25% of the population.

This has worsened in recent years, as the pandemic has benefited those who already own property through reduced spending and rising house prices, while there was a 40% rise in financial vulnerability amongst those aged 18-24 in 2020.

What this means is that older generations who are homeowners have benefited from their properties rising in value, as well as benefits such as final salary pension schemes. in comparison, younger generations have been squeezed out of the property market, as well as contending with increased spending from rising rents and the cost of living crisis.

However, there is a silver lining. This places many parents, grandparents, uncles and aunts in a position to help the younger members of their family get on the ladder. By helping first time buyers get a place of their own, families can spread their wealth across multiple generations and help young people overcome the affordability gap.

But for many families, money is a tricky subject to bring up. You may be feeling resistant about using the Bank of Mum and Dad to get on the ladder. There is a certain stigma attached to getting help from your parents, but the reality is over half of first time buyers require help from their family to buy. In fact, According to Legal & General’s survey in 2020, 71% of those asked said they couldn’t have bought a home without family financial support. If they had, they would have had to delay buying by an average of 4 years.

You may be thinking “but, my parents don’t have the cash to help me”, or that the Bank of Mum and Dad is only for the very wealthy. But in fact, here are various ways that family members can help first-time buyers boost their buying power without needing lumps of cash in the bank.

We’ve outlined below some of the innovative ways you can leverage family wealth. If you are interested in finding out which of the below schemes you could be eligible for, talk to Tembo. Tembo specialises in helping buyers find the right family supported mortgage or buying scheme for them, so they can get a place of their own sooner.

Deposit Boost

Do you have parents, grandparents or even an older sibling who owns their own property? Then they could help you get your first home, without having cash savings to hand. Through a Deposit Boost, your loved one will unlock money from their own using a small mortgage. This money is then gifted to you, either to bolster your existing house fund or to be used as your entire deposit if you haven’t got any money saved up. You’ll then use this deposit in your mortgage application.

With a larger house deposit, you can access better mortgage deals with lower interest rates, which means your mortgage payments will be less. On average, a Deposit Boost saved our users £17,000 in interest over a 5-year term. That’s money that would otherwise go straight from your pocket to your lender or bank.

There’s also benefits for your parents too. As the funds from the Deposit Boost are legally gifted, you can use it to pass on early inheritance, which reduces your parents’ inheritance tax liability. We always recommend that you seek professional advice when it comes to tax.

Deposit Loan

For some families, whether it’s the parents or the children, they can feel uncomfortable about the prospect of gifting money. It could be you have a loved one who wants to help, but would like to use it as an opportunity to buy together. Or your parents might feel more comfortable about investing in a property with you, as opposed to gifting you a house deposit through a standard Deposit Boost. Maybe you feel uncomfortable at the idea of a hand-out, and want to feel more independent.

If this is the case, a Deposit Loan could be the solution. Instead of your loved one gifting you a deposit, like with a Deposit Boost, they will contribute a lump sum to your deposit in return for a stake in your home. With a larger deposit with the help of your loved one’s contribution, you can access better mortgage deals with lower interest rates, or purchase a larger property.

The Deposit Loan can either be a simple loan, which is returned to your loved one in the future, or as an equity loan where their stake changes in line with the property’s value.

Income Boost

Another way that your loved ones can help you get on the ladder without having cash savings is through an Income Boost mortgage. Also known as a Joint Borrower Sole Proprietor mortgage, this is a way to increase the amount you can borrow by adding some or all of a family member’s income to your mortgage application.

By combining up to four income sources, an Income Boost can significantly increase your borrowing power. In fact, our average Boost users have increased their buying budget by £82,000! So you could buy your dream home, or move to your dream location.

As your loved one isn’t on the deeds, they will have no ownership over the property. But if you cannot make the monthly repayments, they will be required to step in to help. This also means there’s no stamp duty liability, so you can still keep your first time buyer benefits.

You can use an Income Boost as a temporary support, so when your circumstances change (for example, if you get a pay rise), you can take your loved one off the mortgage. This can be a great solution if your parents have multiple children they want to support into home ownership - once they are removed from your mortgage as a Booster, they can be added to your sibling’s application to give them a leg up too.

Dynamic Income Boost

If you have a loved one who’d like to support you in getting your first home, but want something in return, they can be added to a mortgage with you through a Dynamic Income Boost. Their income will be taken into account when your mortgage affordability is calculated, helping increase how much you can borrow. But unlike a standard Income Boost, they’ll help pay the mortgage payments in return for equity in your home.

This is a form of co-ownership that allows family members to build up equity in a property together, without having to all live under the same roof. How much each person contributes to the mortgage is tracked over time through the home agreement. So when it comes to selling the property, it is clear how much each person’s stake in the property is, making it easy to split the equity fairly.

Savings as security

If your family does have cash savings and want to help you become a homeowner, they could offer their savings as security for the mortgage. This works by your loved one depositing 10% of the property value in a special savings account with the lender, which is then held for a set number of years (usually five). At the end of the term, your loved one gets their savings back, plus interest.

If you miss any mortgage repayments, your family member’s savings will be used by the lender to cover the cost. This is why the savings are classed as security, as it makes you a less risky borrower in the lender's eyes because your loved one’s savings are used as a backup. As long as you make your repayments each month, your loved one will get all of their savings back plus any accrued interest.

What if I don’t have family who can support me buying a home?

If you haven’t got a loved one who can support your mortgage application or help boost your house fund, don’t worry! There are plenty of innovative schemes out there to boost your borrowing potential. Tembo has helped thousands of first-time buyers and movers to discover how they could buy their dream home.

One option is a private equity loan, which allows you to boost your budget by up to £150,000 through an additional loan taken out against the equity in your new home. This works in a similar way to the government’s old Help To Buy scheme, whereby the lender provides you with the additional capital you need in return for a stake in your property. Because you’ll be putting down a larger deposit, you can either increase the value of the property you want to buy or access better mortgage interest rates with a larger down payment.

If you earn over £37,000 or work in a professional role such as a doctor, nurse or lawyer, you could also go for a Professional Mortgage or 5.5x Income Mortgage. With standard mortgages, lenders typically allow you to borrow between 4-4.5 times your income. With one of these enhanced borrowing options, you could borrow up to 5.5 times your income instead, significantly increasing the amount you can get for a mortgage. Maybe even afford your dream forever home you’ve saved on Nokkel.

Another option is a Part Buy, Part Rent scheme, which gives you the chance to buy a share in a home then pay rent on the rest. Over time, you can “staircase” your way up to full ownership by buying more of the home as you can afford it. This can be a great solution for purchasing a home that would be out of your budget through a standard mortgage, or buy in a popular area.

Saved your dream home on Nokkel, but wondering how you can afford it? If you’ve read through the schemes above, but you’re unsure which is right for you. Tembo can help.

Through their smart technology, you can discover which of these family lending or specialist buying schemes you’re eligible for in under 10-minutes. Create a free Tembo plan to find out how you could boost your buying budget.